Money: Living on super: is the income adequate?

By PHILIP MACALISTER

Just how generous is the taxpayer-funded pension New Zealand Superannuation? Judging by the feedback to last week's article, Super Myths, many retired people don't believe that NZ Super is an adequate income in retirement.

Currently, a married couple who both qualify are paid an annual income of about $21,400 before tax ($18,000 net). The rate for a single person living alone is $13,000.

Figures from Statistics New Zealand show that it would be very difficult for a younger household to live off this level of income. However, the figures also show that retirees require much less money to live off.

The figures support the proposition promoted by Auckland-based financial planner Murray Weatherston that it's rational for a large number of people not to save for their retirement.

His contention is that because most retirees own their own homes debt-free and no longer have to pay costs associated with raising a family, the level of NZ Super is adequate for day-to-day requirements.

The point he makes, which Statistics NZ agrees with, is that the makeup of household expenditure between people over 65 and the rest of the population is vastly different.

Statistics NZ says the two biggest components of expenditure for pensioners are transport and food, which account for 19 per cent and 18 per cent of outgoings, respectively.

These are followed by household operation (17 per cent) and other services (16 per cent). On average, 5 per cent of the weekly expenditure goes on health services, compared with 2 per cent for all households.

However, for the rest of the population components such as mortgage costs and costs associated with raising children are significantly more.

As a result, the total average weekly expenditure for younger age groups (particularly 30 to 39 years and 40 to 49 years) is more than double that of those aged over 65.

Another way of looking at the generosity, or otherwise, of NZ Super is to compare it with other Government welfare payouts. Superannuitants should consider themselves a privileged group in New Zealand as they are the only people in the country to receive a form of welfare payment that is neither means tested nor asset tested.

What's more, it appears that this position will remain, as Finance Minister Michael Cullen and Opposition finance spokesman Bill English have both said it is not politically possible to reintroduce some form of test to NZ Super.

The main reasons for this are that there was such ill-feeling towards the former superannuation surcharge, and pensioners make up a growing 19 per cent of the population.

Therefore, they have sufficient electoral power to determine the outcome of future elections.

That position is not widely accepted in the savings industry.

Although pensioners are concerned about having their entitlement cut by future governments, that appears unlikely in the foreseeable future.

Labour and the Alliance are firmly committed to keeping NZ Super at 65 per cent of the average weekly wage, and National leader Jenny Shipley said this week that she had learned from experience in 1998 that cutting the level of NZ Super for current retirees is not an option.

A senior lecturer in the Auckland University economics department, Susan St John, says cutting the level of NZ Super pushes more pensioners below the poverty line.

One of the problems with the argument over NZ Super is that no thorough research has been done by the Government to determine what is an adequate payment rate.

Ms St John says that one flat rate for NZ Super is difficult to achieve as there are a wide range of lifestyles among the retired, and they have different requirements.