A superannuation crisis is looming and Retirement Commissioner Diana Crossan is disappointed that successive governments have ignored her repeated warnings. ANGELA SINGER talks to Presbyterians who have retired or are nearing retirement about how they are coping and their fears for their children.
The Retirement Commissioner has not been alone in her call for Government to take action. Economic pundits and retirement policy experts say that planners have underestimated life expectancy and the consequent rise in the cost of superannuation, and that the National Government’s 11-year suspension of contributions to the New Zealand Superannuation Fund (also known as the Cullen Fund) will result in the baby-boomer generation failing to pay for a significant portion of the future cost of its own superannuation, unfairly placing the burden on the generation that follows.
To avert the crisis, Diana Crossan has suggested increasing the age of superannuation entitlement by one or two years, following the lead of Australia and Germany, although New Zealand governments past and present have rejected this idea. Other options include means testing, raising taxes, cutting the rate of superannuation, improving the nation’s productivity and cutting government spending. However, discussion about New Zealanders’ preferred options needs to start soon, as time is running out.
“We need to be talking now about how we are going to meet these costs,” Diana Crossan says. “An aging population is going to need more support from a shrinking working population. Both major political parties have said they won’t alter New Zealand Superannuation.”
Treasury recently released a statement on New Zealand’s long-term fiscal position. Diana Crossan says the Treasury update gives scenarios of how New Zealand Superannuation can be afforded in the future, but “no one is recommending any particular change at this point. We have some possible options that need careful consideration”.
In less than two years, the Baby Boomer generation will move into the 65-plus age group in large numbers, hitting a retirement-age peak from 2021 to 2031. Statistics New Zealand figures show that half a million New Zealanders are currently over 65, with this estimated to rise to one in four New Zealanders by 2051.
In October, Church leaders met with the Prime Minister and Minister of Finance to express their concern that older people might be living in poverty if future generations can’t meet the costs of pensions. The Church leaders, including Presbyterian Moderator the Right Rev Dr Graham Redding, requested that the Government reinstate automatic contributions to the New Zealand Superannuation Fund as soon as possible, preferably in the next financial year.
The Church leaders reminded the Government that most older New Zealanders rely heavily on NZ Superannuation. A recent study showed that nearly half lived on NZ Superannuation plus $5000 or less per annum before tax, and at least one third had no assets except the family home.
Many within the Church were raised during a time when people were encouraged to safeguard their financial future by investing in property or owning their own home, and subsequently the rate of home ownership for those aged over 65 is high. For those who chose not to invest in property, and have no savings, retirement is proving to be a far from relaxing time.
Presbyterian-church goers Maureen, 81, and John, 84, chose not to buy their own home and they are finding living on a limited income very difficult. “We just can’t make ends meet and we are always in the red.” The Dunedin-based superannuitants say they are living on their credit card “not by choice, we are short at least $100 every week”.
The couple rent a two bedroom flat for $250 per week; they have no investments and live entirely on the married pension of $478.38 per week. Their rent and their ill health qualify them for an accommodation supplement and a disability allowance, bringing their total income from Work and Income up to $630 a week. “We divide this into rent, power, phone, insurances, petrol and car upkeep, food, credit card payment, hearing-aid batteries, lawn mowing, doctors’ visits and medicines but it doesn’t stretch. Our medical costs and rent keep rising so the allowances we receive don’t cover them. As we’re always short, there’s no money for anything but the basics, we don’t go out much, only to the church free movie night”. Maureen adds that they have cut back on the size of meals and use of their heater, “but what more can we do; we can’t get rid of the car or the phone because we need them for the doctor”.
John says the situation is stressful and he gets down, however he will not share their financial worries with friends: “we’re not whiners, there are people worse off, we lived through the Depression and rationing so know how to make a little go far”. The couple’s adult children are not in a position to assist as “the recession is making things unstable for them”.
The couple says in retrospect they should have saved for their retirement although this would have been difficult during the 1970s as they worked part-time for aid organisations. They both agree that as they approached retirement, the level of superannuation “was a liveable income so there didn’t seem to be reason for concern. You didn’t hear of older folks struggling then”. In 1978, the net rate of National Superannuation for a couple was over 89 percent of net after-tax wages; this was reduced in 1979 to 80 percent. Currently NZ Superannuation is fixed at 66 percent of the net average wage. John and Maureen are sure that NZ Superannuation will reduce, perhaps even cease “when the pot runs dry”. “We’ve told our children ‘don’t rely on Super to be there for you and don’t expect to live on it’.”
Former convenor of the Council of Assembly the Rev Rhys Pearson is also not convinced that the rate of NZ Superannuation will remain stable. An accountant before he went into ministry, Rhys is a champion of planning for retirement. “As retirement approaches, you have to think a few years ahead to possible large expenses. I knew we wouldn’t be able to afford a new car on the pension so we replaced our car prior.”
Rhys retired from ministry last year and is finding that financially he and wife Bev are “doing okay” on a combination of NZ Superannuation and the Church Beneficiary Fund pension but that there is no money left for luxuries. “It’s enough,” says Rhys, “if we don’t want to do anything such as go on overseas trips”. Bev adds that if they want to go see a show like they used to, they would have to save for it.
Even though they have a debt-free house and used the Beneficiary Fund payout to renovate, Rhys says yearly rates of $3000 take a toll. Bev says if they still had a mortgage, things would be difficult because they already live carefully. “Because both our parents were raised during the Depression, we were brought up to save and live with less. We don’t drink, smoke, bet on the races, we don’t buy Lotto. We have a veggie garden and we live frugally”, says Rhys.
