Pension pain: Will NZ Super be enough if you have to rent in retirement?

Housing costs for today's retirees already eat up a substantial portion of the equivalent amount of New Zealand Superannuation, Treasury figures show. Photo / 123RF

Home ownership rates for retirees are predicted to fall from 80 per cent to 60 per cent in less than 30 years prompting a look at whether New Zealand needs to do more to support those who rent or have to pay a mortgage in later life.

In 1986, 87 per cent of over-60-year-olds were mortgage-free homeowners and were mainly not working, with 13 per cent renting.

But by 2018 the percentage of homeowners had fallen to 80 per cent and one in five were still paying off a mortgage. Around 20 per cent were renting and 24 per cent were still in the workforce.

Dr Suzy Morrissey, policy director at Te Ara Ahunga Ora Retirement Commission, said based on the percentage of people in their late 30s who were currently renting it predicted around 40 per cent of that cohort would still be renting in their 60s.

By 2048 that would equate to up to 600,000 people over the age of 65 who did not own a home.

"When NZ Super was introduced, it was with the underlying assumption that those accessing it would be mortgage-free homeowners.

"Today, the reality is very different. There are declining home ownership rates, more people needing to continue working longer because they still have mortgages to pay, are paying rent, or haven't been able to save enough to retire."

As part of its three-yearly review of retirement income policies, the commission was tasked by the Government with looking at whether New Zealand Superannuation was adequate to support people who rent or are still paying a mortgage.

Morrissey said figures it commissioned from Treasury showed housing costs for today's retirees already ate up a substantial portion of the equivalent amount of New Zealand Superannuation.

Of those who were renting in the 65 to 74 year age group two-thirds were spending over 40 per cent of the equivalent NZ Super amount on housing and 40 per cent of that group were spending 80 per cent on housing costs.

"Those renters are facing really high housing costs relative to NZ Super."

Half of those still paying a mortgage in retirement spent the equivalent of 80 per cent or more of their NZ Super on housing.

Conversely, more than half of those who own their own home spent less than 20 per cent of the NZ Super amount on housing costs.

The current NZ Super rate for a single person living alone is $1075.48 before tax each fortnight. For a couple it is $817.32 each person before tax every fortnight.

Morrissey said while the data showed the equivalent percentage of Super that housing costs represented it didn't take into account whether the person was still in paid work or had other income from KiwiSaver or other investments.

Nearly half of 65 to 69-year-olds still work and New Zealand has one of the highest rates of older workers in the OECD.

"The research doesn't say this is exactly the specific amount that people are spending. But it is what they are spending on housing.

"It does show that increasing level of housing costs - both for people paying mortgage costs and rent and the increasing number of people who are renting in the over 65s as well."

Morrissey said the key takeout from the research was that universal NZ Superannuation remained vital.

"Especially when we know that 40 per cent of current superannuitants are surviving on Super and not much else."

She said the other take-out was the importance of home ownership but it knew that was not achievable for all.

"Certainly if you are able to get into home ownership and are able to get in sooner and we have got the first home deposit withdrawal in KiwiSaver to help with that. That is probably going to be beneficial for later life. But not everyone is able to do that."

For those that had to rent the research could signal the accommodation supplement and some of its restrictions needed reviewing.

"That's an area that might start to come under greater pressure as more people are spending a large amount on rent, particularly for those living just off Super."

Those who get the Government subsidy have to meet certain criteria including not having more than $8100 in cash assets.

Te Ara Ahunga Ora Retirement Policy director of policy Dr Suzy Morrissey. Photo / Supplied

Morrissey said the threshold had been set in 1993 and was quite low, especially for older people who may want to have money set aside to cover costs like a funeral.

"It might be there are some people that could benefit from the support of the accommodation supplement but aren't able to get it because of that."

On top of that there was a need to ensure there was sufficient, accessible and affordable rental accommodation for older people.

"Given we know where rental prices are, we have to think about how best to facilitate that and how should we provide housing for seniors.

"We have been having conversations about how to house our families and that's really important. And now perhaps how we house our seniors, particularly those who need to rent is probably the next conversation to have so that we can start planning."

She said housing was not a short-term fix.

"It does take time to build. If we can see this future large growth of senior renters. We need to be thinking whether we have the rental stock in place for those guys when they need it."

The Retirement Commissioner is due to make her final recommendations on New Zealand's retirement income policy by the end of this year. It is then up to the Government as to which, or any, recommendations it takes up.