I’ve worked my whole life and paid my taxes - I'm 65 now, why shouldn’t I receive the pension?
That people are entitled to a pension is a familiar argument and sits at the core of why changing New Zealand’s pension scheme is so hard. In NZ, people are eligible for the state pension from age 65 with payments before tax of $721 per week for a couple or $475 if you are single. 2019 expenditure on superannuation was $14.6 billion, about 17% of core Crown expenses. This is set to rise as NZ’s population ages. The affordability of continuing this scheme is questionable, but let’s look closely at this notion of entitlement and in particular the length of entitlement.
The pension scheme in NZ has changed over time. When the pension was first introduced in 1898 the pension was means tested with the pension age set at age 65. Since then, the pension was made universal, lowered to age 60, then raised to age 65 again. The pension is set at ~two-thirds of the average wage.
As life expectancy has increased, so too has the length pension eligibility
Let’s look at changes in life expectancy compared to pension age since 1951, the earliest year for which Stats NZ life expectancy data was available. Similar to today, in 1951 the pension was universal from age 65. As demonstrated below the length of super entitlement has increased considerably.
Data from Stats NZ
Based on these simple averages the pension is now paid for 17 years today compared to 4 years in 1951, 13 years longer . With today’s life expectancy people in NZ spend ~20% of their lives with the pension compared to 6% in 1951. The increased life expectancy has placed a significant burden on Government finances and tax payers.
How long should an individual actually be entitled to the pension? When the pension was first setup it wasn’t expected that people would live for as long as they are today. 65 isn’t even old. I am not suggesting people should be cut off from the pension, but the changing nature of the entitlement requires scrutiny.
Pension entitlement from a specific age is convenient and easy to measure. Hit age 65 and you get hundreds of dollars of welfare every week. But it doesn’t have to be that way. The pension could theoretically be for a period of time, up to a specific amount or the eligibility age could be raised. The pension age has been raised before, in 1992 it was lifted to age 61, and then to 65 over the course of 7 years. The pension could go back to being means tested as it was originally. How much sense does it make to pay millionaires a pension?
There are significant political barriers to reducing entitlements
Changing the pension is politically difficult reflecting the voting block who want their full non-means-tested pension from age 65. However, there is only so long the issue can be ignored with the dependent population increasing and superannuation payments set to hit 6.3% of GDP by 2030 according to Treasury’s long-term forecast.
I do actually agree that people are entitled to a pension. But how much is too much? Free money is a great thing, everyone wants free money, but at a certain point it ceases to be a right.
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