Should pensions be means tested like Disability Benefits?

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#1678217 27-Nov-2016 12:38

TeaLeaf:

MikeB4:

Sickness Benefits/Invalids Benefits/Disability Benefits have been income tested for a very very long time. Note, Work and Income or MSD do not make the rules.

And that makes it just or even ethical?

And in 20 years you think pensions wont be income tested even with 1million new immigrants being taxed?

yes, Superannuation is for the remainder of life, Sickness Benefits/Invalids Benefits/Disability Benefits are not they are back stops

Scott3

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#1678227 27-Nov-2016 12:51

Geektastic:

Pensions are not benefits, they are deferred savings plans to fund your retirement.

Oxford Definition:

pension
NOUN

British

1 A regular payment made by the state to people of or above the official retirement age and to some widows and disabled people:
‘men can draw a pension from the age of sixty-five’

Synonyms

1.1 A regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life:
[as modifier] ‘the company pension scheme’

1.2 historical A regular payment made to a royal favourite or to an artist or scholar to enable them to carry on work of public interest or value.

I think OP was referring to NZ superannuation with the term "pension". This would fit with definition 1, and represents a transfer payment from (or benefit / welfare paid by) the state to qualifying individuals. The NZ government classifies superannuation as part of it's social security and welfare expense.

This is distinctly different to schemes like kiwisaver.

BlinkyBill:

obviously i meant, an individual pays tax now, which funds pension payments for those due them. In the future people paying tax fund pension payments for those due them then. That is the social contract. I am talking about the social contract, not the mechanism. I shouldn't have said 'funded from'.

The key issue is that current superannuation rates are set at a level that requires an ever growing working age population to fund a smaller number of super annuaniants. I would somewhat liken this to a pyramid scheme.

What really drove the pyramid scheme likeness home for me was a set of analysis that determined showed that a male working on average income for the entire of his working life, retiring at retirement age, and claiming super till his life expectancy would receive more in super than he ever paid in tax (in inflation corrected terms). This is clearly not sustainable.

The key issue that (based on age profile of our population), the pyramid is expected to become top heavy in the next couple of decades, with a relatively smaller number of workers paying taxes, and a increasing number of people becoming eligible for superannuation. Obviously this is going to create some serious funding issues. Treasury itself is warning the politicians about this: Link

I acknowledge most retirement age people have spent their working life paying taxes, some of which was spent on paying superannuation towards retirees in those years, and therefore feel that future generations owe it to them to pay them superannuation on the same terms. Unfortunately changing demographic mix means that my generation will be expected to carry a far higher burden in terms of paying than past in the past.

They way I see it is that past (working age) generation have spent all their tax money already (and more, we have something like $80B of national debt, let's face it, the cullen fund is trivially small). and as such aren't "owed" anything by younger generations.

I think it's clear that our generous superannuation policy will need to be cut back to meet budget constraints the future.

Everything should be on the table for this discussion, including, reducing the rate, raisting entitlement age, means testing, longer stand down for recent immigrants etc.

Fred99

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#1678229 27-Nov-2016 12:54

TeaLeaf:

And in 20 years you think pensions wont be income tested even with 1million new immigrants being taxed?

I think in 20 years time, it's quite likely that out of necessity, there'll be a UBI.

Immigrants to this country should be well informed that NZ is a social democracy. Many do in fact come here specifically to enjoy the privileges and quality of life that offers, and are more than happy to pay the costs that entails. It generally beats the crap out of the countries many have come from where massive inequality and the consequences of that is the norm.

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#1678273 27-Nov-2016 13:27

It seems to me that we give our elders a pension to help support them through the period of their lives when they are unable to work. We do this regardless of their means. It is called a universal pension and is a form of social security.

We give people social welfare when people are unable to support themselves. Social security does not necessariliy mean monetary payment but generally is.

Both I think are covered in the universal declaration of human rights (articles 22, 23 and 25).

Personally, I do not think either should be means tested and in the case of the latter, I think that penalties such as stand down periods and preventative entry or age related criteria should be removed, especially for students.

In terms of people that cannot perform paid employment due to disability or injury of some kind. I think they should be given the opportunity to be able to perform other activities that are beneficial to themselves as people and society as a whole. Perhaps through cross training for a different kind of employment, or through art, music or higher academia.

I dont agree with means testing as I see it as a form of pecuniary punishment. However I do agree that social welfare should be continuously interactive in a positive manner (the current environment appears quite negative). By interactive, I mean the ability to work with people to find employment or other opportunities (as previously mentioned) and also from the perspective from a health and wellbeing point of view (especially for the retired) where health professionals get out into the community or make home visits for those less mobile.

In the health industry the buzz phrase is about having a good fence at the top of a cliff rather than an ambulance at the bottom. This also applies to social security and social welfare. I dont see how means testing people goes anywhere towards building that fence.

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TeaLeaf

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#1678276 27-Nov-2016 13:35

Scott3:
Everything should be on the table for this discussion, including, reducing the rate, raisting entitlement age, means testing, longer stand down for recent immigrants etc.

