Proposed NZ Superannuation changes make sense….but there is still more to do.
By Chris Tennent-Brown, ASB Senior Wealth Economist.
On Monday, Prime Minister Bill English confirmed plans to change the eligibility criteria and start age for NZ Superannuation.
If re-elected in September, the National Party propose to change eligibility from 65 to 67 years old. This will happen incrementally, with the age threshold being lifted by 6 months each year, starting in 2037 and ending in 2040. Anyone born after 1 July 1972 will be impacted by the proposed change.
Eligibility rules for New Zealand residents are also set to be changed. Migrants are currently eligible for NZ superannuation after 10 years of Residency (more on “Residency” here), which will be lifted to 20 years. These new requirements will apply to anyone who gains residency after the legislation is passed next year and includes five years of residency after the age of 50, as is the case under the current rules.
What does this mean for me and my KiwiSaver fund?
The challenge of funding a comfortable retirement remains, and KiwiSaver is a key part of the strategy for many New Zealanders.
This week’s announcements do not directly impact KiwiSaver investors as the changes are focused solely on NZ Superannuation but it’s a clear signal that NZ Superannuation will be reduced for the younger generations. The proposed changes impact those born after 1972 who now need to wait until they are older (and likely work longer) in order to be eligible for NZ Superannuation.
So this means that the proposed changes make KiwiSaver even more important. All of us should track what our income in retirement will be like, and our ASB KiwiSaver calculator is a handy tool for checking what your retirement savings with KiwiSaver may look like in the future.
If you would like to chat to one of our KiwiSaver team, give us a call on 0800 RETIRE. Our team is proud to have recently won the 2017 Morningstar award for the KiwiSaver provider that offers the best solution for New Zealanders’ and their retirement savings needs. This was based on Morningstar’s analysis of the Scheme’s performance, fees, investor experience, transparency and disclosure.
You can read more about the recent ASB KiwiSaver Scheme fund performance here.
What’s not changing?
- KiwiSaver funds will remain available after 65.
- Universal entitlement of superannuation. That means there is no intention for superannuation entitlement to be subject to asset or income testing.
- Government plans to resume contributing to the New Zealand Superannuation Fund. i.e. the plan remains that contributions will resume when the Net Government Debt falls below 20% of GDP.
What do we think?
The proposed changes make sense: people are living longer, and combined with an aging population, the cost of NZ Superannuation will lift dramatically over the years ahead. Flagging the changes 20 years in advance makes sense too, as the lift in age eligibility impacts people born after 1972 who still have a long time to plan for their retirement.
Meanwhile, potential migrants and those who split their time between countries who are aiming to gain residency and retire in New Zealand will need to factor the changes into their decisions.
The proposed changes will reduce the cost of NZ Superannuation significantly. Details released this week suggest the age changes will reduce the cost by around 0.6% of GDP when rolled out. In dollar terms, that’s between $4 and $6 billion per year between 2040 and 2050.
The Government could maintain the status quo, but that would mean a trade-off: higher taxes, more debt, or major spending cuts elsewhere. This year’s General Election could show if the electorate agrees with the current Government’s priorities, and these issues have the potential to be key topics of debate over the upcoming campaign period before the country goes to the polls
As well as the age and eligibility aspects of NZ Superannuation, there were a number of ideas tabled in last year’s review of retirement income policies carried out by the Commission for Financial Capability. Several of the recommendations such as increasing KiwiSaver contributions, increasing KiwiSaver flexibility and resuming contributions to the NZ Super Fund earlier than currently planned are worthy of more discussion.
The Commission’s report is worth a read, and can be found here.
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Morningstar Awards 2017(c). Morningstar, Inc. All Rights Reserved. Awarded to ASB Group Investments Limited, KiwiSaver Category Winner, New Zealand.
Interests in the ASB KiwiSaver Scheme (Scheme) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides Scheme administration and distribution services. No person guarantees interests in the Scheme. Interests in the Scheme are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement available from asb.co.nz and the register of offers of financial products a www.business.govt.nz/disclose (search for ASB KiwiSaver Scheme).