Inside Economics: Should you take New Zealand Superannuation if you don’t need it ... plus, is the Reserve Bank’s focus too narrow?

Should people take NZ Super if they don't need it? Photo / 123rf

Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up for my weekly newsletter, click here. If you have a burning question about the quirks or intricacies of economics, send it to liam.dann@nzherald.co.nz or leave a message in the comments section.

Should rich people opt out of NZ Super?

Q: Hi Liam, I was interested in the post-Budget chat about New Zealand Superannuation. A Herald commenter said they were embarrassed to be entitled to Super when they didn’t really need it, and that it was clearly (for the nation) unaffordable but off-limits politically.

Other commenters answered by saying either “don’t be embarrassed, you worked for it” (I’m paraphrasing), or “you don’t have to take the pension if you don’t need it”.

This hit home for me since it’s a bit of a bone of contention in our family. I’m a Gen X-er and my Baby Boomer parents both get the pension despite owning assets worth millions.

It’s not a case of the family home skyrocketing in value – they both own very large, very expensive properties (separately; they’re divorced), nice vehicles and live very comfortable lives.

I’m really happy they’re healthy and enjoying life, but I – and my siblings – think it’s a bit gross that they draw the pension when they very obviously don’t need it.

My Dad’s a bit embarrassed about it, but says he’s asset-rich but cash-poor. My Mum gets defensive and says she’s worked all her life and deserves it.

Both my parents are smart and socially aware, so I’m surprised by their stance. My question is: how many retirees actually choose not to take NZ Super? Is there a mechanism to opt out?

– Name withheld

A: Fascinating question, thanks.

I was curious about the numbers too and asked at the Ministry of Social Development (which administers New Zealand’s pension scheme).

There is no specific mechanism to opt out. But the way the scheme works is that you have to sign up (or opt in) when you turn 65.

So, essentially, if you don’t need the money, you can just do nothing, and you won’t get it.

I’m also told you that when you do apply, the registration process does point you to various charities you can donate it to if you think you don’t need the money.

Sharemysuper.or.nz is one such charity organisation purpose-built for the task.

The Ministry of Social Development didn’t have any numbers to hand as to how many Kiwis over 65 haven’t signed up even though they are eligible.

So I’ve put in an Official Information Act request and hopefully someone in the system will dig that out (watch this space).

Benefit or right?

The bigger question is the one you implicitly raise with your parents: should people take the super payment if they don’t really need it?

Framed in even more basic terms: is the super payment a benefit or a right?

Everyone who is eligible does have the right to claim it.

But the money is also part of the consolidated pool of Government revenue. It isn’t held in a special fund, like the New Zealand Superannuation Fund (the Crown investment fund with the annoyingly similar name).

That fund will be used eventually to help fund the cost of NZ Super as it balloons, based on the ageing population.

NZ Super is also very different to KiwiSaver, which is actually your money that you have worked for over the years.

Ultimately, the existence of the state pension (and how generous or universal it is) remains at the mercy of Parliament.

It is a benefit, but for many Kiwis, especially those of a certain generation, it feels like a right.

It has been promised to us by politicians over the years.

That’s one of the reasons even changing the age limit or means-testing it has been seen as a political no-go zone.

But that seems to be changing as the sheer weight of the cost to the economy becomes apparent.

According to Budget 2025 data, NZ Super costs $4352 per person per year, making it the third-largest area of government spending after welfare ($6181 per person) and health ($5804 per person).

From the Treasury’s long-term fiscal projections, spending on NZ Super is projected to grow from 4.3% of GDP in 2010 to 7.9% in 2060, an increase of 3.6 percentage points.

National under Sir Bill English first proposed lifting the age to 67 in the election campaign of 2017.

And National campaigned on a similar platform in 2023 with a commitment to keep the age at 65 until 2044, when it will be gradually lifted to 67. This change wouldn’t affect anyone born before 1979.

Finance Minister Nicola Willis has suggested National will campaign on a similar policy again in 2026.

In my view, it will inevitably have to rise.