Bravo Scott, a well thought out retort and spot on.

I find it hard to believe my generation will receive a pension, so why am I paying for the previous generations? Thats the kind of thing people are asking.

Similar, why did the previous generation get a free Uni education but I have $100k in debt?

My honest opinion is, that the longer these things arent addressed the closer NZ is to turning to a pile of .... and I dont say that in nasty way or jealousy. Its just simply unsustainable and unjust imo.

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#1678280 27-Nov-2016 13:45

Fred99:

I think in 20 years time, it's quite likely that out of necessity, there'll be a UBI.

I a big fan of a UBI scheme to replace our current welfare system.

Current age based superannuation requires discrimination based on age which is not ideal. It is further discriminatory against sectors of society with lower life expectancy (Males, Maori). I imagine this will be seen as unethical in the coming decades (although a workable UBI does require age discrimination against youth & children).

The Big Kahona book is the most comprehensive look at UBI's from a NZ perspective that I have seen.

Note that you can tweak the numbers to suit your political views, (more tax, higher basic income or the opposite).

Example numbers from here are:

Single income tax rate - 30%

CCT - 1.8% pa of non-current capital (buildings, structures, plant & equipment, software, land) = 30% * 6% Creditable against income tax paid on income from deployment of capital

No exemption for owner occupied housing
Abolition of all benefits

UBI - $11,000 per adult, $8,500 per youth

This would be a massive leveling of the system.

Single mothers & superannuitants currently have quite generous benefits, and would be worse off would lose out. Not shown on the graph, but those holding a large value of assets making less money than the expected rate of return (6% in the example, but we would need to revise down due to interest rates being so low at the moment), would lose out too. (hopefully incentivising those assets being put into productive use).

If it was wanted to make system more family (and single parent) friendly, a child benifit of $3000 pa could be added by increasing the income tax rate from 30% to 32%

It is very hard to bring adult ufb up to the current superannuation level without making the number unpalatable elsewhere. Adding a superannuant supplement could be done short term for political palatability, but would be too expensive (and break the simplicity of the system) to do it long term.

As such I would expect a strong push back from those near retirement age against a UFB.

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#1678281 27-Nov-2016 13:45

TwoSeven:

Personally, I do not think either should be means tested and in the case of the latter

I agree means testing someone severely disabled just because their partner earns $1 over the threshold PA for 40 years, its just .... wrong. And Im not going to judge anyone but imo its a lack of compassion to think otherwise.

The rich get richer and the sick and third world NZ just get sicker and poorer.

Sure we arent the worst in the world, but we have nowhere near the social, health and pension status of some countries like Switzerland.

Its too easy to hide your money in property and say you dont have any money so I cant be means tested for pension as well.

NZ needs also to set aside money to a seperate government entity for Health like Medicare (government based Aus Health Insurance, in your tax) and not leave it to politicians to decide how much and where to put it. NZ health care is awful. In Aus if you earn over $50k (I think there abouts) its tax beneficial to use Private Health Ins. But the tax rate is no more than NZs within a few percent up or down.

Key protecting/pouring money into the economy, for us (what motives) from the GFC was a big mistake.

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#1678282 27-Nov-2016 13:47

The multi millionaire in the op would probably not claim super.

Perhaps the four million dollar sale transaction is a better argument for CGT.

TeaLeaf

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#1678283 27-Nov-2016 13:48

Health, Education, Small Business, the main stay of all economies, imo NZ rates about 3/10 in these fundamentals.

Why cant we have businesses compulsory 9% super funding to employees like Aus? Because we dont have the above.

Fred99

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#1678286 27-Nov-2016 14:02

TeaLeaf:

Key protecting/pouring money into the economy, for us (what motives) from the GFC was a big mistake.

NZ followed interest rates down with the RB OCR - supposedly independent from direct govt. intervention - but didn't "print money" as in "quantitative easing" as in UK, USA etc.

Recession has been avoided by a few combined factors, the high dairy prices kept trade figures okay, the deliberately high net migration gain kept GDP growth positive (but not so much GDP per capita which has at times been negative), and government spending was more-or-less held despite running larger deficits. The Chch quakes also brought in tens of billions of $ - from offshore insurers/reinsurers, so was very positive for economic growth.

The government books have been - and remain - in quite good order. Nothing new there, the Clark Labour government was also fiscally responsible under Cullen.

Private debt is what could really trip NZ up if there's a "GFC II" - or if we just return to "normal interest" rates. Every 1% in interest rate takes about $5 billion per annum out of the local economy.

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#1678287 27-Nov-2016 14:02

TeaLeaf:
Health, Education, Small Business, the main stay of all economies, imo NZ rates about 3/10 in these fundamentals.

We can do better in some areas. In most objective measures it does pretty well. Much better than 3/10

Fred99

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#1678289 27-Nov-2016 14:12

gzt:
TeaLeaf:

Health, Education, Small Business, the main stay of all economies, imo NZ rates about 3/10 in these fundamentals.

