Option: Raise the age of eligibility for NZ Super to 67 and index payments to price inflation rather than wages
Two features of our current NZ Super settings are the age of eligibility at 65 and the indexation of the value of payments so that they retain their relativity with average wages.
We could adjust both of these settings, so that:
- the age of eligibility is raised by six months each year, starting in the 2019/20 fiscal year, so after four years 67 would be the age of eligibility for everyone, and
- the annual growth in NZ Super payments is indexed to price inflation, rather than wage growth, again from the 2019/20 fiscal year. [4]
Fiscal implications
Figure 6 shows that these changes would bring about a significant improvement in the government's long-term fiscal position (although it is possible that the fiscal impacts may be overstated, as these changes could mean that more people need to receive other welfare benefits of different kinds).
Note that raising the age of eligibility to 67 but making no changes to the way in which the value of NZ Super payments grows over time makes a much less significant difference to the fiscal position. In Figure 6, around three-quarters of the "work" is done by the indexing of growth in NZ Super payments to inflation.
- Figure 6 Three government spending paths - the impact of raising the age of eligibility for NZ Super to 67 and indexing growth in payments to price inflation
- [4]This would represent a fiscal saving because wages tend to grow faster than prices.
Broader living standards implications
The impacts of this option would fall mainly on people whose sole or primary source of income is NZ Super, raising equity concerns. And it is possible that some people might regard these changes as challenges to New Zealand's social infrastructure. However, KiwiSaver might make a difference to how different people feel these impacts.
Economic growth impacts are hard to predict, but any impacts seem likely to be positive, by encouraging people to work for longer and to save more.
