Should NZ Super be a benefit or an entitlement

One of the most fundamental questions in the whole retirement incomes debate is what should the status of the state paid pension New Zealand Superannuation be? Should it be a universal entitlement or a benefit? Philip Macalister looks at the issues.

Thursday, October 21st 1999, 12:00AM

One of the most fundamental questions in the whole retirement incomes debate is what should the status of the state paid pension New Zealand Superannuation be? Should it be a universal entitlement or a benefit?

Currently New Zealand has a universal pension that is paid to every resident once they reach the age of entitlement.

New Zealand is unique among developed countries in having a universal pension as its only form of public pension. Those which come closest are countries such as Norway, Sweden, Denmark and Iceland which operate a part universal pension system, where older citizens receive a modest universal pension from the state in conjunction with an earnings-related contributory pension based on a social insurance model.

"Universal pensions are the least common form of public pension internationally," according to the Office of the Retirement Commissioner's booklet Retirement income in New Zealand: the historical context.

"Universal pensions are the most fiscally expensive way of providing a minimum income for retired people. Their administration costs only partly offset the higher pension payment costs. However, preventing poverty is usually only one objective of a universal pension scheme; other objectives may include ensuring separate pension entitlements for women as well as men."

The question was highlighted in the Periodic Review Group's report that was presented to Government nearly two years ago. The PRG said it was an issue that needed to be discussed, however the suggestion has been greeted with silence.

In its report the PRG proffered five options for what NZS could look like in the future. Its examples ranged from the then current set-up (the surcharge was still in place then) through to a version that was basically a targeted benefit paid to those desperately in need.

The question is important as it transcends the three key superannuation issues raise by the PRG, namely: fairness, stability and affordability.

For instance if a shift is made to a means-tested benefit then the younger generation who are funding the pensions of the currently retired will feel aggrieved. Such a change will further reduce peoples' confidence in the handling of retirement income policies (unless it is well-signalled and explained to the electorate), and any change like that would ease the fiscal burden on the Government.

Surprisingly enough the state pension has for most of its 101-year life been either a targeted pension, or a dual or part targeted pension. The only times it has been universal are since 1977 when the surcharge was abolished and for a couple of years in the late 1970s.

The changes are shown in the following stylised representation of changes from the Office of the Retirement Commissioners' book Retirement Income in New Zealand: the historical context.

Views are polarised on the question of NZS. On the one hand there are those who see the state pensions as no more than a welfare benefit for the needy, and on the other there are those who see it as a universal pension which is by right of citizenship (regardless of wealth or income).

Auckland University economics lecturer Susan St John says the advantages of NZS are its individual basis and its simplicity and adequacy. Thus use of supplementary benefits are minimised. Very few superannuitants receive the accommodation supplement that reflects the huge role that home ownership plays. Only 14 per cent received the disability allowance, and less than 1 per cent accessed special benefits for high costs. The old are not the customers of foodbanks.

Whatever, it is still the government's biggest single item of expenditure accounting for nearly $10 million per day and it's going to receive more attention. The Investment Savings and Insurance Association has recently commissioned a paper on changes to the tax system. Although the association refuses to publicly release the document it has briefed politicians on its contents.

Supertalk understands one of the recommendations (along with a capital gains tax) is that NZS remains entitlement.

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