Unless we get lots of younger taxpayers within 10 to 15 years, the government coffers won’t
be able to keep paying national superannuation in its current form, and it will be trimmed.
However it is likely that any new less-than-generous system will be phased in over a long period, as
politicians do not want to upset the voters. Politicians hate giving out bad medicine to the voters.
- a national superannuation rate would be set – say $15,000 p.a. per person
- everyone at age 70 would get 50% of this rate
- to get the full rate, you would be subject to an asset test
You would not get the full rate if you:
- had more than an ordinary home
- had investments over $99,000
- your combined household income was much over $5,000 pa from any source, such as wages, rent, or interest*
You would get it between age 65 and 70 if:
-you could not get work
- could not work due to ill health
- you only had an average asset base – means tested
* I have based this article on Ruth Richardson’s proposals, included some features of the current WINZ system, and some from Australia too.
The rate that would be set would be something similar to the current rates, and not-very-generous – most of us would want more, which you would get from your own assets and savings.
Now I can already hear people saying “that’s not fair, if we save, we get penalised”. I agree, to make it
equitable, and get voters to accept it, governments should offer tax incentives to those who are prepared to save.
The problem we have is that our politicians never stay in power for that long, and they are far more concerned about getting your vote today, than doing the right thing about a much bigger issue far away in the future. One of the weaknesses of democracy.
Australians super investment earnings are taxed at 15%, but the effective tax rate is much lower due to anomalies in the tax system. To get the Australian age pension, Centrelink - similar to WINZ - applies an asset test.
If you have a luxury home, part of that value can be added into the asset test. If you are a beneficiary in a family trust, they can deem that the assets of the trust to belong to you, so you can’t hide assets in big homes and family trusts.
The Australian regime is generous on the one side in terms of tax benefits and compulsory employer contributions into your savings. They are not so generous with their asset test, and their rules are much tougher than ours. Expect the same here eventually.
What NZ age group will be affected ?
Given that politicians don’t want to upset you and lose your vote, they are likely to phase in
any changes very slowly.
It would be a fair bet that anyone 55 today will be unaffected – they have to give people fair
warning of any changes, and time to adjust their plans if needed.
It is also a fair bet that people aged 45 to 55 today will see the retirement age gradually increased to 66, and then 67 and so on.
People under 45 are likely to hear about the age being increased 70 and means testing being brought in very quietly.
What can we do about it?
Lobby the government and demand incentives for savings, with much more simplicity than Kiwi Saver.
We don’t lobby enough in NZ – after all, the politicians are our employees – never let then forget it either.
In addition to Kiwisaver, lobby for a US type scheme where you can invest monthly payments or lump sums anytime, into all sorts of things, with tax free investment earnings. Lobby for early withdrawals too, but trade off with tax penalties if you do so before age 60.
In the meantime
Start saving earlier, become self-reliant, and don’t rely too much on any politicians for your retirement.
This article was supplied by Alan Clarke who is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85.
Alan also writes regular articles on www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.