Aaron
Gilbert, Auckland
University of Technology
For
generations of New Zealanders, a lifetime of work has come
with the promise of a secure and happy
retirement.
Today, however, that notion of golden
years spent in relative comfort is slipping
out of reach for a growing number of struggling
retirees. Without a serious policy rethink, younger New
Zealanders may face an even tougher reality when their time
to leave the workforce comes.
Despite these
challenges, policies tabled this election year amount to
little more than tinkering around the
edges.
National has
proposed making it compulsory for all workers to
contribute to KiwiSaver
from mid-2028, while increasing default contribution rates
and automatically enrolling newborns. It has also signalled
it will campaign on raising the age of eligibility for New
Zealand Superannuation (NZ Super).
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Labour,
meanwhile, has
ruled out raising the superannuation age or
means-testing NZ Super, arguing KiwiSaver should remain a
supplement rather than a replacement to the scheme.
Other parties have similarly focused on individual
elements of retirement, rather than recognising it as a
complex system of interconnected parts – where changes to
one inevitably affect the others.
A
bridge beginning to buckle
Imagine New Zealand’s
retirement system as a suspension bridge. The three cables
stabilising it are NZ Super; private savings and KiwiSaver;
and a person’s housing situation.
Each cable
provides a counterbalance to the others. If retirees have
less housing wealth, they need more income. If NZ Super
becomes less generous, they need more KiwiSaver. If
KiwiSaver balances are inadequate, pressure falls back onto
NZ Super.
Already, pressure is building on each
part of this structure.
Today, nearly 40% of
retirees are completely dependent on superannuation, which
remains a universal entitlement for most people aged 65 and
older. The income they receive, paid for by current
taxpayers, is set
at around two-thirds of the average wage. This means
that as wages grow, so too does retirement
income.
Unfortunately, just like an increasing
number of working families, retirees are being hit by the
rising cost of living. In 2024, the Retirement Commission
reported that more than 37% of retirees said they were worse
off than two years earlier.
Massey University’s
recent New
Zealand Retirement Expenditure Guidelines report also
shows that NZ Super is insufficient to support even a “no
frills” retirement.
Treasury has also raised
serious questions about the long-term sustainability of NZ
Super without significant changes, such as raising the
eligibility age, reducing payments, increasing taxes or
cutting other government spending.
To put this in
context, NZ Super already costs about 18% of tax revenue –
and that share is expected to only grow.
Housing
pressures hit home
The NZ Super Fund was
established to help pay for future superannuation
costs.
However, National has
announced it would begin drawing down from the fund in
2028, five years earlier than originally planned. Drawing
down early will reduce future investment income and place
greater pressure on future taxpayers to cover the cost of NZ
Super.
The unspoken assumption behind NZ Super is
that people will
retire with a mortgage-free home. Around NZ$538 a week
for a single person, or NZ$828 for a couple, leaves little
room to pay rent in today’s housing market.
At
the same time, home ownership rates are falling, while both
the proportion of retirees with mortgages and the average
size of those mortgages are increasing.
Looking
ahead, this trend is likely to worsen as high house prices
and the rising age of first-home ownership continue. By
2048, fewer
than half of New Zealanders are expected to own their
own home.
All of this means KiwiSaver may no longer
be a supplement that simply makes retirement more
comfortable, but one that
is essential to future financial security.
The
Retirement Commission has consistently shown that KiwiSaver
balances mirror income and job security. Those earning more
and avoiding career disruptions save more.
For a
low-income worker, however, even a 12% contribution rate may
not be enough to build an adequate nest egg. As contribution
rates rise, more people may
be forced to choose between paying today’s bills and
saving for a retirement that still seems decades
away.
Thinking past election cycles
New
Zealand’s retirement system is only as strong as those
three supporting cables keeping it aloft. Yet politicians
too often debate each one as if it exists independently of
the others.
Making NZ Super more affordable is
likely to place greater pressure on KiwiSaver, which raises
questions about how to ensure it works for as many New
Zealanders as possible. Any changes to one cable should be
considered alongside their impact on the
others.
Unfortunately, too many policy proposals
ignore these knock-on effects and fail to consider the
overall goal: giving people the best possible chance of
financial security in retirement.
New Zealand’s
retirement system was not built overnight and it will not be
repaired overnight either.
But, if Kiwis are to be
expected to save and plan over 40 years, then politicians
and policymakers should at least start thinking beyond the
next three.
Aaron
Gilbert, Professor of Finance, Auckland
University of Technology
This
article is republished from The Conversation
under a Creative Commons license. Read the original
article.
