Flexible NZ Super options could make it more affordable

Flexible alternatives to getting superannuation at 65 could make the scheme more affordable while maintaining the universal entitlement.

A report commissioned by Chartered Accountants Australia and New Zealand (CA ANZ) indicates a flexible choice of when people can start receiving NZ Super could improve affordability and preserve universality.

“When surveyed, nearly all our New Zealand members were concerned about the country’s ability to pay for NZ Superannuation in the future,” CA ANZ New Zealand country head Peter Vial said.

“The longer we wait to address the rising cost of NZ Super, the fewer options future governments and New Zealanders will have.”

The New Zealand Institute of Economic Research (NZIER) modelling, commissioned by CA ANZ, highlight the benefits of flexible NZ Super uptake where eligible super annuitants could voluntarily delay uptake and in return receive an increased lifetime rate of NZ Super.

“The debate is too often reduced to a single question about raising the age. But our modelling shows that simply raising eligibility to 67, or later, does not substantially reduce the long-term cost of NZ Super – it just shifts the impact further out,” Vial said.

The modelling suggests spreading the uptake over the first five years of eligibility reduced the cost of NZ Super compared with the current Treasury projection.

“NZ Super currently costs the country $26.5 billion each year and Treasury has forecast that this cost will increase to $72.8b by 2048, which will be unsustainable,” Vial said.

“However, enabling the flexible uptake of NZ Super could give people more options while maintaining universality – the concept where it’s available to everyone. It needs to be part of the bigger conversation.”

For example, the modelling indicates that if 40 per cent of eligible people delayed uptake, annual NZ Super expenditure in 2048 could be around $7.5b – or 10.4 percent less than the $72.8b Treasury estimates NZ Super will cost in its current form.

CA ANZ Tax and Financial Services Leader John Cuthbertson FCA said the flexible uptake model must work alongside a range of policy changes to make NZ Super more affordable.

“A flexible uptake is not a complete policy fix, but it broadens the conversation beyond simply increasing the age or introducing means testing,” Cuthbertson said.

“It would need to form part of a wider package including indexing NZ Super to consumer prices rather than wages, and stronger incentives for New Zealanders to build their own retirement savings.

“A current issue is that as our economy grows – so too does the cost of NZ Super.

“We could address that by indexing NZ Super to the consumer price index – so recipients still get increases that cover the cost of goods. That way, as our economy grows, NZ Super becomes more affordable.”

Cuthbertson said tax incentives could be used to increase private savings.

“We like the option of salary sacrifice, where employee KiwiSaver contributions are made from pre-tax rather than post-tax income.” he said.

“This would put more dollars into savers accounts. Allowing salary sacrifice up to a set annual limit – for example $3,000 – would have a cost to the Government coffers, but it is worth considering as a practical way to lift private savings over the medium term.

“No single change will be enough. But a combination of flexible NZ Super uptake, more sustainable indexation and stronger private savings could make a meaningful difference while keeping NZ Super available to everyone.”