Retirement, NZS and all that

How the years fly by.  My youngest child headed off to high school for the first time this morning.  Only five years of the school system to go.

But it was the other end of the age spectrum I wanted to write about today, in particular the recent report of the Retirement Commissioner (in this case the interim one), reviewing –  as required by law to do  –  retirement income policies.    Very conveniently for a government going into an election with the key party (Labour) campaigning against (its own previous policy, not that many years ago) any idea of raising the age of eligibility for New Zealand Superannuation, the Interim Retirement Commissioner has come out in support of that conclusion.  Apparently, according to Mr Cordtz, the age that was chosen in 1898 –  when the new age pension was hard to get –  is still appropriate into the indefinite future now when (a) health standards are so much better, (b) most jobs are less physically demanding, and (c) the benefit is universal.   Take a look at theterms of reference for this latest review and it looks as though the government was looking to the Commissioner to steer away from any suggestion that raising the NZS age might be a good idea.  So they will be pleased –  not so much by the substance of the report (there isn’t much there) as by the headlines, which are all most will see.

I’ve never been persuaded that taxpayers get any real value out of having a Retirement Commissioner, or the supporting staff in the “Commission for Financial Capability”. That has been so whether or not, from time to time, I might have agreed or disagreed with particular suggestions they were making.    It is a classic make-work bureaucracy, costing quite a bit of money, serving no useful purpose, and typically run by people with no particular relevant expertise, other (presumably) than appealing to the government of the day.  That was true of the previous troubled Retirement Commissioner (who seemed to know about marketing), the current Interim Retirement Commissioner appointed by the current government who seems to know quite a bit about rugby league, and also of the incoming commissioner Jane Wrightson, whose expertise seems to consist in getting a succession of small government chief executive roles.   The money spent on this body could almost certainly be more effectively spent…..almost anywhere in government (health, educations, statistics, whatever).  And at very least it is time to rethink whether we really need a triennial report on these issues (as I noted in a previous post, Parliament should also revisit the current statutory requirement for a Long-Term Fiscal Statement every four years).

But if one is going to write about a report one should actually read it.  Perhaps the low point of the entire document was the Interim Retirement Commissioner’s opening statement.   It was headed “Forward”, but I have to assume he really meant “Foreword” –  especially as he ends his comments  with a pithy quote

“I walk backwards in the future, with my eyes fixed on the past”

that seems singularly inapt when even the government’s terms of reference asked the Commissioner to focus on the future.

Much of the “Forward” reads like something a zealous 22 year old might have written, but which his or her boss would have sent back for a rewrite.  The Retirement Commissioner had no boss, no Board (for example) to which he was accountable.

And so we read

In approaching this review as Interim Retirement Commissioner, I have of course brought my own views and experience to bear, which are naturally different to those of previous commissioners – and no doubt, of future ones also. I come with perhaps less direct experience of the inner workings of government or of the financial sector than some previous commissioners, but believe I have brought a more hands-on view of how a diverse array of lower income and vulnerable New Zealanders experience material hardship.

So, he’ll be out of the job again in a few weeks, knows little or nothing about the policy issues, but he has apparently had a bit to do with poor people.

Then we get a rant about how in his view differing average life expectancies  of Maori and other New Zealanders is somehow a breach of the Treaty of Waitangi.  Err, but…

But I am also aware it is not the role of the Retirement Commissioner to make
findings about breaches of the Treaty, and accordingly my recommendations focus on improving the system for all New Zealanders.

Might have been better to skip the rant then.

Then we get a little essay (“A Note on Language”) about how uncomfortable he is with the term “retirement”, but is constrained by the Act and has to use it to some extent.     It seems never to have occurred to him that an age benefit might originally have had in mind people who were doing exactly that –  retiring –  generally because they had got to the point where it was physically difficult to work.   The fact that “retirement” might not describe the experience now of many 65 year olds should probably be a hint that we shouldn’t be paying a universal welfare benefit to everyone at 65.  But Mr Cordtz shows signs of being keen on a UBI, so I guess that thought didn’t cross his mind.

Then we are told that “NZ is good value”, and with a dig at his predecessors, Corditz claims to offer “a more nuanced point of view” than they did –  this despite earlier suggesting himself that he limited expertise in this area.   He quotes a net fiscal cost of NZS, and then a few lines later goes on to claim that there is a significant offset to the NZS cost because NZS recipients pay tax on their NZS (hint: that is how you get to net numbers).

