Tax changes suggested to hit richer pensioners

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Something will have to give when it comes to NZ Super, but whether that is an increase in the age of eligibility or a tax claw back from higher earners is up for debate.

Wednesday, May 25th 2016, 6:00AM 3 Comments

by Susan Edmunds

Retirement Commissioner Diane Maxwell is working through this year’s review of retirement income policy.

She said a clear focus was taking the review beyond just the issue of whether the age of entitlement needed to increase.

“Last time we put a review document out it was 100 pages and people looked at it and said ‘are you going to raise the pension age?’ The entire thing was reduced to one conversation.”

But she said it was inevitable that something would have to change.

“Super is going to have to have some changes in the future,” she said.

“Because our dependency ratios will be 2.5 to one by the middle of the century, things will change. People will work longer which will help but there will be fewer people paying tax for more retirees. There’s no way to fudge that.”

She said there would not be enough people to pay the rates of tax required to fund the super system with an ageing population.

“At the moment someone who is earning $60,000 is paying $1800 to a superannuitant out of their tax. If fewer people are earning and more are receiving, are you going to raise the $1800? Do you revise what the superannuitant gets? Or do you take it out of health care? It’s not a cunning plan by the Government to take people’s money away, the maths won’t add up.”

But Susan St John, of the University of Auckland’s Retirement Policy and Research Centre, said the tax system could be used to claw back some of the cost of super from high-income recipients.  The “living alone” rate could also be eliminated, she said, to reduce the cost of the pension.

Someone who is living alone gets $20,007 a year, compared to a married person who receives $15,390.

“A tax claw-back has the advantage of being capable of delivering meaningful savings immediately to help address the needs of the working age population without increasing poverty rates among the old. If the rates of super are aligned over time especially the single sharing and married rates, further saving is possible,” she said.

“When working-age families are taxed to pay universal pensions to many who are still working and appear much better-off than they are, intergenerational equity and fairness may be questioned.”

She said the level of super needed to be high enough to prevent hardship but a tax clawback should not make much difference to most pensioners.

“Given that for the bottom 60% of recipients, as measured by gross incomes, super payments comprise at least 80% of their total income, and for the bottom 80% of recipients it comprises at least 55%, the majority of over-65s will face little if any reduction in disposable income,” she said.

Tags: superannuation

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