If the next Government were to reduce NZ Superannuation payments, Rhys and Bev agree that they would have to consider downsizing their home and moving to an area where rates are cheaper or looking for part-time work. “I don’t want to be forced to work”, says Rhys. “Being a minister is stressful; after all these years it leaves you tired. I was ill last year and I expect it will take several years before I get my energy back so, no, I do not want to go fruit picking but if we had to we would”.
Rhys says that because Bev isn’t of retirement age, she piggybacks on his NZ Superannuation, receiving a reduced amount. “It means that we can’t earn more than $80 a week without getting financially penalised, so we aren’t encouraged to earn even though it would help. It’s ridiculous really.”
Ill health ruled out the option of part-time work for retired Presbyterian minister Peter, 70, and his wife, 66. They live entirely on NZ Superannuation, a situation Peter describes as “just impossible”. Peter can’t imagine trying to pay a market rent on NZ Superannuation and is grateful that “we were wise enough when I received an ACC payment to use it as a deposit on a home”.
Peter spent most of his life undertaking semi-voluntary work, “so we knew at retirement things would be tight; my wife was our main bread winner”.
For extra retirement income, they bought rental properties in the late 1980s; the rentals are not as profitable as they hoped. “They aren’t viable because we could only afford to buy older properties that need ongoing maintenance; we have to extend our bank arrangements to cover repairs.” Should there be a reduction in NZ Superannuation, Peter says maintenance on the rental properties would be delayed “but in the long run, deteriorating property is not in our interests”.
Peter worries that in the future there will be no NZ Superannuation for their children and he is unsure how much they will be able to assist them financially. “They are all in employment and paying off their own homes but they have no buffer for life’s unexpected changes. We hope we will be able to transfer some of our assets to them.”
Peter says he knows of families that would be in dire circumstances if NZ Superannuation was reduced. “It would create a social crisis. If the age for super was raised, it would be unfair; at 65 many are still healthy and can work but that was not my experience. What will happen to those unable to work, will it be like the Depression?”
The Depression invokes outright poverty but for Church elder and lay preacher Linley Kennett, being born in 1934 was the making of her. “I’m really thankful I was born in the Depression, and I’m thankful my parents were also born into a depression because we were all raised to save. For every sixpence I got, one penny went into my money box”.
Today Linley, a great-grandmother, is retired, has her own home and describes her financial situation as “comfortable”, living on a combination of NZ Superannuation, interest from her savings and part-time employment.
Recently widowed, Linley has had to adjust to having just one income; “fortunately I receive a living-alone payment because interest on my savings is half what it was last year”. If there is something she wants to buy to make her life a bit more comfortable, Linley says that she saves for it because she does not want to dip into her capital.
Whether or not there will be NZ Superannuation for her children is not something that Linley dwells on. “My children are grown up now and I raised them to save; if they choose not to that’s really their choice, they have to do it for themselves.”
Linley is sympathetic to the pressure people are under nowadays to spend. “In my day we never had all these ads telling us to have everything yesterday, interest free this and that, we weren’t told we had to have the latest clothes; we just made do.”
To reduce expenses, Linley tries not to buy vegetables, eating instead from her own veggie garden, following the example of her parents and grandparents. “You don’t even need a garden; vegetables can be grown in buckets. To be more environmentally friendly, I bought a large wallpaper paste tank to collect rain water and save on
water usage.”
If NZ Superannuation was reduced, Linley says she would feel it, “I might have to talk seriously with my family about something like joining together in a big family home”.
A reduction in NZ Superannuation would mean Presbyterian church-goer Helen would have to give up one of her modest treats; Helen and her husband can afford to have lunch in a café once-a-fortnight but only if she is very careful with her grocery budget.
“We are just managing a fairly minimal standard of living on Super with additional income provided by hubby’s pension from his time as a school teacher”. Helen adds that much of her husband’s pension was used to buy their house. They sometimes have enough money to buy a few small luxuries such as special ornaments, “but we don’t spend on things a lot of people consider essential; I do not buy any cosmetics, we don’t go to movies and I don’t drink alcohol.”
At 58 years old, Presbyterian churchgoer David George is thinking about how he will maintain a comfortable standard of living in retirement. He is also thinking about the possibility that he may have to work several years past 65 if the superannuation eligibility age rises. Although David would prefer to retire at 60 and do the many things he has postponed for retirement, he says he is realistic and expects that he will need to “maintain work readiness, health and fitness until the age of 67 or even 70”.
A rise in the age of eligibility age is also on the mind of the Rev Ray McKendry, 61, who would like to work past 65, however he is aware that an increasing number of older people in the workforce for longer could negatively impact younger people. “If the super age goes up to 67, there are a lot of people who can and will keep working, and this will affect the many young people who are not keen on school looking for jobs that aren’t there.”
A half-time minister, Ray is hearing from his parish that increasing costs are making life hard for some superannuitants. “One woman got a new heater and her power bill rose from $150 to $400 a month; that large bill is making her struggle. Another couple living in a cold, rented council flat spent most of winter sitting in front of a heater because they couldn’t afford to heat their whole home. They barely moved and that’s not good for their health. People are finding their house rates have increased unexpectedly and in stretching their finances to meet the increase, their other bills are getting on top of them.”
Property ownership, or more the lack of it, is an issue for some ministers, Ray says. Ministers who have lived in the church manse most of their lives are thinking of creative solutions. “I know of a couple of ministers who don’t have their own home or crib who are considering if it might be possible to live communally with two families sharing one house.”
When he retires Ray says he will experience a significant drop in income but he expects his rental property to provide a cushion. “I’m not stressed about retirement; I trust in God for the future.”