A commitment by Prime Minister John Key in the run up to the last election not to touch the New Zealand Superannuation scheme (NZ Super) means that it will again be missing from this year’s Budget, but the whale in the fish tank is only getting bigger.
The present New Zealand Superannuation scheme is clearly not sustainable, but putting off action today will turn this headache into a migraine for a future government.
Let’s look at some facts.
- The cost of NZ Super was $8,583,000,000 in the year to June 2010, a cost to the New Zealand Government of $700,000,000 per month. The total cost increases by approx $500,000,000 each year.
- The current NZ Super payment per superannuitant (married rate) is $244.71 per week or $12,724.92 pa gross.
- People are eligible to receive NZ Super if they are 65 years or over and meet the residency test which among other things means that you must have lived in New Zealand for 10 years since aged 20, including five years since turning 50.
- There is currently no income test to the eligibility criteria for NZ Super.
- There are approx 550,000 people in New Zealand who hold a ‘SuperGold card’, receive free off peak travel on public transport and are eligible to receive NZ Super. Based on the demographics the number of people receiving NZ Super increases by 20,000 approx. each year.
- The Cullen Fund currently has 19,000,000,000 in it. Only enough to cover two years of NZ Super at the current rate. There have been no extra payments into the Cullen Fund for the last couple of years and none expected until the Government returns to surplus.
Compare this with Australia which has had compulsory superannuation in place since 1992 and where employers contribution to the workers fund is 9% of their annual wage or salary, providing a war chest of $1,280,000,000,000 ( $1.28 trillion ). The Australian budget last week announced that the contribution will increase from 9% to 12% over the next three years.
Australians have more money in managed funds per capita than any other country in the world. No wonder then that they have a strong banking sector, strong capital markets and strong stock exchange all underpinned by these savings.
So what needs to change in New Zealand?
- KiwiSaver needs to be a compulsory super scheme for all working age New Zealanders.
- The compulsory contribution needs to lift over time from the current minimum 4% (2% from the employee and 2% from the employer) to a total of 10% to 12%.
- A phasing out of the current NZ Superannuation fund over say 20 years for new recipients to just be a supplementary payment to those people who through no fault of their own have insufficient funds in the their KiwiSaver account to provide a living super payment.
- A lift in the current eligibility criteria to qualify for NZ Superannuation for the residency test from a minimum of 10 years living in New Zealand to 20 years, from the age of 20.
To remove the whale from the fish bowl, as a country, we need to make a progressive move from a Government financed superannuation funded from tax revenue to a self-funded system with a means tested safety net.