What do you make of this way of doing it?

This quick post is a question, more than analysis of an issue. But it's something I stumbled upon today regarding New Zealand's superannuation history... and I'm wondering if it offers us a way forward.

I mentioned in my post yesterday that the Liberals back in 1898 introduced an old age pension (means tested) for those 65 and over. It's been tweaked since, with Muldoon bringing in a universal, non-means tested scheme and Bolger changing the age of eligibility etc. But see this from Wikipedia:

The 1938 Social Security Act lowered the age for the means-tested pension to 60, and introduced a universal (not means-tested) superannuation from age 65.[12] The universal pension catered to a strong demand for universal payments, while the lowered age for the means-tested pension provided for the likes of manual workers who were worn out and still poor at the age of 60.[13]

The first Labour government created a two-part scheme, with a means-tested portion at a lower age for those who earned less (typically manual labourers), and then a universal scheme at an older age.

Is going back to that system a way to deal with the various concerns now, such as caring for those whose bodies won't let them keep working and means-testing?

What are the pros and cons? Let's workshop this, people...

Comments (14)

by Raymond A Francis on March 09, 2017
Raymond A Francis

Well yes on the face of it the ability to take a means tested pension at an earlier age would be sensible for those who can't or don't want to work.

But how is that different from just going on the unemployed benifit other than the hoops people have to jump through to get that.

Would the two benefits be set at the same rate?

 

by Kyle Matthews on March 09, 2017
Kyle Matthews

Like Raymond, I really don't see this is an issue.

If a person is unable to work for medical reasons, there are benefits available. I appreciate that it's not a great system, but we should fix that for all NZers, rather than for people between the age of 65 and 67 via superannuation.

If a person is unable to work because of medical reasons, whether due to the demands of manual labour or other reasons, they should be supported regardless of age.

by Chuck Bird on March 09, 2017
Chuck Bird

Tim, I think that was a good system.  The the two pensions paid the same amount.  I think it generally worked without to many people abusing the system.  If people cannot work say because their joints are worn out I think it would be unfair not to cater for them.  An invalid’s benefit would eat away much or all of their savings. 

One change that would have to be catered for would be the use of trusts or companies.  If the period of means testing was just 2 years instead of 5 there would be less incentive for people to use these types of loopholes.

by Alan Johnstone on March 09, 2017
Alan Johnstone

Just because you may no longer be fit to do physically demanding work at 65, doesn't mean you can't do other work.

If someone is unfit to do all work, well we have a system for that already. No need to link this to the superannuation debate.

by Lee Churchman on March 09, 2017
Lee Churchman

Or we can just accept the reality that increases in longevity mean higher taxes for those working, and that increasing automation means less demand for human workers. We'd just have to stop pretending that there is any real connection between personal merit and one's gross income (which there isn't).

by Rich on March 11, 2017
Rich

Because means testing is a ghastly system that requires that the government spy on people, interrogate them and take control of their lives to prove that they aren't extracting a dollar more than their entitlement. To say nothing of the built in incentive for the potentially eligible not to save or do any work because any such earnings will be clawed back from them.

 

by Tim Watkin on March 11, 2017
Tim Watkin

Kyle and Raymond, the simple answer to that is that super is much more generous than other benefits.

As I understand it, if you're single and living alone on the dole (Jobseeker benefit), you get $210 net per week. If you're single and living alone on super you get $769 net.

If you're married on the dole (and your spouse is also on the dole) you get only $175 net. If you're married and on super (and your spouse is also on super) you get $590 net.

So you're punishing the manual worker pretty hard for doing a job that means they have to stop working earlier. For the individual, that's around $28,000 less every year!

 

 

by Tim Watkin on March 11, 2017
Tim Watkin

I always get these mixed up, but one's adjusted according to averages wages and one to CPI...?

by Brendon Mills on March 11, 2017
Brendon Mills

"If a person is unable to work for medical reasons, there are benefits available."

Too bad that they are set at a level which is pretty much just enough to pay your rent and buy a few cups of instant noodles. Paying your power bill or buying medication is pretty much out of the question.

 

But I guess you guys dont really care as long as you dont get a tax increase.

by Chuck Bird on March 11, 2017
Chuck Bird

Tim, I get about $315 a week net on my super net but I am on a higher tax rate as I have other income.  I only had super I think I would be on a bit more so the difference is over a $100/wk which is a hell of a lot. 

by Tim Watkin on March 11, 2017
Tim Watkin

That's curious Chuck, you're going to have to help me with that. I don't want to pry, but... You're not on the M tax rate then?

Because I can understand if you are on a high income from some other work or investment, you might get taxted higher on that money. But given the surtax was cut, I thought the whole thing was that it wasn't means tested and you get much the same regardless...

But either way, most people will be on M and so the gap between being on the dole and on super is a hell of a lot more than $100 per week.

by Chuck Bird on March 11, 2017
Chuck Bird

Tim, I get taxed on my top dollar at 30% because my income including super is over $48k. 

Are you suggesting means testing for those 66 and 67 then makig it universal?  If so I think it is a good idea.

by Ross on March 12, 2017
Ross

Here are the current Super rates. A single person living alone receives $769.52 per fortnight, not weekly.

https://www.workandincome.govt.nz/eligibility/seniors/superannuation/pay...

by Tim Watkin on March 13, 2017
Tim Watkin

That was sloppy of me Ross, but makes more sense. Still, you'll appreciate how much better you can live on $384 per week than $210 per week. So the point remains the same.

Chuck, to be honest I was wondering out loud rather than suggesting. But yeah, I'm wondering whether we could means test the first two years (maybe one or two more?) and then go universal. That reduces the cost of super (though not sure how much) and that money could be spent balancing the generations a bit, say on ECE or long-term infrastructure.

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