The benefits abound apparently

NZS also enables many NZ Superannuitants to undertake unpaid, voluntary work in their community. This is a huge contribution relied on in many communities and which should be accounted for in considering the costs and benefits of NZS.

Well, no doubt, except that as he noted lots of people  in their late 60s are still in paid work, and more would be if the NZS age was raised.  There are benefits in paid work too, including in the additional tax revenue.  And the relevant debate isn’t whether we should have an NZS but whether it should be all-but universal at 65, even as life expectancy has increased a lot.   And there is no hint from the Interim Retirement Commissioner that he recognises that NZs universal at 65 also helps to pay for more than a few European holidays in New Zealand winters (probably quite a few good quality European cars as well).

I”m pretty sure that not once in the report did I see any mention of the trend in so many other OECD countries to raise the age of public pension eligibility beyond 65.  And while there are repeated references to how NZS lifts the material living standards of quite a few people who transition onto it (NZS is paid at higher rate, and with fewer conditions, than other benefits), this is presented as a good thing, rather than as incidental feature of a universal system.  You get the impression that Mr Cordtz would be a champion of higher benefits all round.

Now, I’m not suggesting that are no useful –  if unoriginal  –  lines in the report.  Ruinous land use and housing policies are making things ever harder for a ever-larger proportion of the population, including now the newly-old. But it isn’t as if the Retirement Commissioner has anything useful to add to debate around the best policies in that area, other than more roles for government.   And there is little or no rigour in what is there. The report touches on growing life expectancy, but offers nothing on (for example) ideas for sharing the gains of life expectancy increases by progressively (but not necessarily fully) raising the state pension age.   And it barely mentions at all issues around the easy eligibility for NZS of people who haven’t spent much of their working lives in New Zealand (whether migrants or New Zealanders working –  and paying taxes –  abroad).

And, as it happens, I don’t totally disagree with Mr Cordtz that fiscal considerations alone do not compel us to change our NZS policy.  We could afford to keep the system as it is.  But we shouldn’t do so.   Here was the last few paragraphs of a post on these issues late last year

As for NZS itself, personally I’m not overly interested in arguing the case for reform on fiscal grounds but on a rather more moral ground.    Even if we could afford it, even if there were no productive costs from the deadweight costs of the associated taxes, there just seems something wrong to me in providing a universal liveable income to every person aged 65 or over (subject only to undemanding residence requirements).    45 per cent of those 65-69 are now in the labour force –  suggesting they are physically able to work –  which is substantially greater than the 30 per cent of those aged 60-64 who were in the labour force 30 years ago when NZS eligibility was at age 60.

I don’t consider myself a welfare hardliner.  I think society should treat quite generously those genuinely unable to work, especially those who find themselves in that position unforeseeably.  Old age isn’t one of those (unforeseeable) conditions, but personally, I have no particular problem with something like the current flat rate of NZS, or even of indexing it to wage movements (which would be likely to happen over time anytime, whether it was the formal mechanism from year to year), from some age where we can generally agree a large proportion of the population might not be able to hold down much of a job.  I don’t have a problem with not being overly demanding in tests for those finding work increasingly physically difficult beyond, say, 60.   But what is right or fair about a universal flat rate paid – by the rest of the population – to a group where almost half are working anyway?  It is why I would favour raising the NZS age to, say, 68 now (in pretty short order) and then indexing the age in line with further improvements in life expectancy, and I’d favour that approach even if long-term fiscal forecasts showed large surpluses for decades to come.    At the margin, I’d reinforce that policy change with a provision that you have to have lived in New Zealand for 30 years after age 20 to be eligible for full NZS (a pro-rated payment for people with, say, between 10 and 30 years of actual residence).  Why?  Because in general you should only be expected to be supported by the people of New Zealand, unconditionally, in your old age, if most of your adult life was spent as part of this society.

Reasonable people can, of course, debate these suggestions.  But they are where I think the debate should be –  about what sort of society we should be, what sort of mix between self-reliance and public provision there should be, even about what mix of family support and public support there should be, or what (if any) stigma should attach to be funded by the taxpayer in old age –  not, mostly, about long-term fiscal forecasts.

And it doesn’t seem as though the Retirement Commissioner –  interim or otherwise –  has much to add to those inherently political, even moral, debates.   The latest report seemed particularly poor, but I guess it (those headlines) will have been welcomed in the Beehive.

In truth, the Treasury’s Long-Term Fiscal Statement –  due, I think, in March –  is also not likely to add much new, but it is at least likely to be a bit more rigorous.  And if there is an opening comment from the chief executive, the title is more likely to be Foreword.


