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Key points|
• New Zealand Superannuation is the only source of income for approximately 20% of superannuitants with a further 52% receiving additional income of less than $5,000. • There is a low take-up of supplementary forms of assistance by superannuitants. • Supplementary forms of assistance need to enhance Government’s objective of encouraging older people to remain in their own homes for as long as possible. • Recent legislative changes effective from 1 April 1997 will reduce the number of superannuitants required to pay the surcharge from 29% to 14%. • It is important that policies remain stable, certain and sustainable to ensure that people can plan properly for their retirement. |
IntroductionThe level of income that people can expect to receive during their retirement years is an important issue for both older people and those planning for their retirement. The principle that retirement income policies should be stable, certain and sustainable is central to people being able to plan adequately for and during their retirement.
It is important that supplementary forms of government assistance that are available to older people enhance Government’s objective of encouraging older people to remain in their own homes for as long as possible. It is also important that older people have the knowledge of the types of additional assistance that may be available to them to supplement their New Zealand Superannuation in order to support this government objective.
Income Levels of Older PeoplePersonal income
For most people, retirement is characterised by a significant drop in personal income and increased financial dependence upon state provisions. Upon reaching the age of eligibility for New Zealand Superannuation, men are likely to see their total income fall as New Zealand Superannuation increasingly becomes their main income source. However, for many women, becoming eligible for New Zealand Superannuation causes their total income to rise and often represents their first financial independence.
In 1991, the mean income for men aged 60 years and over was $16,359 per annum (gross), 36.4% lower than that for men aged 55 to 59 years ($25,725 per annum gross). Women aged 60 years and over had a mean income of $12,654. While this was only 2.9% less than the income for women aged 55 to 59 years, both groups received substantially less than their male counterparts.
Generally, older males have a higher income than older females. However, the differential in income narrows with age. This may be largely attributable to the difference in the age pattern of exit from the labour force and to the transfer of assets to the surviving spouse, usually the woman. Amongst those in the 60 to 64 year age cohort, men on average were receiving nearly $6,500 more than women, whereas men in the 75 year and over age cohort received on average $1,600 more.
There are increasing numbers of women with income well above the average, many of whom have accumulated or inherited assets. However, there are large numbers of women for whom the task of saving to prepare for retirement has not been possible. Highly represented in this group are Maori and Pacific Islands women as well as women whose circumstances have led to sole parenthood, widowhood, separation or divorce.
Women tend to achieve the greatest level of income equality with men when they are aged 65 years and over. This is because New Zealand Superannuation payments are at a fixed level and do not differentiate according to gender or past labour force experience.
Ethnicity issues
In general, older people in the Maori and Pacific Islands ethnic groups have lower incomes than other older people. Incomes for these two groups are heavily concentrated in the $5,001 - $10,000 range, which is the income bracket into which the 1991 levels of New Zealand Superannuation fell. This reinforces the view that many Maori and Pacific Islands people are solely reliant on New Zealand Superannuation for their retirement income.
The following table illustrates the differences in total personal income of people aged over 60 years according to ethnic group.
While less than 50% of the older people in the European ethnic group had an income of $10,000 or less, this proportion increased to 69 percent for older Maori and 79 percent for older Pacific Islands people. In 1991, the median annual income for older Maori was $9,000, compared with $8,200 among older Pacific Islands people and $10,700 among older people belonging to the European ethnic group.
An issue that has been raised in Senior Citizens Unit consultations with Maori is the effect on Maori of the increasing age of eligibility for New Zealand Superannuation. Maori life expectancy in 1990-92 was 73 years for females and 68 years for males. The issue is that the new qualification age for New Zealand Superannuation of 65 years, combined with lower life expectancy rates for Maori, means that some Maori will not receive New Zealand Superannuation and most Maori will not receive New Zealand Superannuation for as long as their non-Maori counterparts.
The Retirement Commissioner is planning to include strategies relating to retirement income planning for Maori and Pacific Islands people in his education programme on retirement savings.
Household incomes
The 1994-95 Household Expenditure Survey indicated that New Zealand Superannuation was the major source of income in senior citizen households. However, the extent to which the household was dependent on New Zealand Superannuation varied amongst households of different compositions.
