NZ Consults On Flexible Superannuation

By Editorial 28 August, 2013

Workers in New Zealand could soon have greater choice about when they take out superannuation, under proposals announced by the Government.

The Government is now consulting on so-called "flexible superannuation," which would allow retirees to take their NZ Super (NZS) earlier, albeit at a reduced rate.

To be eligible for superannuation under the existing system, a person must be aged 65 or older, be a New Zealand citizen or permanent resident, and have been resident and present for at least 10 years since the age of 20 (five of which must have been spent in the country since the age of 50), and be resident when applying for superannuation. NZS is funded out of general taxation, is counted as taxable income, and is subject to income tax.

Around 14 percent of present New Zealand residents are aged 65 and over, but this figure is expected to rise to 21 percent by 2031, when the number of superannuitants will exceed 1m. By 2021, 8 percent of the total labor force fall into this age bracket.

While it is currently possible to take NZS later than 65, the Government believes that there is no incentive to do so. There is no option to take NZS earlier. "Flexi-Super" would give residents the choice to take superannuation at reduced rates before they reach 65, or at increasingly enhanced rates after the age of 65. The Government's consultation document proposes making early eligibility available from the age of 60, and deferral possible until the age of 70.

If individuals continue to work while receiving NZS, this typically pushes them into a higher tax bracket, meaning that they pay a larger percentage of their NZS back in tax than someone who has no additional income on top of their NZS. On the other hand, under Flexi-Super those who choose to take out their super once they retire aged 70, would be in a lower tax bracket. The Government anticipates that because 8 percent of all income tax comes from those aged 65 and over, tax revenues could decrease. To compensate for these effects and to achieve the Government's principle of fiscal neutrality, the rates paid to those taking NZS early or deferring could be further adjusted.

Launching the consultation, Finance Minister Bill English said: "The Government is committed to maintaining existing settings and eligibility criteria for New Zealand Superannuation. That's important to provide certainty for superannuitants and future retirees."

He added that Flexi-Super would "give New Zealanders the choice of taking NZ Super at a reduced rate earlier than the age of 65 – for example, from age 60. Alternatively, they could choose to receive Super at a higher rate if they deferred taking superannuation later than 65.

"The discussion document is deliberately set at a high level and more detailed policy work would be required should the proposal be progressed."

The consultation closes on October 11. English will report the results to the Cabinet in November.

Tags: Individuals | Finance | Tax | Employees | Retirement | Ministry Of Finance | Tax Rates | New Zealand | Tax Reform | Expats | Work |


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