New Zealand Superannuation

Complementary, not alternatives.

New Zealand Superannuation and KiwiSaver are complementary schemes rather than alternatives.

• Introduced in 1938, New Zealand Superannuation is a government scheme that provides a Basic Income for all those aged over 65. It is non-contributory and non-means-tested.
• Introduced in 2007, KiwiSaver schemes are government-subsidised but privately operated contributory saving schemes that enable working-age people to save money for a deposit on a first home or for retirement.
  • Money invested in a KiwiSaver fund can only be withdrawn for a first home or after the age of 65.
  • KiwiSaver was introduced to enable people to save money for a house deposit or to give them additional income in retirement.  
• While New Zealand Superannuation treats everybody equally, Kiwi Saver favours those who have work and those on higher incomes as they can make larger contributions during their working life.
  • New Zealand Superannuation treats everyone equally and has an equalising impact on incomes, while KiwiSaver, in contrast, perpetuates income differences into retirement.
  • Some people, such as those with physical or mental disabilities, those who cannot work or are unable to find employment, caregivers such as stay home parents and those caring for family members including the elderly, and others who are unable to earn an income or make KiwiSaver contributions, will not benefit from a KiwiSaver scheme when they retire so are entirely reliant on New Zealand Superannuation in their later years. 
• Because some people are unable to contribute to a KiwiSaver scheme, it is absolutely imperative that KiwiSaver is not portrayed as a replacement for New Zealand Superannuation but as a complementary scheme that enables some people to enhance their incomes in retirement. 

New Zealand Superannuation and Veterans’ pensions and KiwiSaver schemes will be retained.

• A Basic Income for people of working age will not replace New Zealand Superannuation or Kiwi Saver schemes. 
• New Zealand Superannuation is a very efficient Basic Income scheme with near zero administration costs. 
• With the introduction of a Basic Income for those of working age, a person over 65 will not be eligible for both the working-age Basic Income payments and New Zealand Superannuation payments at the same time.  
• New Zealand Superannuation is a series of Basic Income payments available to those over 65 with different payment rates for married (each), single (sharing), and single (living alone).  
• The present value of New Zealand Superannuation payments is higher than that envisaged for a Basic Income payment for a person of working age. 
• New Zealand Superannuation is not compulsory. It is an opt-in scheme. You must apply for New Zealand Superannuation before you receive it. When you sign up for NZ Superannuation, it will replace your working-age Basic Income, which will cease. 
• Basic Income New Zealand does not support any proposal to reduce New Zealand Superannuation payment rates below current levels or to the same level as the adult Basic Income if the adult Basic Income rate is less than the New Zealand Superannuation rate. 

NZ Super discriminates against people with age-related poor health.

At present, New Zealand Superannuation discriminates against those with age-related poor health.

• Those with poor health in their early 60s, and forced to retire before age 65, do not receive New Zealand Superannuation until they are 65. This means that they must rely on other means-tested benefits before age 65.
• Those with short life expectancies die earlier and consequently receive fewer total NZ Superannuation payments over their lifetime than a person with a longer life expectancy.
• Those with higher incomes usually have better health and are known to live longer on average, so they receive more NZ Superannuation payments during their lifetime.
• Because people who have had high incomes during their working life are also more likely to have other income sources such as KiwiSaver, other superannuation plans, and other investments, they have less need for income from NZ Superannuation.
• Requiring people receiving New Zealand Superannuation to pay tax on their total income at tax rates that improve the targeting of the payments to those with the lowest incomes will reduce the overall net cost of New Zealand Superannuation and the perceived need to raise the age of eligibility. Such a tax, which provides “broad targeting”, is described in more detail in the sections below.
• Increasing the age of eligibility exacerbates the problem of discrimination against those who have had lower incomes during their working life and those with poor health and short life expectancies.
• As women on average earn less during their lifetime, due to lower pay rates or more time spent out of the workforce caring for others, raising the age of eligibility can be discriminatory against women.
• As people of some ethnicities have shorter life expectancies on average and develop poor health from an earlier age, advocacy for raising the age of eligibility may be seen as racist.