The survey also found that senior citizen households are generally small, comprising one or two people. Approximately one-third of senior citizens were living alone in 1994. The probability of living alone increases with age and is particularly evident among women who have a higher life expectancy than men. The Household Expenditure Survey does not include those who do not live in private households.
The income levels of superannuitant households follow trends in other New Zealand households in that income levels are closely related to involvement in paid work and income obtained from investments. The following table provides information on the sources of household income for older people.
| Total Household Income by Household Composition and Source |
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| Source of Income | Single Person 60 years or more living Alone | Two Person Household, both 60 years or more | Two Person Household, one 60 years or more |
| Percentage of Total | Percentage of Total | Percentage of Total | |
| New Zealand Superannuation | 67.0% | 58.9% | 23.6% |
| Wages and Salaries | 8.0% | 6.6% | 45.9% |
| Self Employment | 1.4% | 2.3% | 11.0% |
| Social Welfare Benefit | 0.6% | 1.1% | 4.7% |
| Private Superannuation | 6.1% | 10.2% | 3.8% |
| Investment and Other | 17.0% | 20.9% | 11.0% |
The above information confirms that New Zealand Superannuation is the major source of income in all households comprising single people or couples where both partners are aged 60 or over. The dependence on New Zealand Superannuation is greater where older people live alone. Other common sources of income for superannuitants are interest, wages and salaries, and income from private superannuation schemes. As could be expected where one person in the household is aged under 60 years, a larger amount of household income is derived from wages and salaries.
An issue that has been raised by community groups is that where households are totally dependent on New Zealand Superannuation, this has particular implications for the housing costs of superannuitants. Community groups have reported that some superannuitants are significantly reducing expenditure on food, heating and health care in order to meet housing costs which might include rent payments, mortgage payments or costs incurred with the maintenance of a home. Because many older people are managing to meet their ongoing costs within their existing income, through reducing expenditure in this way, they then are not eligible for supplementary assistance. Reductions in food, heating and health care have obvious negative long-term effects on health and therefore on the ability of the older person to remain in their own home.
Publicly Provided Retirement Income
New Zealand Superannuation is the largest single item of government expenditure and accounts for over half of Social Welfare expenditure. The following chart illustrates the Department’s forecast expenditure for New Zealand Superannuation between 1996 and 2031.
The chart above contains two CPI assumptions. Firstly, Treasury CPI estimates as at April 1996 have been used up until the year 2000. After the year 2000, an assumption of one percent CPI has been used. Secondly, expenditure is also shown on the chart with this one percent CPI assumption removed. The chart illustrates the effect that the changing demographic situation, due to the ageing of the population, will have on expenditure on New Zealand Superannuation.
Accord on Retirement Income Policies
Costs of sustaining retirement income policies combined with the ageing population will remain major issues to be taken into account in the future development of retirement income policies. The Accord on Retirement Income Policies represents the agreed policy position of the Alliance, Labour, National and United Parties in relation to retirement income. The Accord sets out the policies that will apply in respect of the public and private provision of retirement income in New Zealand. The Accord was established in 1993 to achieve political consensus on retirement income policies so that people could plan with certainty for and during their retirement. It is therefore important that policies remain stable, certain and sustainable.
Income support provisions
The following income support provisions for older people are available through Income Support offices of the Department of Social Welfare.
New Zealand Superannuation
At 1 October 1996, the age of entitlement for New Zealand Superannuation was 62 years and nine months. At 29 June 1996, 481,498 people were receiving New Zealand Superannuation at an annual cost of $5,083,119,000.
