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Inadequacy of NZ Super

Why do pensioners stay in bed?

This is not about older folk being naughty and having fun under the duvet. It is about superannuitants staying in bed because they cannot afford to heat their homes. In a broader sense, it is about the adequacy of NZ Super, or rather its inadequacy to cover living expenses.

The issue was first raised under the catchy “stay in bed” headline in Grey Power’s Lifestyle magazine in 2008. Two years later, a superannuitant with a sharp mind and a penchant for figures did some extensive number crunching. Based on publicly available statistics, he arrived at alarming findings which prompted both Age Concern and Grey Power to take action. Following is a summary of this study from the Age Concern website:

"A new study shows that NZ Superannuation payments aren't enough to live on. Many people are short by $30-plus every week.

New Zealand Superannuation – A Measure of its Adequacy, a two-part study by Katikati volunteer John Logan, has been released jointly by Age Concern New Zealand and Grey Power.

Both our organisations are so concerned at the study's findings that we have jointly forwarded the study to the Prime Minister and other MPs.

Even the most minimal living costs, based on Statistics New Zealand figures, add up to more than the current Super payments of $245 - $318 per person in the hand each week.

"Most older people have only Super to live on, plus very small savings income," Age Concern New Zealand chief executive Ann Martin says.

"Few people would like to live on John Logan's minimal weekly budget, but his study shows that many older people can't even afford this basic standard of living without going into debt."

Couples on Super are the worst off, with the study reporting shortfalls of $30-plus each per week. The deficit increases the further South they live, due to higher heating costs.

The study shows that older people need extra weekly income just to make ends meet, but Statistics New Zealand figures show at least half of all older New Zealanders have $38 a week or less of additional income.

They must go into debt or cut even basic living requirements to survive.

The current level of Super payments has little relation to the cost of living. It is set through an arbitrary proportion of the net full-time average wage plus inflation adjustments. Government agencies have little information on its adequacy."

In late 2008, approximately 515,000 people received NZ Super. Not all of them have to “stay in bed” to keep warm in winter and watch every cent to make ends meet. According to the latest Household Economic Survey (HES 2007), which is conducted every three years by Statistics New Zealand, about 14.9% of persons over 65 have additional income on top of NZ Super. However, conversely, this also means that the vast majority of all pensioners rely on NZ Super as their only source of income.

How adequate is New Zealand Superannuation?
This begs the question how much a person really needs to cover living expenses. It could be viewed as falling into the category of a “how long is a piece of string” question. But there are a couple of lofty, official goals and visions, and some more specific statistics to go by.

On its KiwiSaver web page, the Government states: “NZ Super provides for a basic standard of living in retirement, but may not be enough for the kind of retirement you want. […] KiwiSaver savings will complement NZ Super to provide you with a better standard of living in retirement.” According to this statement, NZ Super should be enough for a “basic” lifestyle.

In 1972, the Royal Commission of Social Security recommended that "the community is responsible for giving dependent people a standard of living consistent with human dignity and approaching that enjoyed by the majority.”

A minimalistic budget and a Spartan lifestyle

Number cruncher John Logan has taken all these claims into consideration and created not a basic, but even a minimalistic pensioner budget. It is based on living costs gathered from various sources, such as Government agencies, universities and electricity suppliers.
In the absence of age-related expenditure data, Logan excluded such items from the Household Economic Survey data that would normally be consumed in many households, such as the expenses of owning a car, inter-city travel, alcohol and holidays. This leaves a very minimalistic budget and allows pensioners only a very Spartan, home-bound lifestyle.

The items that remained in his calculations to establish a typical superannuitant’s cost of living fell in the categories of

1 council rates
2 electrical energy
3 telephone
4 health services
5 food costs
6 other costs

Far from generous, far from adequate

Having analysed the HES data and done the sums of his minimalistic budget, the author came to the following conclusion: “It is a surprise to discover that an average household comprised of two persons in New Zealand spends twice as much per week as NZ Superannuation pays to a superannuitant couple.”

The shortfall from the amount of NZ Super to John Logan’s minimalistic budget requirements is NZ$ 38.36 per week, or NZ$ 1,995 per year. However, Statistics New Zealand figures show that in 2008 over half of all superannuitants, i.e. more than 250,000 pensioners, had less than NZ$ 38.36 per week from other sources than NZ Super.

To make ends meet, there are a few types of cost over which pensioners have full control and which they can – and often do - reduce.
  • They can choose cheaper food items, thus keeping an unbalanced and unhealthy diet.
  • They can use less energy during winter, stay in bed, or put on another jumper and sleep in thermal underwear and a balaclava.
  • They can exclude books and newspapers and only use the library.
  • They can skimp on clothes, go threadbare or only buy second-hand.
This is surely not what the Royal Commission meant by a standard of living consistent with human dignity and closer to that enjoyed by the majority of people.

The Government: doing little and obscuring a lot

With all these figures available, the Government is doing very little to address the problem in a fundamental way.

KiwiSaver is still promoted as a nice add-on income for the extras in retirement while the Government continues claiming that the basics would be covered by NZ Super. KiwiSaver is not compulsory and employer contributions were reduced, thus reducing savings in the long term.

The rate of NZ Super is still widely quoted as 66% of the average per-person full-time wage. However, this 66% is the couple rate. The rate for an individual living with a partner is half the couple rate, that is 33%. The rate for an individual living alone is around 40% of the individual average wage. If the comparison were made on a like-with-like basis, it would be obvious how little superannuitants really receive and are expected to live on.

While not the Government’s fault, another factor is also frightening. Given the fact how real estate prices have sky-rocketed over the last ten years, lower levels of home ownership are predicted across all age groups, including future retirees. Unlike today, significantly more elderly people will have to cover the cost of renting when they retire.

And in light of all these facts, the Government unashamedly continues to deduct overseas pensions, thus making sure the number of pensioners who “stay in bed” stays as it is. A bedrock principle, as it were. 
Fuel poverty

Those pensioners who stay in bed in winter or feel cold, thus running the risk of falling ill, suffer what is called fuel poverty.
Fuel poverty occurs if the cost for energy exceeds 10% of the household income.

The University of Otago estimates that 24% of New Zealanders are living in fuel poverty (not all of them are superannuitants).

John Logan states that all superannuitants on the “single, living alone” rate of NZ Super are experiencing fuel poverty (there are about 160,000 single superannuitants in New Zealand).

As a general rule, the amount of energy and the corresponding cost to heat a pensioner’s home increases the further south a person lives. For example, the energy cost to heat a house in Dunedin is more than double the cost required in Auckland.

In mid 2010, the price of electricity is expected to rise by up to 5% as a result of the Emissions Trading Scheme. It is expected to rise to 10% by January 2013.
Backtracking on KiwiSaver

Under the original scheme, the employer contribution was meant to start from 1% of a worker’s gross pay to peak at 4% in 2011. However, in November 2008, the National Government passed a bill under urgency that capped the employer contribution to 2%. With effect from April 2009, it also allowed employees to drop their contribution to the same level.

The scheme:
Employer contribution: 2%
Employee contribution: 2%, 4% or 8%
Government contribution:
NZ$ 1,000 tax-free kick-start payment plus tax credit up to NZ$ 1,042 p.a.