26 thoughts on “Retirement, NZS and all that

    • To be honest, currently aged 59 and paying approx. $70k in taxes per annum, I do feel it is fair that I start to get back some of that retirement super at age 65 even if I am still working. It helps reduce some of my tax burden so that I can boost my own personal savings. I certainly would feel aggrieved if that age entitlement gets pushed out to 67.


  1. You could do it, but it would tend to discourage people from continuing to work, which we seem to run contrary to either public or private interest.

    I don’t think means-testing (of which such a surtax is one sample) is likely to prove politically tenable – didn’t when it was last tried. Sure, it saves paying pensions to the really rich – for whom NZS is a trivial amount anyway, and there aren’t many “really rich” – but it creates huge resentment among the middle income people. One of the good things about our system, in my view, is that it provides a fairly low basic income, and then leaves people free to save or work for their own better provision.

    That said, if one could recreate a culture of a reluctance to take money from the state, including filial duties etc, means-testing would be viable. But i don’t see a credible path from here to there.


  2. NZ Herald business news has an article today with the headline “”Experts question wisdom of keeping NZ Super at 65″” which supports your case. Dr Claire Matthews, a retirement policy expert at Massey University who is reported as saying “”Could these funds be put to a better use such as funding healthcare in that age-group?””.
    I have a friend in her seventies who started life in extreme poverty in Hong Kong but who by hard work and a good brain achieved a successful career in Hong Kong and then Australia and New Zealand. She is fairly wealthy and presumably receives NZ Super since she has been here many decades. For the last few years she has had ever increasing pain in her knee and was put on a wait list for knee surgery early last year. She is still waiting but now cannot get up the stairs to the top half of her house and is unable to maintain her house and garden. She is on the strongest pain-killers her doctor can prescribe. Her situation is doubly aggravating since she has ferocious energy. Last week she was contemplating paying for the surgery but it will cost over $20,000 and she is still receiving letters promising a meeting with a medical expert in a few months. I do not know what decision she will make but I do know that anyone in her situation would happily trade Super for prompt healthcare.


    • If she falls down then ACC will fund the operation under immediate urgency. I have found a strange bias in hospitals. If you are under ACC you are treated with special care and utmost urgency. If you come under social welfare they tell you to wait in queue for another 6 months.


    • Yes, meant to link to that article.

      I guess your friend at least has the option of using the “bonus” NZS money to have an operation privately. Many don’t, and I guess that is your wider point.


    • Relief from severe pain and being effectively in ‘home detention’ should not be a matter of wealth.

      My mother went through the same issue 30 years ago in Scotland; my parents had been employed all their lives, paid their national isurance stamps and income tax but when her hip began to disintegrate she was reluctantly obliged to pay (12,500 UKP) for a private hip replacement because the NHS queue for the operation was over two years.

      As I said my friend can decide but most NZ pensioners simply could not afford it.


      • It appears wealth does have something to do with it

        From Wikipedia
        In 2007, North Shore Hospital repeatedly reported 100% occupancy rates and difficulties in finding enough staff. This is alleged to be partly due to North Shore City’s affluence, with the catchment area having some of the highest average incomes in New Zealand, as well as scoring high on other social indicators. As the District Health Board funding scheme distributes money based on these indicators, it has been claimed that it receives much less funding per population served than hospitals in other areas of the country


      • Depends on how you look at it

        A retired grey-hair, active in sport, believing it would provide a state of health that would endure into retirement. Based on that expectation I never took out private health insurance thinking that if I needed surgery I had saved $1,000 per year over the last 30 years. Then 6 years had an accident where almost broke an ankle. Hospital x-rays showed no breaks or fracture. Six months later my ankle was still swollen, much pain, great difficulty walking. Something was wrong. GP referred me to an orthopaedic surgeon who examined the hospital digital pictures and found a couple of fragments of bone and mashed cartilage. Surgeon booked me into a private hospital. Two hour operation. Took out the bone fragments and cartilage. Total cost $3,000 plus theatre fees of about $500. Figure I’m still ahead on the costs ledger.

        I figure your friend is well in front


      • Whitecloud, I recall my ex wife going for a appendix removal. That cost $3,000 for a 30 minute procedure and that was 30 years ago in a private clinic. Your operation clearly comes under ACC. The entire procedure is more than likely free under ACC in an accident. I think you have been charged on the extras only for that low price.