Possible changes to better target NZ Super to those who need it.

• The office of the Retirement Commissioner confirmed in January 2020, and since then, that New Zealand Superannuation is sustainable in the medium term (up to 30 years). 
• It is suggested, however, that reducing the overall cost of NZ Superannuation by improving the broad targeting of payments will free up funds for other uses, such as enhancing benefits for children or adults under 65.
  • Improved “broad targeting” of NZ Superannuation toward those who need it the most will reduce the overall cost of the scheme.
    • This enables the money saved to be used to improve benefits for children or to introduce an adult Basic Income.
  • Broad targeting involves paying everyone the same gross superannuation amount and using taxation to ensure that the net amount of the superannuation is larger for those with the least income from other sources.
  • With broad targeting, the cost of the NZ Super scheme can be reduced without means testing of assets or income to ascertain eligibility or to determine the size of the payments.

Below, we consider eight options for changing or reducing the cost of the New Zealand Superannuation scheme in more detail. The first option, payment of a Basic Income in conjunction with an alternative tax scale, is the preferred option.

Click on an option to see details.

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For further discussion on these issues, see our “further discussion” section below.

• New Zealand was a world leader when a means-tested pension for those over 65 was introduced in 1898.  
  • The pension was funded from government revenue rather than individual contributions.  
• In 1938, an act lowered the age of eligibility for the means-tested pension to 60 and introduced a non-contributory and non-means-tested universal superannuation for those over 65. New Zealand was the first country to introduce such a scheme.
  • The first New Zealand Superannuation payments were made in 1940. 
  • The universal superannuation was taxable and, when fully implemented, gave the same after-tax or net value as the pension. 
  • With a progressive or graduated tax system, those with higher incomes from other sources received slightly smaller net incomes from the superannuation than those with lower incomes.  
  • The means-tested pension was retained for low-income people who were unable to work beyond 60 due to their deteriorating physical condition. 
• In 1977, superannuation payments were increased in value, the age of eligibility was lowered to 60, and the means-tested pension was abolished.
  • With these changes, the name of the universal scheme was changed from Universal Superannuation to National Superannuation.  
• Between 1992 and 2001, the age of eligibility for superannuation was progressively lifted to 65. 
• In 1993 the name of the scheme was changed from National Superannuation to New Zealand Superannuation. 
• In 2001 the New Zealand Super Fund 
  ( https://www.nzsuperfund.nz/ ) was established to help meet future NZ Superannuation payments. 
• From 1938, apart from the period between 1985 and 1998 when a surcharge was applied to additional income, New Zealand Superannuation has remained unchanged as a non-contributory and non-means-tested universal payment.

New Zealand Superannuation is paid directly from government funds.

