Discussion on how to meet funding requirements for the government’s superannuation scheme has peaked in recent days following the Treasury’s estimates that its cost will reach $49 billion by 2041. The scheme is also expected to grow by 1.5 times more than the economy over the next 40 years.
There are concerns as to how the scheme will continue to be funded at current tax levels. Infometrics principal economist, Brad Olsen, has stated that the scheme is too expensive and will prove to be a big burden on young taxpayers. He said that currently the government allocates $19 out of every $100 in tax collections to the fund and was not fiscally responsible or sustainable. Olsen proposed increasing the age of eligibility at a time the rate of people entering retirement is rising.
Retirement Commissioner, Jane Wrightson, said that the system was quite weak but that changes should only be made when there was more data and analysis on the wider trends. She held that proposals such as raising the age of eligibility and increasing taxation were not politically popular, putting the government in a quandary. She urged further discussion on any possible changes was needed to ensure the stability of the system.
Grey Power’s David Marshall however differed with these views and has asserted that the scheme is sustainable, efficient, and cost-effective. He said that it accounted for about 5% of GDP while the average for the OECD stood at 8.5%. He estimated that even with figures expected to rise over the next 30 years, it would likely reach just 7.5%, still well below the OECD average.
Following research work done on the same issue, University of Auckland’s Retirement Policy and Research Centre Associate Professor, Susan St. John, has suggested that increasing taxation to 39% on other incomes besides pensions is a possible solution. She has proposed treating pension payments as a basic income and boosting the tax rate on pensioners’ other earnings as a means of lowering the cost of superannuation.
She noted that many of those retiring now had not paid off their mortgages or were renting. At the current pension rate of $436.94 for a single person, the pension amounts would prove insufficient for many. A fifth of those joining the housing register were found to be over the age of 55. At the same time, there was some concern for young people looking to join the property ladder who were finding themselves competing with “well-off, well-housed superannuants”. She proposed focusing on wealthy recipients of NZ Super that were receiving other large private incomes and were accumulating more wealth through tax-free capital gains and benefitted from tax cuts on certain investments.
St. John’s utterances have however been criticised by the NZ Taxpayers’ Union that has said working superannuants should not be punished for their productivity. The Union said that many were paying more in taxes than they received in Super and would feel age discriminated by such a move. The Union added that a better way to address rising costs would be to adjust Super payments for inflation rather than average wages.
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