Retirement Commissioner Diane Maxwell wants the government to link the age people can access the national pension to their rising life expectancies in a wide-ranging document on the future of New Zealand superannuation.
Offering 16 draft recommendations in the 2013 Review of Retirement Income Policies discussion document, Maxwell says the government needs to nut out policy within the next four years then provide a long period of notice to bed in those changes.
"Changes will need to be made with care so as not to jeopardise the best features of the current system," Maxwell said. "The case for having a universal, flat-rate NZS (state-funded pension) remains very strong."
While the nation's universal pension is seen as "relatively inexpensive," an ageing population is expected to put pressure on the viability of the scheme, and growing the economy is unlikely to be enough on its own to pay for it, she said.
A rising pension bill has been an ongoing bugbear for the Treasury, which has been warning about the rising cost of the universal scheme for years. Still, the current government has no plans to change the fundamental settings, with Prime Minister John Key pledging to keep all current entitlements while he is in office.
Among the recommendations, the Retirement Commissioner supports a 'schedule and review' process where planned increases in the age of eligibility are based on future forecasts for life expectancy with a timetable for reviewing those expectations if they turn out to be wrong.
If adopted, the recommendation would see the age of state pension eligibility creep upwards, along with average lifespans. The principle behind that approach is to ensure the pension is available for the same proportion of life as at present, even as average lifespans lengthen.
As a way to offset that upward pension age creep, the commission recommends retaining 65 as the age people can access their KiwiSaver accounts, which the document sees as supplementing retirement income rather than replacing the universal state-funded pension.
The commission also recommends changing the way increases in the pension are worked out. It recommends a change after 2023 to indexing it to the average change in consumer prices and wages, as opposed to the current system where it's linked to wage growth.
The document supports introducing automatically enrolling all employees into KiwiSaver but stops short of recommending a compulsory scheme. Instead, KiwiSavers should be allowed to opt out of the scheme once they've been automatically enrolled.
It says private savings, including through KiwiSaver, should become more attractive if the government adopts its recommended changes to indexing increases in the national pension.
Other recommendations include support for the government to remove tax on the inflation component of interest on simple savings products, such as bank deposits, to remove the disincentive to save.
The commission scotched a proposal by United Future leader and former Revenue Minister Peter Dunne to introduce a variable age for accessing superannuation, saying it would likely cost more than the current scheme and risked undermining the fairness of the existing system by people accessing a pension paying a lower rate too early.
The review also dismissed means testing as an option to reduce the cost of the pension, as it would be too complex and more expensive to run.
Other recommendations in the review included more government spending on improving financial literacy, and for the Ministry of Business, Innovation and Employment to research age-friendly housing and workplaces.
The commissioner will make her final recommendations to the government by the end of the year.