Dev Ananth
Auckland, April 29, 2024
As New Zealand strides into the future, one of the most pressing challenges it faces is the adequacy of its pension system.
Although the current system kicks in at the age of 65 providing some support to retirees, it falls short of ensuring a comfortable retirement for many.
In 2024, the need for a re-evaluation and reform of the pension system has become increasingly evident, more so with the escalating cost of goods and services.
Pensioners living alone in New Zealand receive NZ Super rates of $1038.94 per fortnight in 2024, marking an increase of $46.20 from the previous rate of $992.74. Those who live with housemates will receive $959.02 instead of $916.36, while couples will receive $799.18 instead of $763.64.
Bridging the gap
While receiving the NZ Superannuation is a positive start, research from Massey University indicates that the average gap between the NZ Super and retirees’ actual spending in retirement can be as much as $903, based on lower 2023 rates.
Even those living alone with a modest lifestyle in the provinces need to supplement their NZ Super payments by more than $194 a week. It is evident that for many Kiwis, the NZ Super alone is insufficient.
Retirees need a clear plan to bridge the income gap in retirement.
At present, the pension payments for single pensioners and pensioner couples may be adequate for some, but for many, they fail to provide a dignified standard of living.
The cost of living continues to rise, exacerbating the gap between what the pension offers and what retirees need. What I mean by dignified, is not to eat out every week but to have some basic pleasantries to keep the mental faculties functional.
With the average life expectancy in New Zealand increasing, retirees are expected to fund longer retirement periods. Yet, the current pension scheme remains unchanged, leaving many vulnerable to financial strain in their later years.
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Some solutions
So, what solutions can be explored to address this critical issue?
Firstly, it’s essential to recognise the limitations of relying solely on KiwiSaver for retirement savings. While KiwiSaver has been beneficial in encouraging savings, it is insufficient to ensure financial security for all retirees. Many individuals, particularly those from lower-income backgrounds, may not have accumulated enough savings by the time they reach retirement age. What do you do then?
One potential solution lies in the implementation of a government-led Supplementary Retirement Savings Scheme. This Scheme would complement KiwiSaver by providing additional support to those nearing retirement age. Contributions could be made by both employees and employers, with the government offering incentives or subsidies to encourage participation.
Furthermore, exploring innovative approaches to retirement planning beyond traditional pension models is crucial. One promising concept gaining traction globally is the introduction of a Universal Basic Income (UBI) for retirees. A UBI would guarantee all citizens a basic level of income in retirement, regardless of their employment history or savings. This approach not only ensures financial stability for retirees but also simplifies the pension system, reducing administrative complexity and costs.
Additionally, the conversation around retirement planning must encompass broader societal factors, such as promoting healthy ageing and enabling older adults to remain active and engaged in their communities. Initiatives aimed at these objectives can significantly impact the quality of life in retirement.
Inclusivity and Equity
In envisioning a reformed pension system for New Zealand, prioritising inclusivity and equity is paramount. Reforms must consider the diverse needs and circumstances of retirees, ensuring that no one is left behind. Transparency and public engagement should be central to the reform process, fostering trust and confidence in the new system.
As we look to the future, it is evident that action is needed now to address the challenges facing New Zealand’s pension system.
Bold and innovative solutions are required to meet the evolving needs of the ageing population. By embracing progressive reforms and leveraging the collective wisdom of policymakers, industry stakeholders, and the public, we can build a retirement system that truly serves the needs of all New Zealanders. Together, let us pave the way towards a more secure and prosperous future for retirees in Aotearoa.
Dev Ananth is a Special Counsel at Stace Hammond Lawyers based in Auckland.
