Many of us will need NZ Superannuation for our basic living costs in retirement. But will it be there when you retire? Claire Connell asks the hard questions.
There’s so much talk about KiwiSaver these days that it’s easy to forget that many Kiwis will also get New Zealand Superannuation payments when they reach 65.
But living costs have gone up, we’re living longer, and we’re retired for longer. That means that most of us will need more money to make up the shortfall between NZ Super and our expenses.
The amount and conditions of NZ Super are decided by the government, after recommendations made by the Retirement Commissioner every three years.
So, what will NZ Super look like when you reach the pension age? And if you receive it already, will you still be eligible? There has been some speculation – and none of it’s good for the over-65s.
There have been rumours that NZ Super might have to be ‘means-tested’, so you might not be eligible for it if you’re deemed to be rich enough already.
There’s been ongoing debate about whether the age when you’re eligible to receive it should go up.
In fact, many politicians and policymakers believe the government just can’t afford to offer it in its current form any more.
So, will NZ Super change in the future?
We need more research
Superannuation researcher Michael Littlewood, former co-director of the Retirement Policy and Research Centre at the University of Auckland, doesn’t expect any big changes to it in the short term. We’re just not ready, he says.
He calls NZ Super “the best Tier 1 scheme in the world” but says, “we got here by accident, not by design”.
Littlewood says before anyone decides on policy changes to NZ Super, there needs to be extensive, longitudinal research, and evidence. He says this is lacking.
Surveys cover what Kiwis think about retirement and money but, Littlewood says it’s not all about what people think. “I want to know what they’re doing. We simply do not know what’s happening in households.”
Littlewood says we have very little information about how Kiwis transition from late working life into retirement life.
“And unless we know that, we can’t make any decisions on either the state pension age or on any other parts of NZ Super’s design.”
NZ Super and the future
Both the coalition government and the National Party oppose means-testing.
Minister of Social Development Carmel Sepuloni says the coalition government is also committed to maintaining NZ Super at age 65.
But National MP Amy Adams says National supports the age gradually rising to 67 over a period of 20 years, in six-month increments from 2037 until 2040.
“Life expectancy has changed hugely since the superannuation age was first set,” she says.
“The reality is some people are living a quarter of their life on superannuation. We think the time is right to reflect the changing way we live our lives – longer life expectancy and working longer.”
National also wants to increase how long Kiwis have to be living in New Zealand before they qualify for NZ Super.
Should we increase the qualifying age?
Dr Claire Matthews, a specialist in retirement expenditure at Massey Business School, thinks the age of eligibility for NZ Super should go up.
“I know there are arguments that we can continue to afford NZ Super as it is, and I’m not going to argue that we can’t. I just think that even if we can, we can do better things with that money.”
Both the health sector, which is very important to older Kiwis, and the education sector need more funding, she says.
“Being 65 today is not what 65 was in the past. We tend to be, on average, healthier and fitter for longer, and continuing to work. And we are having a much longer retirement.
“Yes, maybe we can afford NZ Super, but is that the best use of our money?”
When it comes to means-testing, experts we spoke to either don’t agree with the idea, or say that, while it’s nice in theory, it’s just not practical to implement it.
Some people live off NZ Super
Dr Matthews says you can live off the amount that NZ Super brings in fortnightly – in fact, people often write to her, to tell her that they manage on it.
“But it’s going to be a fairly basic lifestyle,” she adds.
They would “absolutely” have to have a mortgage-free house, live a relatively simple lifestyle, save by growing their own food, and would probably live in the provinces, she says.
Bridge the gap
Unless you fit those criteria, it’s likely that you’ll need more money than NZ Super pays you to live when you retire.
So, get saving now. Financial advisers say early planning is key. Start early, even if it’s just putting away small amounts.
Dr Matthews says the main reason it’s good to have extra money on top of NZ Super, is that it gives you choices.
Few of us could afford to pay fully for our own retirements, but you can make life in the future easier by using money from your KiwiSaver account, or other investments.
How much is NZ Super?
If you’re single, live alone, or with a dependent child, you could receive a maximum of NZ$801.74 (after tax) a fortnight.
If you’re part of a couple, and you both meet the criteria for NZ Super, you could each receive a maximum of NZ$616.72 (after tax) a fortnight.
If you choose to include your partner in your payments, it might affect how much you get.
It’s best to contact the Ministry of Social Development at least one month before your 65th birthday, so you don’t miss out on any payments.
NZ Super payments aren’t backdated, so get in touch early to organise your money.
Source: Ministry of Social Development
Published 28 February 2019
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.
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