To Save or Save Not: Intergenerational Neutrality and the Expansion of New Zealand Superannuation (WP 14/02)

Abstract

Increases in longevity mean the size of New Zealand's public retirement income programme, New Zealand Superannuation, will automatically expand unless the age of eligibility is increased. This paper analyses the consequences of expanding New Zealand Superannuation on a save-as-you-go basis through the New Zealand Superannuation Fund rather than on a pay-as-you-go basis. These funding mechanisms differ in terms of their effects on different cohorts, on long run tax rates, on capital accumulation, and on risk. The paper argues that an automatic pay-as-you-go funded expansion of New Zealand Superannuation is unattractive on many grounds, even if pay-as-you-go funding remains for much of the programme. In addition to reducing long run tax rates, the use of save-as-you-go funding through the New Zealand Superannuation Fund provides households with a means of reducing income risk over the course of their lives.

Acknowledgements

The author would like to thank Matthew Bell, Aaron Drew, Lucas Kengmana, Nicola Kirkup, David Law, Kirdan Lees, Michael Littlewood, Malcolm Menzies, Paul Rodway, Grant Scobie, and Susan St John and an anonymous reviewer for helpful discussions over the last two years The views of the paper are those of the author and do not necessarily reflect those of the New Zealand Treasury or the University of Otago.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government.  The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.