Sources of retirement income in New Zealand

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Monday, April 9th 2001, 6:12PM 1 Comment

Older New Zealanders obtain their income from a variety of sources, with tax-funded New Zealand Superannuation being the most important single source. Many households also have other signicant income sources, although the distribution is highly skewed, as the following Household Economic Survey gures for 1997-98 indicate. The gures are for equivalent income for individuals aged 60 or above, and couples where one or both are aged 60 or above.

Sources of income of older New Zealanders in 1997-98

percent of total income	NZ Superannuation and Social Welfare benefits	other
Bottom 20 percent  Next 20 percent Third 20 percent Fourth 20 percent Top 20 percent	100.2  95.1 79.3 47.4 13.4	-0.2  4.9 20.7 52.6 86.6

The bottom 20 percent of the older population in income terms are not quite as bereft of "other income" as these gures suggest - recorded self-employment income losses create this apparently negative "other income". Some other income may also have statistically "vanished" because of surcharge avoidance schemes. The second quintile probably gives a more realistic picture of the income sources of the low income elderly, which involve a heavy reliance on New Zealand Superannuation and Social Welfare benets. Overall, income distribution among New Zealanders aged 60 or above is strikingly skewed.

However, the "60-plus" age group is no longer so typical of the retired age groups, since the rise in the entitlement age for New Zealand Superannuation has meant that more of the 60 to 64 age group have stayed on in employment. An alternative measure is the sources of equivalent income of those aged 65 and above.

Sources of income for those ages 65 or above

percent of total income	NZ Superannuation and Social Welfare benefits	other
Bottom 20 percent  Next 20 percent Third 20 percent Fourth 20 percent Top 20 percent	96.8 96.4 84.0 68.4 26.2	3.2 3.6 16.1 31.5 73.8

The extremes at the top are not quite as high measured on this basis, given that tax losses and surcharge avoidance schemes probably led to an understating of some real economic income. However, the pattern is still very clear. The bottom 40 percent of those aged 65-plus have very little income other than that derived from New Zealand Superannuation and Social Welfare benets. The top 20 percent have other incomes about 3 times as high as their New Zealand Superannuation income.

The Household Economic Survey provides a more detailed picture of income sources for older New Zealanders. The gures below are for 1987-88, and 1997-98 on the same basis as the previous table for those aged 60 and above.

It should be noted that the gures do not exactly correspond with the fully "retired" group, since many of these people were working, even if only part time. In addition, while all people aged 60-plus who met residential criteria were entitled to what is now New Zealand Superannuation in 1987-88, this was no longer so in 1995-96.

Percentage shares of aggregate income of older households in New Zealand

	1987-88 %	1997-98 %
New Zealand Superannuation Social welfare benefits Wages and salary Self-employment income Job superannuation Other income (investments etc)	49.5 1.8 21.4 4.1 5.9 17.1	42.1 4.8 22.9 7.1 6.7 16.3
Total	100.0	100.0

Source: Social Policy Journal of NZ Issue 9, based on New Zealand Household Economic Survey 1987-88 and Ministry of Social Policy.

The table shows that:

• New Zealand Superannuation has furnished a declining share of income for those aged 60 or above, though it is still the largest income source for most older people. It now provides under half the household income of older New Zealanders. The New Zealand Superannuation share of the income of those aged 60 or above peaked at 55.1 percent in 1991-92. The downtrend since then reects the increasing entitlement age and lower pension-wage ratio for New Zealand Superannuation. Part of the decline in New Zealand Superannuation has been offset by rising social welfare benets, mainly going to those in the 60 to 64 age groups. However, the main offset has been a sharp rise in earnings from working income.
• The share of income from wages and salaries was declining until the early 1990s. It has since begun to recover, and between 1995-96 and 1997-98 jumped from 15.7 to 22.9 percent of the income of those aged 60-plus. Self Employment income also rose from 5.0 to 7.1 percent of income in the same two years. This reects the strong recovery in labour force participation particularly amongst the 60 to 64 age groups. Total "Working Income" from these two sources reached a new peak for the decade of 30 percent of income for the 60-plus age group.

However, the recovery in working income is dominated by trends amongst the 60 to 64 year age groups. A clearer picture of income sources amongst the groups more likely to be retired is given in the income sources of those aged 65 and above.

Percentage shares of aggregate income of those aged 65-plus

	1997-98 %
New Zealand Superannuation Social welfare benefits Wages and salary Self-employment income Job superannuation Other income (investments etc)	56.4 2.7 10.0 3.8 8.1 19.0
Total	100.0

For this older group New Zealand Superannuation still provides over half of total income received. Investment income and job superannuation were also signicant income sources, but most of this other income was received by a higher income minority amongst the 65-plus age group.

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