  3. The problem is expressed wrongly. It is not “Should everyone in the future expect to receive Super at 65?” but “On average how many years of Super should anyone expect?”. Life expectancy is ever varying so just decide on say fifteen years and adjust the qualifying date accordingly. This would still be generous compared to most who have received it since 1898.


    • Note that the biggest difference between 1898 and now is not that life expectancy at 65 is much longer but that most people get to 65 at all. But, yes, I would favour indexing the eligibility age to improvements in life expectancy.


  4. Companies are bound by financial limits and the requirement to make a return on capital.

    We should also demand and expect of our government of the people by the people, that governments themselves legislate themselves to be bound to make decisions based on improving total welfare/capita through social cost benefit analysis.

    Government spending should not be politically driven lolly scrambles.

    The retirement commissioners report could have then been based on an assessment of the total welfare/capita provided by having the retirement age at 65 vs that provided by current spending (& marginal increase/decrease) in other government sectors.


    • The problem is getting an honest analysis. Jacinda Ardern lies just about every time she opens her mouth and calls that factual honesty. 7 economists including journalists like Bernard Hickey lied about how accurate Labours Election numbers were in the previous election and deliberately lied that Steven Joyce’s $11.7 billion hole in Labours budgeting was impossibly wrong..


  5. The first thing any govt official needs to know is a Maori proverb. Show them you’re a member of the converted. A Woke Zealander.


  6. It would be appropriate for any report on funding older people to consider not only the costs of national super but also the costs of medical treatment for them. Presumably as more are living longer, and medical interventions are becoming increasingly sophisticated the ‘costs’ of older people are increasing. This is a transfer of wealth from the current workforce to the previous workforce.
    The moral question is; where are our priorities, our young or our old?


    • Life expectancy is roughly 82 and medical advances mean a typical person has roughly 6 months of intense medical care usually just before they die. There are two issues not one. The way I survived a heart attack and my wife survived cancer is not age related but it did have everything to do with medical advances; a couple of decades ago we would likely have been dead and treatment short and cheap. My wife being under retirement age is now back working. So lets keep these issues separate. In fact I could argue that it is the willingness of so many New Zealanders to work past 65 and pay taxes on their income that helps pay for the medical treatment they need later.

      So is national super a transfer from young to old? On balance I think it is; I would like to see a return to a generous universal child benefit and if it meant to pay for it my Super was reduced to say the UK level and my wife’s started a few years later as in most OECD countries then we would accept it despite in impacting our lives. As you say a moral question and for us priority is to the young.

      Medical advances means more survive so during our life time we need far more money spent on us. In practise most health problems occur at end of life so this is a transfer of wealth from young to old. So the moral question you are asking is should there be a lower level of treatment for the elderly and I’m certainly against that.

      Financing Super is an obligation for the govt that they cannot avoid but could with sense over political advantage adjust to lower expenditure. Similarly paying for the medical costs of the elderly is an obligation but it is one too easily side-stepped by increasing wait lists, failing to build hospitals and train medical staff to match population growth, failing to fund drugs that other developed countries use and simply failing to realise the extra demand that will be incurred since those who have survived heart attacks and breast cancer are likely to live long enough to get further expensive to treat ailments.


  7. To begin with – National Superannuation is taxed at source – then, it can reasonably be assumed, most pensioners spend all or most of their pension on both essentials and discretionary stuff, all of which incurs GST. Don’t know what the primary tax rate is, but you can assume that pensioners are paying approximately 30% of their superannuation in Primary Tax plus GST. The government needs it

    Some Reading

    Super History: Understanding recent changes

    The many changes superannuation has weathered over the past two decades are examined in the third part of our series on the history of superannuation in New Zealand

    Liked by 1 person

  8. National Super has a lot going for it. Its universality means it is simple and relatively cheap to administer. Its cost is comparable with other OECD countries as a proportion of GDP and it is sustainable in the longer term. New Zealanders have opted politically for an extensive safety net for the young, the sick, the unemployed and the aged for nearly a century. The real problem today is our low wage economy arising from our low per capita productivity, as you have ably pointed out Michael on many occasions, which in turn has been aggravated by excessive low-skilled immigration. It is mind-boggling to consider our population has increased by over 25% in just 20 years, mainly through immigration. I don’t think the elderly were to blame for this.

    Liked by 1 person

    • The cost is $15 billion a year to fund the over 65s. Unfortunately you need a tax pool of younger migrants to pay for it.


      • There is a debate to be had on whether low-skilled migrants actually consume more in terms of services, infrastructure and welfare than they contribute.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s