The cost of New Zealand Superannuation can be reduced

20 December 2010

Putting New Zealand superannuitants on a different tax scale might have merit and make the scheme more affordable and equitable for the future, The University of Auckland Business School's Retirement Policy and Research Centre says.

In a just-released PensionBriefing document, the Centre says whilst raising the age of eligibility to 67 by 2033 is widely seen as necessary for fiscal sustainability, a subtle mix of three possible changes – age, level and degree of targeting – could be preferable.

Centre co-director Associate Professor Susan St John says there has been a very modest degree of targeting provided by the taxation of New Zealand Superannuation.

"As the top tax rate has been reduced over time and vehicles such as PIEs introduced, better-off superannuitants have been able to retain more of their after-tax superannuation," she says.

"While politically difficult, there is merit in thinking of putting superannuitants on a different tax scale."

The just-released PensionBriefing document explores how the tax system could be designed to help make some useful savings, without the equity disadvantages that come from relying on raising the age alone in order to cut costs.

"Increasing the degree of targeting might also help address some of the current intergenerational inequities of New Zealand Superannuation," Associate Professor St John says.

Read PensionBriefing 2010-7