Jack Tame: Should superannuation be means-tested too?

It’s one of the curious things about the structure of modern liberal democracies. 

Whether its sharemarkets or political cycles or even media coverage, a lot of the big forces that shape our society are influenced by short-term incentives.  

It gets us into all sorts of pickles. Take the Three Waters and the crisis with water infrastructure in New Zealand. The main reason we find ourselves with a vast infrastructure deficit is because for decades, heaps of local councils haven’t properly invested to maintain the pipes. Why didn’t they invest? Simple. Investment takes money and money means rates. And with woeful levels of engagement with local body elections, big rates increases and pledges to spend millions on water infrastructure that no one could see or appreciate weren’t exactly vote-winners. Councillors who wanted to be re-elected have been incentivised to defer spending for the future. Someone else’s problem. Predictably, of course, it snowballed.

I think we risk the same thing with the aging population and the future of superannuation in New Zealand. We know that in a few short years, as more baby-boomers retire, the cost for superannuation combined with the impact of an older population on the health system is going to massively increase pressure on the Government books.  

Treasury has been warning about it for ages. There are going to be fewer of us of working age supporting more of us who are retired. And yet since the advent of KiwiSaver, there have been very few big steps to address the fast-approaching meteorite.  

I’m pleased to see the Government move on Kiwisaver contributions in the Budget this week. It’s well overdue in my opinion, and although it’ll be a burden for a lot of businesses in the short term, I’d personally support steps that encouraged a greater rate of retirement saving in the future.  

It occurs to me that a massively underrated component in the Australia vs New Zealand equation is superannuation. Saving for super is compulsory in Australia. But not only are wages higher across the ditch, in six weeks, the compulsory employer rate goes to 12%. I’m not suggesting we instantly introduce a 12% rate here – businesses would be driven into the ground. But it’s interesting to note that in Australia, for most workers, the tax on employer contributions is much lower than that in New Zealand. In the next few decades, Australians are set to retire with hundreds of thousands of dollars more than their New Zealand counterparts.  

I turn 65 in 27 years. I have no expectation that superannuation in its current form will exist by the time I get there. I have a sense of fatalism about the whole thing. It feels inevitable that I’ll be paying for older generations to enjoy universal super, only for the settings to finally change once I’m on the home straight to 65.  

I do find one thing about the Government’s move this week particularly curious. They’ve opened the door to means-testing KiwiSaver. Those who earn more than $180,000 won’t receive the Government contribution.  

I don’t claim to know what the best solution is. But there will be many working New Zealanders wondering, this week... if means-testing KiwiSaver benefits is acceptable, why shouldn’t superannuation be means-tested too?  

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack Team podcast
from News Talks that Be.

Speaker 2 (00:12):
And it's one of the sort of one of the
curious things about the structure of modern liberal democracies, whether
it's share markets or political cycles or even media coverage. Actually,
a lot of the big forces that shape our society,
that kind of shape our world, are influenced by short

(00:35):
term incentives and it gets us into all sorts of pickles. So,
for example, take three waters right in the crisis with
water infrastructure in New Zealand. The main reason we find
ourselves with a vast infrastructure deficit is because for decades
heaps of local councils haven't properly invested in maintaining the pipes.

(00:57):
Why didn't they invest, Well, it was simple. Investment takes money,
and money means rates, and with woefull levels of engagement
with local body elections, berg rates increases and pledges to
spend millions of dollars on water infrastructure that no one
could see or appreciate. Well, those weren't exactly vote winners.

(01:18):
Counselors who wanted to be re elected have been incentivized
to defer spending for the future. Someone else's problem. Predictably,
of course, the problem snowballed. I think we risk the
same thing with our aging population and the future of
superannuation in New Zealand. We know that in a few

(01:41):
short years, as more baby boomers retire, the cost of superannuation,
combined with the impact of an older population on the
health system, is going to massively increase pressure on the
government books. Treasury has been warning about it for ages
for yoonks. Now there are going to be fewer of
us of working age, supporting more of us who are retired.

(02:01):
And yet since the advent of Key we Save It,
there have been very few big steps to a dress
the fast approaching meteorite. I'm pleased this week to see
the government move on Key we Save for contributions. I
think it's well overdue and although yep, it's going to
be a burden for a lot of businesses at least
in the short term, I would personally support steps that

(02:22):
encourage a much greater rate of retirement saving for the future.
It's funny it kind of occurs to me that a
massively underrated component in the Australia versus New Zealand equation
is superannuation. We always talk about wages, but just think
about the differences in super between the two countries. So

(02:43):
saving for super is compulsory in Australia for starters, but
not only are wages higher across the ditch. In six
weeks the compulsory employer rate for superannuation goes to twelve percent.
We're slowly stepping it from three to four. The Aussies
are at twelve.

Speaker 1 (03:00):
Now.

Speaker 2 (03:00):
I'm not suggesting we instantly introduce a twelve percent rate here.
I mean, let's bee like businesses would be into the
ground if we did that, right, But it is interesting
to note that in Australia, for most workers, the tax
on employer contributions is much lower than the tax in
New Zealand. In the next few decades, Australians are set
to retire with hundreds of thousands of dollars more than

(03:24):
their New Zealand counterparts. I turned sixty five and twenty
seven years right. I have no expectation that superannuation in
its current form is going to exist exactly as it
is today by the time that I get there. And
I sort of honestly have a bit of a kind
of sense of fatalism about the whole thing. It just
feels inevitable to me that I'm going to be paying

(03:45):
for older generations to enjoy universal super, only for the
settings to finally change once I'm on the home straight
sixty five and I do find one thing about the
government's move this week really curious. So they've opened the
door to means testing key we Saver. Those who earn
more than one hundred and eighty thousand dollars a year
won't receive the government contribution. Now, I don't personally claim

(04:10):
to know what the best solution is, but there are
going to be many working New Zealanders wondering if means
testing key we Saver benefits is acceptable, why shouldn't superannuation
be means tested?

Speaker 1 (04:25):
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