We can do better in some areas. In most objective measures it does pretty well. Much better than 3/10

In global comparative terms, we'd be well north of 9/10 on most measures.

Much depends on who people want to compare NZ with, and who you are. IMO one of NZ main problems at the moment is that it's a relatively high cost economy (for basics of housing, food, energy) but with low wages for unskilled workers. Plenty of people seem to work hard but get nowhere, the old "if you'd worked harder at school - you'd be clever and rich like me" doesn't wash. Many people don't get a fair go.

Scott3

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#1678291 27-Nov-2016 14:22

TeaLeaf:

Scott3:
Everything should be on the table for this discussion, including, reducing the rate, raisting entitlement age, means testing, longer stand down for recent immigrants etc.

Bravo Scott, a well thought out retort and spot on.

I find it hard to believe my generation will receive a pension, so why am I paying for the previous generations? Thats the kind of thing people are asking.

Similar, why did the previous generation get a free Uni education but I have $100k in debt?

My honest opinion is, that the longer these things arent addressed the closer NZ is to turning to a pile of .... and I dont say that in nasty way or jealousy. Its just simply unsustainable and unjust imo.

Thanks for your kind words.

I am somewhat frustrated at lack of action by our politicians in this regard. I don't want to create an intergenerational fight, but the current system is clearly unsustainable. The sooner we put a plan in place to deal with it, the more warning those near retirement age will have, and the less pain it will cause. i.e. increasing retirement age by 2 months a year would be much nicer than increasing it by an entire year at once in three years time (the mid point of a 6 year transition period)

TwoSeven:

In the health industry the buzz phrase is about having a good fence at the top of a cliff rather than an ambulance at the bottom. This also applies to social security and social welfare. I dont see how means testing people goes anywhere towards building that fence.

I care less about fairness and more about creating desirable incentives.

A means tested benefit creates the incentive to have low means, either genuinely (incentivised to invest less in education, savings, assets etc to increase your income & standard of living later in life), or non-genuine (under the table income, hidden assets (either offshore, or cash hidden in the attic etc) and so forth)

That's why I like the UFB proposals, it incentivises people to do things that are good for the country.

TeaLeaf:

Why cant we have businesses compulsory 9% super funding to employees like Aus? Because we don't have the above.

Increasing kiwisaver would be great for when the 30 year olds of today come to retire. Although any effort to encourage employers to pay more than the market rate (i.e. increased super contribution) count towards total salary packages, and will be adjusted over a few years, to bring rates back into line with the market.

Note that many of the Boomer generation don't have enough time left before retirement for a savings scheme to replace government superannuation.

While I care more about economic efficiency than fairness, this is a tough pill for my generation to swallow.

Essentially we are expected to save for our own retirement (in full, it is likely superannuation will be gone by the time I hit whatever retirement age is then), while simultaneously paying for the retirement of older generations superannuation or taxation.

The fact that Land Tax in NZ was abolished two years after I was born, driving a 25 year + boom in property prices, giving the bulk of those who will retire in the next few decades a massive windfall in wealth on the back of the property price boom (while simultaneously requiring my generation to take on 20 to 30 years of debt (and carry massive risk from future interest rate increases) if we want to own the house we live in (as a junior professional in Auckland).

I would like my analysis to be more about the what's best for the country, and less about what's best for me, but frankly things aren't looking that positive for my generation at the moment.

mattwnz

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#1678292 27-Nov-2016 14:25

Super is actually an entitlement, and everyone who pays taxes is paying into it. The problem is that it is managed by winz, so people think that it is a benefit. But it is really no different from any other retirement scheme. The media is also writing all sorts of stories of late, to say whether it should be means or income tested, and whether we can afford it, so I get the impression that they are wanting it changed, but many people want it kept like it is which is simple. . Our PM says yes we can afford it without putting up the age. The big problem is the government doesn't actually save the money we are paying into it, so money being paid out now is coming out of taxes. If this government hadn't suspended payments into the superfund that labour setup, nz likely could have a huge amount more in the super fund, as shares have increased substantially over their term.
If you have money in KiwiSaver you don't want the age of entitlement to Go up as it delays when you can withdraw that money so you have less time on earth to use it.

Scott3

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#1678295 27-Nov-2016 14:29

TeaLeaf:

Key protecting/pouring money into the economy, for us (what motives) from the GFC was a big mistake.

Running loose fiscal policy (government spends more than it earns), and monetary policy (lower interest rates) is the stock standard response a recession.

I don't think we did badly in this regards, we missed most of the negitive effects of the GFC that hit the USA and europe (massive job losses, bank failure etc).

Of course, not that times are good (well, the new normal anyway) we need to pay down this debt, and get some national savings for the next rainy day.

I think we should have done some quantitative easing (money printing) too when the USA etc was doing it. We had very low inflation and interest rates, and printing some more money would have pushed down our currency (good for exporters, our currency was super high due to other countries doing this) , while providing revenue for the government.

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