The following table indicates the rates at which New Zealand Superannuation is paid, the percentage of superannuitants in each rate category and the weekly and annual payments per person as at 1 July 1996.
| Rate category | Percentage of recipients | Weekly rate per person(gross) | Annual rate per person (gross) |
| Half the married rate 1 | 48.9% | $184.33 | $9,585.16 |
| Single living alone rate | 27.3% | $249.50 | $12,974.00 |
| Single sharing rate | 14.8% | $227.68 | $11, 839.36 |
| Non-qualified spouse half married rate 2 | 5.1% | $175.78 | $9140.56 |
| Non-qualified spouse rate 3 | 3.8% | $184.33 | $9585.16 |
| Hospital rate 4 | 0.1% | $30.59 | $1,590.68 |
The rates of New Zealand Superannuation are adjusted each year in line with movements in the Consumers Price Index. In addition, the Accord on Retirement Income Policies requires that the after-tax rate of payment for a couple remain between 65% and 72.5% of the average after-tax ordinary time weekly wage. At 1 July 1996, New Zealand Superannuation was 69.46% of the average after-tax ordinary time weekly wage.
An issue which has been raised in many consultation meetings undertaken by the Senior Citizens Unit is the level of New Zealand Superannuation. In addition, groups representing superannuitants, in particular Age Concern New Zealand and Grey Power New Zealand, have been active in lobbying Government for an increase in the rate of New Zealand Superannuation. The policy manifesto of Age Concern New Zealand states that the Government should commission research to determine the levels of income needed to achieve a reasonable standard of living for superannuitants who are dependent entirely on New Zealand Superannuation.
Accord Parties have agreed that part of the work programme for the 1997 Periodic Report should include a study on the standard of living of superannuitants and the adequacy of their income. The Senior Citizens Unit supports such a study being undertaken and considers that it would greatly improve the information available on the adequacy of superannuitants’ income.
Veterans Pension
Veterans Pension is paid instead of New Zealand Superannuation to people who meet the service and military criteria. It is not income-tested but is taxable. The rates of payment are the same as for New Zealand Superannuation but entitlement is not subject to the surcharge. To be eligible, a person must have reached the age of qualification for New Zealand Superannuation and qualify for a war disablement pension of at least 70%.
There has been an increase in the number of recipients of the Veterans Pension since a policy change in 1992 allowed veterans receiving New Zealand Superannuation to transfer to the Veterans Pension. Previously, no movement was allowed between New Zealand Superannuation and the Veterans Pension. There are more women than men receiving this pension because widows of veterans are entitled to continue to receive the Veterans Pension on the death of their spouse. Organisations such as the Returned Services Association are active in encouraging their members to transfer to the Veterans Pension if they meet the 70% disablement criteria.
Transitional Retirement Benefit
The Accord on Retirement Income Policies provides that the age of eligibility for New Zealand Superannuation should continue a transition, to reach the age of 65 by the year 2001. To assist a defined group who were approaching the age of 60 at the time the increased age of eligibility was announced, the Accord provides for a Transitional Retirement Benefit. This benefit was introduced on 1 April 1994. It is an income-tested benefit set at a rate lower than New Zealand Superannuation, but paid at the same rate as the highest social security benefit. It is available for a maximum period of three years prior to reaching the age of eligibility for New Zealand Superannuation. The Transitional Retirement Benefit will be completely phased out by 2004.
Supplementary Forms of Assistance
Supplementary forms of assistance are available to superannuitants and beneficiaries who do not have enough income to meet their essential living expenses. These forms of assistance are targeted to those most in need and can be granted on a recoverable or non-recoverable basis depending on the personal circumstances of the recipient and the purpose for the additional assistance. The main supplementary forms of assistance are outlined below.
The Disability Allowance provides assistance to people who have regular and ongoing expenses because of a disability or personal health need which is expected to continue for at least six months. The need can be the result of a permanent injury, illness or medical condition. Items currently attracting disability allowance payments which are of particular relevance to older people include elder day care and medical alarms. The criteria for Disability Allowance is currently under review. The aim of the review is to clarify the purpose of the disability allowance policy and to clarify roles and responsibilities between the income support and the health systems.
A Special Benefit is paid to people, including low income earners, who do not have enough income to meet their essential living expenses and whose individual circumstances warrant a payment. It is a discretionary payment approved on a case by case basis and the rate of payment varies according to an assessment of the individual’s need.
The Accommodation Supplement provides people with assistance in meeting their housing costs. Eligibility is subject to income and asset testing. The supplement provides a 65% subsidy on accommodation costs over the entry thresholds up to a maximum rate depending on where the accommodation is located. A significant concern for older people whose only income is New Zealand Superannuation is that, because the Accommodation Supplement meets only 65% of any rent or mortgage increase, the balance of any increase must be met by reducing expenditure on other items such as food, heating or health care.