I also understand why people are inclined to accept it as a right. It is free money, right?

It will eventually pass through the generations.

Perhaps those who want to enjoy the extra cash but feel some guilt could look to spend it with local businesses or support local artists.

Does the Reserve Bank need a wider focus?

Q: Kia ora Liam, I was reading your column on the future of the Reserve Bank under a new governor. I wonder how the bank can set its policy direction without a clear national economic strategy to work within.

New Zealand doesn’t seem to have one that I could clearly identify, the closest being the Reserve Bank’s inflation target and that’s about it.

Is this because the nation is happy to muddle along on the global currents of laissez-faire economics instead?

After watching a documentary recently on Xi Jinping and his “China Dream” policy that has seen China become a global economic force, I found myself asking: where is the (suitably less authoritarian) New Zealand equivalent that I think we actually need?

A more orderly economy could be highly beneficial in underpinning the woeful state of our physical and social infrastructure, but only if the politicians involved were actually competent enough to plan and execute successfully over multiple decades.

Which begs another question: we had decades of stable government in the 20th century that built all the infrastructure, which we have failed to keep updating.

If it could be done then, why can’t it be done now?

Regards,

Steve-Tipene Callagher

A: Some really interesting thoughts there, Steve.

I agree that a more structured and orderly economic approach would benefit New Zealand.

But I’ll start with your point about the Reserve Bank (RBNZ) and try to explain why it has such a limited scope.

The main reason that the central bank primarily targets inflation is that it is the one thing that monetary policy has some real control over.

US economist Milton Friedman once said: “Inflation is always and everywhere a monetary phenomenon.”

What he meant was that at some point, we can always trace inflation back to the supply of money in an economy.

If we create too much money (unbacked by an increase in real physical wealth), then we always get inflation.

By moving the cost of borrowing (and saving) up and down, central banks can control the money supply.

When interest rates are low, there is less incentive to save and more incentive to borrow and spend, so the money supply expands. When interest rates are high, there is more incentive to save and it is harder to borrow, so the supply contracts.

This has proved to be very effective at controlling inflation over the years.

But even the world’s top central bankers will admit that monetary policy isn’t particularly effective at controlling more nuanced aspects of the economy.

It is often described as a “blunt tool”.

Unemployment is sometimes included in central bank mandates because there is seen to be a correlation between unemployment and inflation.

But even that is debatable and we’ve seen the new Government reverse Labour’s policy, which had added unemployment to the mandate.

The argument is that keeping inflation stable is such an important platform for an economy that central banks should do that one thing and do it well.

The rest of the economic equation is left to the Government and/or markets to sort out.

I don’t want to completely dismiss any criticism of the monetarist approach to central banking.

There are alternative ideas out there, like Modern Monetary Theory.

I’m not going to do it justice here, but it effectively argues that Governments should focus on real resource constraints rather than financial constraints.

It says Governments aren’t the same as businesses or households and they can print money and ignore deficits and get away with it.

Perhaps it might work in a world where it was universally adopted and well-regulated by efficient Governments around the world.

It requires more trust in efficient Government than I have.

Regardless, the current system is so deeply embedded in the global economy that even US Presidents are wary of messing with it.

So we’re kind of stuck with it.

I wouldn’t like New Zealand’s chances of going it alone with a new system.

More structure

Ultimately, when it comes to the lack of coherent strategy in New Zealand’s economic approach, I think a lot of it has to do with the inability of the two major parties to find a bipartisan agreement on big areas like infrastructure.

So I agree that it is frustrating, given that we built so much amazing infrastructure in the 20th century, that we seem so bad at it now.

Quite why is hard to say. Perhaps it is MMP? There is a lot more trading-off of policy than there used to be under First Past the Post.

It also seems to take much longer to get construction started on things, which means we often see Governments change before plans come to fruition.

Perhaps we need longer political terms. Or perhaps we just need to streamline the process to get construction under way sooner.

I know I’m not alone in wishing we could get some sort of bipartisan accord done on a long-term infrastructure pipeline.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.