Journal article

Reforms to New Zealand Superannuation eligibility: Are they a good idea?

14 Aug 2017

The National-led government of Prime Minister Bill English recently announced changes to the eligibility rules for receipt of New Zealand Superannuation (NZS). In 2037 the age from which New Zealand residents become eligible to receive NZS will begin to rise – by six months each year – from the current age of 65 to reach 67 by July 2040. Residency requirements will also rise, to 20 years from ten (five of which must be after age 50). This is a dramatic change for the new PM, who had been part of the previous Cabinet under Prime Minister John Key which, since 2008, steadfastly refused to consider changing the eligibility conditions for NZS. Treasury projected that without such changes the fiscal costs of NZS would rise from 4.8% of GDP in 2015 to 6.3% in 2030, reaching 7.9% by 2060 (Treasury, 2016). This article addresses two key NZS policy-relevant questions. Is it sensible to raise the age of eligibility? And is the timing – delaying adjustments until 2037- 40 – appropriate? Initial public debate on both these questions has focused on two aspects. First, is raising the age to 67 consistent with intergenerational equity? Second, by delaying the changes for another 20 years, has ‘the horse already bolted’? That is, does the future fiscal affordability of NZS require more urgent change?

In summary, the ‘NZS ageing’ horse hasn’t bolted. Persistent population ageing will require continued scrutiny (and probably upward adjustment) of the age of NZS receipt. But, by delaying a decision to 2017, with implementation from 2037, recent New Zealand governments have bequeathed to future governments an imminent, rapidly growing fiscal commitment for NZS payments. This will undoubtedly lead to more difficult trade-offs over the next 10–20 years over how far taxes should rise to pay for this increased fiscal burden, and how far to compromise on other public spending objectives potentially impacting disproportionately on those under age 67. However, both retired and working individuals over this period will be likely to face the consequences of those choices. Inevitably there is no single ‘best choice’ here. Decisions of whether and when to raise the age of NZS eligibility involve several interpersonal and intergenerational tradeoffs where preferences and value judgements legitimately vary across individuals.

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