Special Needs Grants and Loans are available to all beneficiaries, superannuitants and low income earners who are facing financial difficulties. Special Needs Grants do not have to be repaid and can be granted for items such as food. Superannuitants are also eligible to apply for a loan on their superannuation to pay for items such as bond and rent or essential home repairs. Special Needs Grants and advances are subject to income and asset testing to determine whether the individual could reasonably be expected to meet the cost themselves.
War Pensions
The War Pensions Act 1954 comes under the portfolio of the Minister in Charge of War Pensions. The Department of Social Welfare is responsible for both the administration and policy development for War Pensions. War Pensions provide war disablement pensions and a variety of concessions for men and women whose disability is either due to, or aggravated by, war service.
To be eligible, a person must have served with the forces in New Zealand or overseas prior to 1974 (when the Accident Compensation Act came into effect) or in a war or an emergency. Eligibility is not income or asset tested and a War Pension can be received in addition to New Zealand Superannuation or Veterans Pension. While most war pensions currently paid relate to service in the Second World War, Vietnam War, and Korean War, the Minister in Charge of War Pensions recently declared that service with certain New Zealand Peacekeeping forces will also meet the criteria for a War Pension.
Comment A relatively small number of superannuitants receive supplementary forms of assistance. The 1994/95 Household Expenditure Survey indicated that approximately 20% of superannuitants are totally reliant on New Zealand Superannuation. It is possible that some of these people may be eligible for, but not currently in receipt of, supplementary assistance. A possible explanation for this may be a lack of knowledge about assistance that is available. Another factor is that many older people say that they do not like borrowing money and try to meet costs from within their income rather than seeking extra assistance. It is expected that the development of Super Centres through the Income Support offices will improve access to information about assistance provisions for superannuitants.
In addition, the Senior Citizens Unit considers it important that supplementary forms of assistance that are available to superannuitants are appropriate to the needs of older people. In particular, income support provisions should support government policies which encourage older people to remain in their own homes for as long as possible. The Senior Citizens Unit considers that policy work in this area should be a priority.
Policy IssuesSurcharge
Entitlement to New Zealand Superannuation is universal and 96% of people of eligible age receive some New Zealand Superannuation or the Veterans Pension. However the surcharge, which is administered by the Inland Revenue Department, provides a targeting mechanism which has the effect of reducing the net amount of New Zealand Superannuation in relation to other income received. Statistics available from the Inland Revenue Department for the 1994/95 income year show that approximately 4% of superannuitants paid all their New Zealand Superannuation back through the surcharge.
In December 1995, Accord Parties announced an increase in the surcharge thresholds which took effect from 1 July 1996. In addition to this change, the Taxation (Superannuitant Surcharge Reduction) Act was passed by Parliament in August 1996. The legislation significantly increases the surcharge thresholds. The increase takes effect from 1 April 1997 and will allow a couple’s gross income to be about ten percent above average ordinary-time earnings. A couple will be able to earn a total income of up to $34,900 per year before their New Zealand Superannuation is reduced and a single superannuitant will be able to earn a total income of up to $23,300 per year. The Act will reduce the estimated percentage of superannuitants who are subject to the surcharge from about 29% to 14%, reducing or eliminating the surcharge paid by over 100,000 superannuitants.
Superannuation Surcharge Thresholds (per week)
The superannuitant surcharge is 25% on top of a superannuitant’s ordinary tax for income over the amounts shown in the table below.
| Single Couples |
Previous Threshold | From 1 July 1996 | From 1 April 1997 |
| $80 | $90 | $198 | |
| $120 | $135 | $297 |
The superannuitant surcharge has remained a contentious government policy with superannuitants. Grey Power New Zealand, the national organisation representing superannuitants, has been particularly active in lobbying for the complete removal of the surcharge and has publicly commented that the new adjustment to the surcharge thresholds is still not satisfactory. Grey Power New Zealand is still in favour of the complete removal of the surcharge.
