Time to rip the plaster off the leg

Seven Reforms to Defuse the Superannuation Time Bomb

Photo by Nathan Dumlao on Unsplash

New Zealand’s retirement system is a fiscal time bomb with a long fuse. Treasury knows it. Inland Revenue knows it. Most New Zealanders know it too.

From Wellington’s perspective, the solution is simple: raise GST, hike income taxes and whisper something about wealth taxes to a focus group. In other words, austerity. That doesn’t just mean cutting spending. It means using tax increases to paper over gaping holes in the public accounts.

We’ve now reached the point where a real solution will need a culturally grounded, practical reform package delivered in one clean strike. It should be built around three core principles:

• personal responsibility

• family duty

• protection for those who genuinely need help

Link Super to the Real Cost of Living

At present, NZ Super is indexed to average wages. This means pension payments go up even if retirees’ actual costs do not. The result is an inflationary ratchet. Combined with falling birth rates, we’ve locked ourselves into a system we cannot grow our way out of.

Worse still, economic growth actually makes things harder. As the workforce becomes more productive, superannuation payments rise accordingly. Meanwhile, the number of retirees keeps growing. The government ends up handing out more money to more people who are no longer working.

It’s like running on a treadmill that speeds up every time you try to sprint.

The fix is simple. Cut the tie between pensions and wages. Instead, index Super to a Seniors Cost of Living Index that reflects actual retiree expenses like rent, groceries, power, healthcare and transport. That would keep Super honest. It would go up when costs do but wouldn’t inflate just because someone else got a pay rise.

Raise the Super Age to 70

When the retirement age was set at 65, most people didn’t make it much past 72. Today, living into your 80s or 90s is normal. Expecting taxpayers to fund 25 years of retirement is simply not sustainable.

Lifting the age to 70 would save the country billions. The fairest way to do it is incrementally: raise the age by three months each year starting in 2030. That gets us to 70 by 2050.¹ It would protect existing retirees and avoid any shock to those nearing retirement, while sending a clear message to younger workers that the rules are changing.

Keep KiwiSaver at 65 to Fill the Gap

Raising the age is necessary, but we should be honest about what it means. Retiring at 65 without Super for five years is a big ask. It will demand careful planning, higher savings and more personal responsibility.

This is particularly tough for those in manual jobs who cannot simply switch to office work as they age. For them, waiting longer for Super can feel unjust. But what’s even less just is bankrupting the system for everyone.

If the whole thing collapses, it’s not the well-cushioned elite who will suffer. It’s the working-class New Zealanders the current system claims to support.

To ease the transition, KiwiSaver should remain available at 65. This gives people the option to draw on their own savings if they choose to retire before qualifying for Super. It rewards those who have taken responsibility and allows them to live with independence.

Introduce an Income Abatement Over $100,000

Thousands of retirees earn over $100,000 a year and still get the full pension. That’s not a safety net. It’s a golden hammock.

A simple rule should apply: if you earn more than $100,000 in retirement, your Super gets abated. Fast. The threshold can be indexed, but the principle should not be negotiable.

This won’t fix the system alone. It’s not the biggest lever. But it matters. If you’re going to ask workers to save more, work longer and accept less, then fairness demands the same of the well-off.

Superannuation should provide dignity, not luxury. If you can afford to retire on six figures, you do not need a taxpayer top-up. Public trust depends on showing that the system is fair to all: contribute what you can, take what you need.

Create a State-Run Reverse Mortgage Corporation

Older New Zealanders are often house rich and cash poor. Many own homes outright, sometimes worth seven figures. That equity just sits there, untouched, while the state picks up the tab for pensions and care.

A state-backed reverse mortgage scheme would change that. Retirees could draw down loans against their homes. No repayments would be required until the house is sold or the borrower goes into care. The loan would accrue interest and be repaid from the estate.

This wouldn’t be a handout. Reverse mortgages are expensive. But they are voluntary, private and proportionate. It gives retirees the option to use their own resources to support themselves.

It also avoids inheritance taxes, which punish saving and encourage the very behaviour that undermines self-reliance. If you don’t want to use it, you don’t have to. But it should be available for those who do. This is about expanding options.

Crack Down on Trusts and Means Testing