Lifting NZ Super age the right thing to doFinance
Progressively lifting the age of entitlement to New Zealand Superannuation from 65 to 67 is the responsible and fair thing to do for New Zealand, Finance Minister Steven Joyce says.
"Average life expectancy is increasing by around 1.3 years each decade and more older people are staying in the workforce,” Mr Joyce says.
“Greater life expectancy is of course positive but it does drive up the cost of NZ Super. While New Zealand has a more affordable scheme than most countries, the increasing costs would require future trade-offs – either restricting spending increases in areas like health and education, or increasing taxes.”
The Government intends to increase the age of entitlement for NZ Super by six months each year from July 2037 until it reaches 67 in July 2040. This means everyone born on or after 1 January 1974 will be eligible for NZ Super from age 67.
Other settings such as indexing NZ Super to the average wage and universal entitlement without means testing will remain unchanged; and the age that KiwiSaver funds can be accessed will remain at 65.
“Making a change over a reasonable timeframe will give future generations of New Zealanders more choice as to how they allocate their government spending,” Mr Joyce says.
"While others have called for an earlier transition, the Government's view is that giving 20 years’ notice balances timeliness with being fair to current generations of working New Zealanders.”
Average life expectancy in New Zealand has increased by 12 years over the past 60 years, including by four years since 2001, when the age for NZ Super was increased to 65.
“When the age was set at 65 in 2001, a retiree could expect to spend about a fifth of their life receiving NZ Super. That has since increased to around a quarter,” Mr Joyce says. “Following this change, those eligible for NZ Super at 67 in 2040 can still expect to receive it for a quarter of their life on average.”
Mr Joyce says the Government’s previous position of not changing the age of eligibility was appropriate in the aftermath of the Global Financial Crisis, when New Zealanders were looking for certainty at a time when the Government’s finances were under pressure.
The Government is also proposing to double the residency requirements for NZ Super so that applicants must have lived in New Zealand for 20 years, with five of those after the age of 50. People who are already citizens or residents will remain eligible under the existing rules.
The Government intends to introduce legislation to make these changes early in 2018. The residency changes will cover people who arrive in New Zealand after the legislation is passed.
"These changes are important and need to be politically durable,” Mr Joyce says. "Scheduling the legislation in this way gives all political parties the opportunity to discuss their position with the public before it comes before Parliament."
The proposed changes to the age of eligibility and the residency requirements are estimated to save the Government in excess of 0.6 per cent of GDP or $4.0 billion annually once the changes are fully in place.
Included in the legislation will be provision for parliamentary consideration of any need for any temporary transition requirements in 2030.
"It is not possible yet to determine what, if any, temporary support will be needed for people who are unable to continue working beyond the age of 65,” Mr Joyce says.
“Considering any requirements in 2030 will give a future parliament the opportunity to consider current information on health and labour market trends of different groups as the age change approaches."