The Accord requires that a targeting mechanism be applied to publicly provided retirement income but that this mechanism should not act as a disincentive to people saving for their retirement. Consultations undertaken by the Senior Citizens Unit over the previous three years have also shown that many older people believe that any private savings that have been made during working life should not be the subject of targeting for New Zealand Superannuation.
Consumers Price Index for superannuitants
The Accord states that the purchasing power of New Zealand Superannuation should be maintained by annually adjusting the after-tax rates of payments of New Zealand Superannuation by the same percentage as the change in the Consumers Price Index (CPI). The Veterans Pension is also increased annually in line with the CPI.
However, there has been consistent pressure in the past from older people for the development of a price index with weightings reflecting the spending patterns of superannuitants. The Todd Task Force looked at this issue and recommended that increases in the level of New Zealand Superannuation be in line with movements in the CPI, until a robust alternative price index was introduced that more accurately reflected the mix of goods and services purchased by retired people.
Statistics New Zealand began producing a Superannuitants Price Index (SPI) in 1995. This index measures the changes in prices of a fixed group of goods and services purchased by superannuitants. Price movements in the SPI can be compared to those in the CPI showing whether prices of items bought by superannuitants change similarly, slower or faster than those purchased by all New Zealand householders.
The results in the SPI show that superannuitant households spend a greater proportion of their expenditure on food, personal and health care, housing, housing operation and transport compared with the average New Zealand household. A smaller proportion of superannuitants’ total expenditure was shown to be spent on apparel, credit services, tobacco and alcohol, and recreation and education services.
A consultative period was held on the SPI, and Statistics New Zealand are currently refining the SPI in light of comments received from interested parties. It is important to note that the SPI could not be used to adjust the rates of superannuation without the agreement of Accord Parties and a change to existing legislation.
Delivery Issues
Super Centres
Superannuitants comprise over half the client base of the Department of Social Welfare’s Income Support offices. In recognition that older clients often have different needs and expectations of service delivery, Income Support has developed the concept of “Super Centres” providing a specialised client-focused service for older people. The Senior Citizens Unit has worked closely with Income Support in the development of the Super Centre concept.
While Super Centres are primarily deliverers of income support services to older people, they also provide a “one-stop shop” offering information on a range of services for older people. Super Centre staff have developed strong community networks, enabling them to make appropriate referrals in response to client needs. The Senior Citizens Unit has been involved in the development of a training package specifically for Income Support officers working in Super Centres.
The specific information needs of older people and the importance of the older sector are gradually being acknowledged by information providers. The Senior Citizens Unit views the development of Super Centres as a very positive step both for the Department and in meeting the information needs of its older clients.
Future Directions
Costs of sustaining retirement income policies combined with the ageing population will remain major issues to be taken into account in the future development of retirement income policies. The Accord on Retirement Income Policies provides for Periodic Reports to be delivered to the Government at six yearly intervals with recommendations on the future development of retirement income policies. The first Periodic Report will be prepared in 1997 and will provide comment on whether the emerging trends of public and private provision of retirement income are appropriate in terms of adequacy, efficiency, equity and sustainability. The Periodic Report will also suggest where adjustment of any of the retirement income policies is desirable.
Parties to the Accord on Retirement Income Policies have requested that a study be undertaken, as part of the work for the Periodic Report, on the standard of living of superannuitants and the adequacy of their income. Accord Parties have invited the Retirement Commissioner to develop a work programme that would see this study undertaken. The Senior Citizens Unit supports such a study being undertaken and believes that it could provide valuable information on the income needs and living circumstances of superannuitants. Information provided by the 1997 Periodic Report on Retirement Income Policies will inform on trends in the retirement income levels of older New Zealanders.
A relatively small number of superannuitants receive supplementary forms of assistance. It is important that supplementary forms of assistance that are available to superannuitants are appropriate to the needs of older people. The Income Support Super Centres are very important in ensuring that superannuitants have access to all the information they need in order to obtain their correct entitlements. Income support provisions should enhance government policies which encourage older people to remain in their own homes for as long as possible. The Senior Citizens Unit considers that policy work in this area should be a priority.
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