• During their lifetime people do not make specific contributions to a New Zealand Superannuation fund. 
• People will, however, pay income taxes that help fund the New Zealand Superannuation Fund and also help pay for others’ superannuation.
• People pay tax with the expectation that, having helped fund the superannuation of others during their working life, they will likewise receive superannuation when they reach the age of eligibility. 
• The New Zealand government also funds and operates the New Zealand superannuation fund, which invests money in New Zealand and internationally. The dividends received are intended to part-fund New Zealand superannuation, reducing the direct burden on taxpayers. 
• Superannuation payments circulate in the economy and generate tax revenue for the government that is used to fund future superannuation payments.
  • When a superannuitant receives superannuation payments, they spend the money received, and the government collects GST on the money as it is spent.
  • Money spent in a supermarket or other business generates business activity, which creates employment. So the government collects GST, income tax, and profit tax from this business activity. Estimates are that the government collects between 25% and 30% of the money back in this first round of expenditure.
  • The money that remains in circulation after the government collects taxes from the first round of expenditure is paid to people as wages or salaries, and profits are paid out as dividends or reinvested.
  • The people who receive this money will spend it in a second round of expenditure, and when they do, the government again collects between 25% and 30% of that money in taxes.
  • The money that remains after the second round continues to circulate, and each time it circulates, the government collects back a similar proportion in tax. Eventually, the government collects almost all the money back.
  • The circulation of the money paid out as superannuation boosts the economy as it circulates. This produces a multiplier effect where the boost to the economy exceeds the amount paid out by the government.
  • As the money returns to the government as taxes, the government pays it out again as part of the next superannuation payment. As a consequence, after an initial short period, NZ Superannuation becomes largely self-sustaining. The tax generated or returned to the government from the superannuation payments eventually becomes very close to the value of the payments, and any additional money required for the scheme is minimal.
  • This means that the government needs only to find the money to start the scheme and a little to sustain it.
  • For each additional person who becomes eligible for New Zealand Superannuation, funding equivalent to about three years of payments is required. This funding is spread over the first ten years. After that time, their superannuation becomes more than 99.9% self-sustaining. 
  • The time and money required for superannuation to become self-sustaining depend on the velocity of money, the speed at which money circulates. If the velocity of money increases, both the amount of money and the time required for superannuation to become 99.9% self-sustaining reduce.
  • Targeting money toward those on lower incomes by linking superannuation payments to an appropriate tax scale will enhance the velocity of money. 
• This means that for each additional person receiving New Zealand Superannuation, the government only needs to find funding for the first three years, with this funding requirement spread over ten years. 
• The New Zealand Superannuation Fund may have sufficient funds to meet this funding requirement. 
• If the population is stabilised so that there is no population growth, there will be no additional people in the scheme each year, and the extra funding needed will be zero, and New Zealand Superannuation will be entirely self-sustaining. 
• Because New Zealand Superannuation has been in existence since 1938, it is now largely self-sustaining. The only additional funding required is to meet the growth in the number of people over retirement age, due to an ageing population and population growth, and to fund the minimal administration costs.

Understanding how a Basic Income is funded indicates that it can be sustained indefinitely without lifting the age of eligibility or introducing any form of means-testing

Lifting the age of eligibility is also an unpopular option. The Retirement Commission reported in 2023 that a University of Otago study found that: 

• “Raising the age of eligibility to 67 was ranked by 61% of respondents as the worst policy (of the seven options), making it the option ranked worst by the largest number of people. The unpopularity of this policy has increased relative to 2014. “

If lifting the age of eligibility is not necessary, why do some suggest that it is?

There are several reasons for this:  

