New Zealand Superannuation is back in the spotlight, and this time some of the country’s best known economists are saying the quiet part out loud. They think it may be time to means-test the pension so that the wealthiest retirees stop collecting a payment they do not need. The idea has been politically untouchable for decades, but the numbers behind the scheme are starting to make it harder to ignore.
The trigger for the latest debate is cost. New Zealand Super is paid to almost everyone from the age of 65, it is indexed to wages rather than prices, and the bill grows every year as the population ages. On current settings the payment now costs the country roughly $39 million a day, and Treasury expects that to keep rising sharply as the baby boomer generation moves fully into retirement. A Treasury working paper released in March projected that pension spending would climb from about 5.6 percent of gross domestic product now to around 8 percent within 40 years. To pay for the current system without other changes, the paper estimated marginal tax rates on labour income would eventually need to rise by more than 10 percentage points.
Against that backdrop, several economists told RNZ it was worth at least asking whether the highest earners should still receive the full pension. The figures show this would touch a small group. Inland Revenue data for the 2024 tax year showed that 9 percent of people aged over 65 earned more than $100,000, 3.6 percent earned more than $150,000, and just 2.1 percent earned more than $180,000. In other words, a targeted test aimed at the very top would remove or reduce payments for only a sliver of retirees while leaving the vast majority untouched.
Westpac chief economist Kelly Eckhold said means-testing was only one lever among several, and that no single change would fix the problem on its own. “I’d take the view that you probably need some combination of all of them, to get on top of it,” he said, pointing to a mix that could include lifting the age of eligibility, changing the way the payment is indexed, and adding an element of means-testing. He noted that most higher earners over 65 were still in their late sixties and tended to stop working as they got older, which shapes how much any income test would actually claw back.
Simplicity chief economist Shamubeel Eaqub was more direct, arguing that the practical objections often raised against means-testing do not hold up. He pushed back on the common claim that testing a person’s income and assets would be too hard to administer. “We manage it for everything else but somehow it would be completely undoable when it comes to Super,” he said, noting that the tax and benefit system already assesses income and wealth in plenty of other settings. Eaqub has previously argued that a test could be built without the complexity critics fear.
Just how much money is at stake depends heavily on where the line is drawn. If New Zealand adopted the same style of income and asset tests that Australia uses for its age pension, the effect would be far broader than a narrow tax on the very wealthy. Analysis of an Australian-style model suggested about 33 percent of single pensioners and 54 percent of couples would receive less than they do now, while roughly 18 percent of single people and 26 percent of couples would lose the payment entirely. Over time that approach could cut total Super spending by around a third. That scale of change would reach well into the middle class, which is part of why the politics are so difficult.
And the politics remain the real barrier. National has ruled out means-testing New Zealand Super, sticking to a long held position that the pension should stay universal. Labour has said it has not considered the idea and has argued that any lasting change to retirement income needs consensus across parliament rather than a policy imposed by one side. With a general election on the horizon, neither major party is showing any appetite to campaign on trimming a payment that older voters turn out in large numbers to protect.
That leaves an awkward gap between what economists say the books require and what politicians are willing to promise. The International Monetary Fund has also flagged rising superannuation costs in its recent assessment of New Zealand, listing pension settings alongside a capital gains tax as areas where reform could help the long term fiscal position. The pressure is building from more than one direction at once.
None of this means change is coming soon. Means-testing has been raised and shelved many times before, and the age of eligibility has not moved despite decades of warnings. What is different now is the size of the daily bill and the willingness of mainstream bank and fund economists to say plainly that the current path is expensive and hard to sustain. Whether that translates into action, or simply another round of debate that fades after the election, is the open question.
What do you think, should the wealthiest retirees keep getting the full pension, or is it time New Zealand looked at means-testing New Zealand Super? Share your view in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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