Young Kiwis face higher taxes to pay for pensions
BUSINESSDESK: Young New Zealanders won't be able to access universal superannuation the country now enjoys without facing significantly higher taxes or cutting the pension's entitlements, the Financial Services Council says.
People at or near retirement age should keep their current entitlements, but younger generations will need a new savings system where they make a bigger personal contribution to retain New Zealand superannuation, the lobby group, which represents fund managers and life insurers, said.
The FSC will release a report next week offering policy options for New Zealand's retirement income policy after a year of research.
"The country needs a new savings plan built on KiwiSaver, which allows those closer to or in retirement to keep enjoying a pension like NZ super," chief executive Peter Neilson said.
"We also need a 21st-century retirement savings which can allow those under 40, and future generations, to nearly double their retirement incomes through their own savings."
That is a similar conclusion to last year's report from the government-appointed Savings Working Group, which said the current pension could not survive in its current form, and people under the age of 45 don't have security for their retirement.
Last month, the government decided to delay automatically enrolling all workers into KiwiSaver in a bid to save $514 million over four years, having already halved its subsidy to the scheme and increased the minimum employer and employee contribution from next year.
For New Zealand to retain the current form of New Zealand superannuation, tax rates will have to rise 28% to pay for a growing number of retirees who are living longer.
The alternative is to cut entitlements, which will force people to increase their personal savings, the lobby group said.
The FSC is pushing for private savings to make a greater percentage of people's retirement incomes, saying it is at least 60% more efficient as a way to fund superannuation, and probably more than twice as efficient.
"We need to discuss what is happening to longevity, what we can afford to fund from taxation, what should happen to the age of eligibility and if more reliance on private saving would help," Mr Neilson said.
"It does not appear that the mix of a low tax rate and early eligibility that has made New Zealand Superannuation attractive until now can be maintained."
The latest Treasury forecasts showed the country's annual pension bill rising to $12.37 billion by 2016 from $9.59 billion in 2012, with some 680,000 people drawing on New Zealand superannuation.
The government spent $7.92 billion on pensions in the 10 months ended April 30, about 44% of what it spends on social transfers such as benefits and tax credits.