At present in NZ, all eligible people (NZ Residents who meet the criteria), are entitled to receive a universal income from the age of 65. This is regardless of whether they are male or female, how much they have earned during their lives, whether they still earn an income, whether they have millions of dollars of assets or nothing.
The income is adjusted each year on the 1st April and rises with the increase in the average wage. There is a different rate if you are single and living alone, or if you are half of a couple where both of you are entitled. The current rates are available at http://www.workandincome.govt.nz/individuals/65-years-or-older/superannuation/superannuation-overview.html
Ever since I have been working in the financial services industry in New Zealand (since the mid 1980's) there has been discussion about whether the NZ Superannuation income is sustainable in the future. As our population ages, more people will be 'retired' or 'over 65' and eligible for the payment, and less people will be working, to produce the tax income to the Government to 'fund' this payment.
There are a number of ways of 'targetting' the income that people receive in retirement. NZ is the only country in the western world that I am aware of where there is no reduction in income as a result of how much income and assets you have (means and asset testing). Over the years, various governments have attempted to deal with this problem, from Jenny Shipleys 'superannuation surcharge' (means testing), to Michael Cullens 'NZ Superannuation Fund' (designed to put funds away for the future to underpin the anticipated payments.
Today, no contributions are being made to the 'Cullen fund'. There is no means or asset testing, and every person is eligible for the NZ Superannuation income.
In recent years, a call has gone out to increase the age of eligibility for NZ Superannuation. This was part of Labour's election platform at the last election. Nearly every other country in the world has bitten the bullet and started the process of increasing the age of eligibility - many targetting age 70 - phased in over a number of years.
But in NZ - our current Prime Minister - John Key has stated that - despite advice from his advisers (Retirement Commissioner, Treasury) - he will resign rather than see the age of eligibility increased while he is PM.
Fortunately - it seems, the NZ public is more realistic. www.interest.co.nz, has just published the results of their latest readers survey on the topic. 40% of respondents agree that the age of eligibility should increase.
This is heartening news. It is great to see that some NZ'ers are listening and thinking (and hopefully not all people currently aged 67 or older!).
The alternative is some kind of 'asset and means testing' in the future. And what signal does that send to people who are setting aside funds now, in KiwiSaver, in other investments?
The other more palatable alternative that circles around the edges of discussions, is changing the 'inflation' linking from being linked to the average wage increase, to being linked to the increase in inflation - or even removing it altogether in the future. This would slowly reduce the outgoings, and give NZ Superannuitants time to adjust.
Whatever happens, something has to happen. There will always be a role for a safety net income for New Zealanders who are unable to save, but the current trajectory is unsustainable.
If you have any thoughts or opinions that you would like to share, visit us at our Twitter, Facebook or Linked In pages, and comment.
For more blog entries that you might be interested in:
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How does your thinking affect your financial success?
By Carey Church
