Susan St John: Auckland University associate professor introduces new proposal designed to change pension system

The debate over how we fix Superannuation has sparked discussion over the years - and one expert has offered up a solution.

Economists have stressed the importance over fixing this issue, as New Zealand stares down the barrel of an ever-expanding ageing population.

In a new paper, Auckland University associate professor Susan St John introduced the idea of the New Zealand Superannuation Grant.

"When we look to the future and we look at the fiscal pressures that are coming from an aging population and we look at the associated healthcare costs - we really do have to take our heads out of the sand."

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Episode Transcript

Speaker 1 (00:06):
You're listening to the Sunday Session podcast with Francesca Rudkin
from News talks'b Right.

Speaker 2 (00:13):
How to fix superannuation? It has been a long time debate,
isn't it a problem Government's recognized but don't want to
touch and one many economists have called for urgent action
on as we deal with an aging population. Generally the
talk centers around raising the super age, but one economist
is offering a fresh take on the pension reform and
a new paper, Auckland University Associate Professor Susan St John

(00:36):
has introduced the idea of the New Zealand Superannuation Grant.
To talk me through it, Susan St John is with
me now. Good morning, Susan, good morning, So tell me
what's the idea behind this proposal. Why have you done
the work?

Speaker 3 (00:52):
Well, the idea behind the proposal is that when we
look around as we see all sorts of social issues
that are just not being helped with, and many of
the younger people are very unhappy summer leaving to go
to Australia, our health systems falling apart, all these sorts
of things. But at the same time we've got exceptionally

(01:13):
generous us in a superannuation scheme which has served us
very well. But when we look at the social security budget,
we have to ask the question, where are our priorities here?
Is it a priority to pay everybody at sixty five,
regardless of whether they're well paid full time work. Our

(01:35):
millionaires will own multiple properties, is it right? Is our
priority to pay them a very large weekly pension at
the same time when we've got hungry children.

Speaker 2 (01:51):
So it's really interesting, Susan, that you're not trying to
find a way for us to just afford superannuation, but
also how we can be dealing with a heap of
other social issues.

Speaker 3 (02:05):
I'm afraid I'm losing you. I can't hear it.

Speaker 2 (02:08):
Okay, can you hear me now, Susan.

Speaker 3 (02:11):
It's a little bit better, Okay, all.

Speaker 2 (02:13):
Right, Sorry, I was just saying, so you're the research
that that you've gone into here, this plan that you've
come up with, it's not just so that we can
afford superannuation, but so that we can help solve a
whole lot of other issues that we have in the country.

Speaker 3 (02:29):
Yes, I think so that's right. Of course, when we
look to the future and we look at the fiscal
pressures that are coming from an aging population, and we
look at the associated healthcare costs, we really do have
to take our heads out of the sand.

Speaker 2 (02:46):
Susan, you've introduced the idea of the New Zealand super
annuation grant. Can you talk me through how that would work?

Speaker 3 (02:53):
Yes, Well, there's a payment that everybody would get exactly
as they do at the moment, and we've modeled a
whole lot of ways of doing this. But let's say
you're on the map, very great of seper Well, you
would then currently be getting about twenty one thousand a
year tax free. Oh no, sorry, after tax. Well, we

(03:15):
would pay that twenty one thousand as a grant and
then with all your other income it would go onto
a separate tax schedule, and you can organize that tax
schedule to be as progressive as you like, to save
as much money as you like, to claw back at
the top end as fast as you want. But you

(03:36):
can devise moderate scenarios that wouldn't affect lower income super
immuitance much at all, while allowing people to keep at
least some super until the mid one hundred, one hundred
and fifty thousand RATEE.

Speaker 2 (03:57):
So would the super then the non a non taxable grant.

Speaker 3 (04:02):
Yes, yes, I mean people get it and after tax
terms now that it would not be part of taxable income,
so your other income would go on to a separate schedule.
It's the basic income idea that you have the secure

(04:23):
amount of money, nonconditional income that is there if you
need it as a cushion. So even high income people
who don't neket it at all would still be able
to fall back on that if they chose to.

Speaker 2 (04:40):
Gotcha, So you have this non taxable grant, but then
if you have other income still coming in that potentially
can be taxed at a higher rate.

Speaker 3 (04:52):
That's right, okay, And that's how you claw it back
from the top end of superinuitance, the ones that are
well paid, that have multiple assets and lots of passive income.

Speaker 2 (05:08):
How much would the save suasan It depends.

Speaker 3 (05:12):
On what you model, what kind of rate you set
for the grant. You could bring it in exactly the
same as currently applies, or you could play around with
that a bit. It depends on the tax schedule, but
on the one that I think makes the most sense,

(05:33):
a minimum of three billion, so possibly three to five
billion and growing over time.

Speaker 2 (05:41):
Over how long season.

Speaker 3 (05:44):
Well, you've had a model going out, but we've got
an increasing number of people coming into retirement. We know
that median wealth is very high in higher age groups,
so there's potential to say the significant amount of money

(06:05):
and to do good form with it.

Speaker 2 (06:07):
And in terms of other ideas that have been thrown around,
would this one be the most sort of straightforward and
easy to implement?

Speaker 3 (06:15):
I think so. The other two leavers that can be
used and often come up. One is the age raising
the age to sixty seven. Well, you can't do that immediately.
You might have to have a twenty year phasion, and
it doesn't affect any existing retirees, so it's not capable
of saving the same amount. The other option is the

(06:37):
worst and most disastrous option that you would choose, indexation
to CPI, which is what now they do for benefits
of course, and over time what that would do would
be to produce older person poverty on a scale that
we just have never seen.

Speaker 2 (06:54):
So could this be implemented almost immediately with little impact.

Speaker 3 (06:59):
Given the political will? And I mean ideally what you
would have is a political accord around this. We can't
afford the back and forthwith policy, and we did have
an accord for thirteen years, or sorry, not for thirteen years.
We had the surcharge for thirteen years and that was
cemented in with an accord in nineteen ninety three which

(07:21):
wasn't abandoned until the late nineteen nineties. So we have
had political accord before and we could work a bit
harder on that.

Speaker 2 (07:30):
Susan, thank you very much for your time in talking
us through that this morning. That was Associate Auckland University
Associate Professor Susan Saint John So came to hear your
thoughts on this potential option for superannuation. So you would
have New Zealand Super paid as a non taxable grant
to those who are eligible. Then they would be taxed
at higher rates on their other income from those who

(07:53):
did not receive New Zealand Super. So have a think
about that, let me know your thoughts.

Speaker 1 (07:59):
For more from the Sunday session with Francesca Rudgin, listen
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