Journal article

Flexi-super - not really such a great idea

28 Feb 2014
Description

This article is an abridged version of an IGPS working paper of the same title published October 2013. The working paper was commenced earlier in the year, but completion became timely after the government put out a discussion document outlining the Flexi-Super concept and invited submissions. Accordingly, this is not a response to the discussion document per se, but rather a holistic review of the policy option of letting people select starting dates for New Zealand Superannuation (NZS).

Conceptual basis for New Zealand superannuation

Behind the idea that individuals can have a choice about the age at which their New Zealand Superannuation commences is the notion that NZS is an individual entitlement: a pot of money, if you will. This is unambiguously wrong. The object of NZS, simply put, is to ensure that all New Zealand residents above a certain age (currently 65) have sufficient income to be able to participate in society, to at least a certain minimum acceptable extent. The level of NZS is therefore intentionally above that which might be considered necessary to alleviate poverty, certainly in the sense of destitution.

Behind this policy lies an egalitarian solidarity which requires a minimum equal income to be provided to each and every older New Zealander as of right.3 It takes the form of an income stream, expressed in statute. A change in statute can change the income, and indeed this has happened at different times in the past. A change can be challenged politically, but it cannot be challenged legally because there is no property right; that is, there is no entitlement enforceable in a court of law.

Some countries do offer flexibility of eligibility age and a consequent adjustment in pension payments. However, most of these, such as Sweden, feature an individual pension entitlement based on individual contributions. Only Ireland is like New Zealand in having a level universal pension regardless of paid employment history, and Ireland offers no flexibility.
The United Kingdom is moving towards a flat-rate pension (operating alongside a voluntary but strongly tax- favoured private pension system), and has a deferral arrangement which permits any pension not taken to be accumulated and paid later either as a taxed lump sum or as additional pension. The Australian means-tested flat-rate pension, which operates alongside tax-favoured compulsory superannuation savings, can also be deferred. But neither of these state pension schemes is strictly comparable to New Zealand’s, and neither offers early pension at a reduced level.

For completeness one should record that there are issues in respect of the affordability of NZS, important to its continuation. These are not, however, the focus here, and Flexi-Super does not purport to address them in any case.

In short, there is no legal or moral basis within NZS to posit an individual pension pot to support exercise of choice. Further, the core principle and purpose of NZS would disappear were any group to receive a lower amount of benefit than others, or were any group to receive more.

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2014
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