• Many people are simply repeating the myth they have heard and believed that NZ Super can not be sustained. They have not done the sums themselves or understood exactly how the system works. 
• Others have based their reasoning on an understanding that the average age of the population is rising and that in the future, a smaller portion of working-age persons must work to pay tax to provide money to pay NZ Super to a greater proportion of people of retirement age.
  • This is unduly simplistic. People who believe this generally believe that saving a dollar on superannuation expenditure will free up a dollar to allow for tax cuts or for expenditure on other worthwhile activities. It is not as simple as that.
  • Cutting expenditure on New Zealand Superannuation will reduce the incomes of those eligible for superannuation. This will reduce their ability to spend and reduce tax revenue from GST. It will also reduce employment generated by their expenditure, reduce employment and the resulting income taxes, reduce profits and profit taxes, and reduce taxes on dividends. The economy will contract. 
  • If superannuation expenditure is reduced by a dollar, tax revenue will also fall by a similar amount, so there is no free money to spend elsewhere and no free money to allow tax cuts.
  • Reducing superannuation expenditure by raising the age of eligibility will reduce employment, reduce business activity and profits, and inevitably move some people over 65 into poverty while increasing the wealth difference between rich and poor.
  • In contrast, reducing superannuation expenditure by introducing an appropriate tax on other income to achieve improved targeting of net superannuation expenditure to those with the lowest levels of additional income will maintain employment and business profitability, help keep those over 65 out of poverty, counter growing wealth inequality, increase the multiplier effect, and enhance the velocity of money and government tax revenues.  
• Many who promote superannuation cuts have a financial interest in private savings or retirement schemes such as the government-subsidised KiwiSaver.
  • It is in their personal financial interest to promote the fear that NZ Super will not last into the future to encourage investment in their own schemes.
  • This may be done consciously and deliberately or unconsciously.
  • Some promoters of alternative schemes may well believe the propaganda that New Zealand Super will fail without understanding the economics, checking it for themselves, or thinking it through correctly. 
• People who have a financial interest in doing so, or people with a belief that private business is always better than government-owned business, will often promote private saving schemes over government schemes and will seek to discredit a government scheme or spread the myth that it is not sustainable whenever or wherever possible.
  • All such advice needs to be received with a significant degree of caution. 
• The retirement commission has provided a list of myths promoted by poorly informed and unscrupulous politicians, KiwiSaver salesmen, and others.
  • This includes the myth that raising the age of eligibility will be necessary.
  • See: An introduction to New Zealand Superannuation, POLICY PAPERS 2021 | 03, page 2. 
•  For the arguments of the Retirement Commissioner on the sustainability of New Zealand Superannuation, see the Report of the Office of the Retirement Commissioner below.

In the 2019 Report of the Office of the Retirement Commissioner, released in January 2020, the retirement commissioner argued as follows (blue font indicates a direct quotation):

“I do want to set out upfront my overarching view that New Zealand Superannuation (NZS) is delivering good value for New Zealanders under current settings, and moreover will be needed by more New Zealanders in coming years. 

I, therefore, do not think that the best step to ensure the sustainability of NZS is to focus at this point on raising the age of eligibility, or that taking this step would necessarily achieve the intended outcomes, or at least without putting significant costs elsewhere on the system. I am very aware that in suggesting that the age of eligibility may not be the priority right now, I am putting forward a more nuanced point of view from my immediate predecessors. The economic context changes over time – from Treasury’s most recent publicly available projections, NZS looks affordable on current settings for the medium term, even though it did not necessarily look so in earlier years. The outcomes we wish to achieve through policy interventions also need to reflect the priorities of the times. The Government’s focus on applying a wellbeing lens is particularly relevant for retirement outcomes for New Zealanders, and means that fiscal sustainability needs to be considered within a broader view as to what NZS delivers. I wish to stress again though, that even from a fiscal responsibility perspective, NZS is sustainable. From the latest data and projections we have from the Treasury, NZS will cost under 7% (net) of national GDP by 2060. This is a significant rise in proportional cost, from 4.8% today, but is still well under what some other OECD countries already spend on pensions and yet find manageable because of a mix of pre-retirement policy settings, tax settings, private savings and investments, and government-supported pensions offsetting other costs on the taxpayer.

And of course, there is the significant offsetting of the cost of NZS already, from the tax paid by NZ Superannuitants on their NZS and all other income, as well as their contribution through expenditure to the local and national economies. NZS also enables many NZ Superannuitants to undertake unpaid, voluntary work in their community. This is a huge contribution relied on in many communities and which should be accounted for in considering the costs and benefits of NZS.

Therefore, instead of repeating the call from the last two reviews to lift the age of eligibility as the priority action resulting from this review, I instead recommend a more deliberate focus across the Government’s major pre-retirement policy areas as the priority near-term action by the Government. This is to ensure all New Zealanders have the best opportunity to prepare for retirement.

Summary of Recommendations.

Value and ensure the ongoing provision of NZ Superannuation at its current settings.

We believe it is clear from the evidence that NZ Super (NZS) is working effectively to support New Zealanders in maintaining a foundational standard of living, is affordable in the medium term and should be secured for future generations.

