Dave Ananth
Auckland, March 10, 2025
New Zealand’s pension system is often lauded for its simplicity and universality.
Unlike some other countries that tie retirement benefits to individual contributions, government employment, or means testing, New Zealand offers a flat-rate pension to all citizens and permanent residents over the age of 65, regardless of their financial status or work history.
While this approach ensures that no senior citizen is left without financial support, it also raises fundamental questions about fairness, sustainability, and incentives for personal responsibility.
The system, originally designed to provide a safety net for retirees, now functions as a blanket entitlement, rewarding both the diligent and the indifferent in equal measure.
As New Zealand’s population ages and fiscal pressures mount, it is time to critically examine whether this model is fit for purpose in the modern economy.
Unfair Approach
One of the primary concerns with the current pension scheme is that it does not differentiate between those who have contributed significantly to the economy and those who have contributed nothing. A person who has worked hard for decades, paid substantial taxes, and built businesses that employ hundreds of people receives the same pension as someone who has never held a job or actively avoided work.
This one-size-fits-all approach can be seen as fundamentally unfair, particularly to those who have been diligent in their financial planning.
It removes any incentive for people to save for their own retirement or to continue contributing to the workforce beyond the age of 65. Instead, it fosters an attitude of complacency, where individuals feel no obligation to prepare for their own future because they know the state will take care of them regardless of their efforts. This, in my view, is wrong.
A universal pension system also imposes a significant financial burden on taxpayers. With increasing life expectancy and an ageing population, the cost of maintaining New Zealand Superannuation will continue to rise. Currently, it is funded through general taxation, meaning that the working-age population must shoulder the growing expense.
As birth rates decline and the proportion of retirees increases, the pressure on the government’s budget will intensify. Without reform, future generations may face higher taxes or reductions in other essential public services such as healthcare, education, and infrastructure.
The question then arises: is it fair to ask younger, working citizens to support a system that does not differentiate between genuine need and financial self-sufficiency? No wonder the younger working class is moving overseas.
Policy Changes needed
Several policy changes could be introduced to make the pension system more equitable and sustainable. One possible reform is means testing, where pension payments are reduced or eliminated for those with high incomes or substantial assets.
Some other countries implement similar measures to ensure that public resources are directed toward those who need them most. Under such a system, individuals with significant wealth would either receive a lower pension or no pension at all, allowing funds to be reallocated to those who genuinely rely on them for survival.
While some may argue that this penalises financial success, it could be countered that a publicly funded pension should primarily serve as a safety net rather than a universal entitlement. If you are a Prime Minister earning $500,000 and you are 70 years old, my argument is that you do not deserve a pension. That is not why pensions exist.
Rising the age of eligibility
Another potential reform is raising the age of eligibility, which I do not support, but it must be considered. Given that people are living longer and healthier lives, many are capable of working beyond the age of 65. Gradually increasing the retirement age to 67 or even 70 would alleviate some of the financial strain on the pension system while encouraging individuals to remain economically active for longer.
This shift could be implemented gradually to ensure that those nearing retirement are not unfairly disadvantaged. Countries such as Australia and the United Kingdom have already moved in this direction, recognising that a longer working life is both economically necessary and beneficial for overall productivity.
Incentivising voluntary savings through mechanisms like KiwiSaver should also be a priority.
While KiwiSaver provides a solid foundation for personal retirement savings, greater incentives could be introduced to encourage higher contributions. For example, offering tax advantages or matching contributions for middle- and lower-income earners would provide individuals with greater motivation to take responsibility for their financial future.
Strengthening KiwiSaver would reduce reliance on government-funded pensions and create a more self-sufficient retirement culture.
Tiered System
Additionally, New Zealand could consider a tiered pension system that recognizes contributions made throughout a person’s working life. Rather than providing a flat-rate pension to all individuals, payments could be scaled based on the number of years worked and taxes paid.
This would reward those who have contributed significantly to the economy while still ensuring that a basic safety net exists for those who need it. Such a system would be perceived as more equitable and would encourage continued workforce participation.
Ultimately, pension reform is a politically sensitive issue, but one that cannot be ignored.
The current universal system, while simple and historically effective, is becoming increasingly unsustainable. If no changes are made, younger generations will bear the financial burden of an outdated model that does not differentiate between need and entitlement.
By implementing means testing, raising the retirement age, enhancing savings incentives, and introducing contribution-based tiers, New Zealand can create a fairer, more efficient pension system that rewards effort while protecting those in genuine need.
The goal should not be to eliminate financial support for the elderly but rather to ensure that resources are allocated wisely, fostering a culture of personal responsibility while safeguarding the nation’s economic future.
Dave Ananth is Special Counsel at Stace Hammond Lawyers based in Auckland. He is also a member of the Indian Newslink Legal Panel and President of the New Zealand Malaysian Business Association based in Auckland.
