New bill makes superannuation fairer for all

On 10 November, the New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill passed its third reading in Parliament. Supported by Labour and ACT, the bill passed by 108 to 12 votes and is the second of my members' bills to be passed, which is a rarity for an MP in opposition.

The bill was first presented to the House in the 52nd Parliament by New Zealand First MP Mark Patterson, who unfortunately lost his seat in the 2020 election. Mr Patterson approached me specifically to take over the bill, as the bill in its original state would probably not have survived the select committee process. The work and input of the Finance and Expenditure Committee should be acknowledged.

This bill presents a small but necessary change to how long it takes for an immigrant to become eligible for superannuation in New Zealand, raising the minimum residency qualification from the current 10 years (of which at least five years must have been spent in New Zealand since the age of 50) to 20 years.

The change will happen over a smooth transition period, with the time requirement increasing gradually over the course of 10 years. The majority of immigrants who are already residents will not be affected by these changes. Those who are will have plenty of time to prepare, due to the delayed commencement of the bill.

Why the changes? Many countries have or are currently making changes to their superannuation arrangements to make them more affordable. Across the OECD, around half the governments have undertaken major pension reform, and most countries around the world are moving to a higher age bracket of 67, rather than 65, which reflects the demographic change and life expectancy of people.

Almost uniquely within the OECD, New Zealand and Australia continue to fund their state pension schemes via general taxation, rather than use some form of separate tax or contribution systems.

NZ Super is currently provided to all New Zealanders 65 years and older, and the amount paid increases annually in proportion to the increase in average wages. Superannuation is the largest single cost the Government has to incur, and it is growing exponentially through demographic changes.

At the moment, roughly 15 percent of the population is aged 65 and over. By 2040, this will reach 20 percent, and by 2060 is forecast to be 25 percent. Population ageing is projected by Treasury to be the key driver of increased pressure on the financial position of the Government through slower revenue growth (resulting from less labour participation) and increased costs (primarily through healthcare and NZ Super payments).

This new bill does not affect the age when people become entitled to NZ Super – that’s a debate for another day – but it does affect its affordability.

The bill affects those who will reach their 65th birthday on or after 1 July 2024 (i.e. born after 1 July 1959). Those who turn 65 on or before 30 June 2023 still face the 10-year eligibility rule. The phased changes mean that for every two years of age, residents have to have completed an additional year of residence to be entitled to NZ Super. So anyone born after 1 July 1977 (reaching their 65th birthday on or after 1 July 2042) would need to have completed 20 years of residency.

Those New Zealanders who choose to live overseas, some for very long periods of time, will also be captured by the new changes.

The new changes will be delayed until 1 July 2023 upon the recommendation of the Retirement Commissioner, who said, in her view, that there should be a greater period of transition so that those people who are approaching retirement won’t be affected by the change. Those in their late 50s and early 60s can now plan for their retirement and have discussions with their employer, if necessary, and make arrangements accordingly.

We have also made carve-outs for refugees, many of whom arrive here not out of choice, but due to extenuating circumstances in their own country. Those aged 55 and over at the date they arrive would become eligible for superannuation at the age of 65, providing they have lived in New Zealand for those 10 years.

We have also allowed for time worked by New Zealanders in the Cook Islands, Niue and Tokelau to count towards the requirement.

We hope these changes will make the system fairer, while not causing any financial stress to those who have already prepared for their retirement.