• We estimate that 15-20% of those retiring experience significant levels of material deprivation prior to receiving NZS. NZS helps to improve their material standards of living, and also their mental and social wellbeing. NZS is, in effect, the backstop intervention that addresses inequalities experienced and accumulated during New Zealanders’ lives. We should recognise and celebrate the very significant and positive impact of NZS, particularly for vulnerable New Zealanders.  
• We are concerned that the percentage of New Zealanders who are vulnerable to poorer outcomes in their future retirement is growing. The profile of today’s NZ Superannuitants should not be assumed to set the template for how future retirees will look, even in the near term.  
• We, therefore, do not think that the best step in terms of addressing vulnerability and improving retirement outcomes for more New Zealanders is to focus at this point in time on raising the age of eligibility, nor that taking this step would necessarily achieve the intended outcomes or at least not without putting significant costs elsewhere on the system.  
• In addition, we believe raising the age of eligibility in the next two to three decades could significantly risk heightening equity issues for those groups of New Zealanders whose lower life expectancies mean they are not able to enjoy the benefits NZS delivers for comparable periods for New Zealanders generally. This includes Māori and Pacific New Zealanders, for whom life expectancy rates are still significantly lower than the national average. While, from current demographic trends, rates for both look likely to gradually catch up over the coming twenty years, we believe that it would not be consistent with the Treaty and general principles of equity and fairness, nor fair or efficient by other measures, to raise the age of eligibility for NZS just as more Māori and Pacific New Zealanders start to be able to access and benefit from it for longer periods.  
• The focus in the near to medium terms should first be on lifting retirement outcomes through improved impact from the pre-retirement system, and particularly through ensuring adequate employment and incomes to enable savings and asset accumulation, and housing support that CFFC 2019 Review of Retirement Income Policies 5 SUMMARY OF RECOMMENDATIONS provides New Zealanders with options for where they live throughout their lives.  
• While expensive, NZS delivers good value for money, is affordable on current settings and projections at least for the medium term (through to mid-century), and should be secured for future generations. The Government should make clear that NZS is valued and will be protected to continue to provide for New Zealanders in future, on current settings.  
• We state this as it was apparent from submissions and focus groups that younger New Zealanders, as well as their parents and grandparents, are feeling very concerned that NZS will not be made available to future retirees, or at adequate levels. We received a lot of comments to the effect that ‘NZS won’t be there for us’.  
• This uncertainty is causing unnecessary stress, and we think should be put to bed so New Zealanders can have certainty that NZS will provide a stable level of state support for them to plan around. It is enough for younger New Zealanders to have to worry about where they will live and how they will earn enough to support their and their families’ current and future wellbeing, without having to face additional uncertainty as to whether they will lose an effective government backstop.   
• If the Government does not agree with this assessment as to the affordability of NZS in the medium term, then there are other options that should be considered as well as changes to the age of eligibility. These include changing tax rates for all or some New Zealanders, for example, to claw back more NZS from wealthier recipients, length of residency for eligibility, international pension agreements, and exploring options to develop innovation leading to economic growth from the increase in longevity.  
• In the meantime, a purpose statement for New Zealand’s retirement income system should be developed, so that we all have certainty as to what the system is aimed at achieving, and who within the government is responsible for each part of it, as well as for the whole.

• Susan St John, Why we should take $3b off top end of Super, newsroom, 5 August 2025, University of Auckland.
• Susan St John, Taxing pensioners’ other income at higher rate ‘could be better way to make super affordable‘, 2 September 2021, Stuff.
• Susan St John, Rethinking retirement income doesn’t require superpowers, interest.co.nz, 17 May 2016; and
• Susan St John,  Improving the affordability of New Zealand Superannuation, February 2015, Retirement Policy and Research Centre, Economics Department, Business School, The University of Auckland.
• For the latest from the Retirement Commission see: Retirement Commission: Policy and Research – NZ Super. 

Read our submission to the Retirement Commission 2025

2025 Review of Retirement Income Policies