Should pensions be means tested like Disability Benefits?

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TeaLeaf

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#205787 27-Nov-2016 09:28

Take a guy who has MS and cant work, his partner earns just over the WINZ threshold to get a benefit and they are honest to declare they are in a relationship (yeah that happens a lot, but I personally think it should be like Aus if you lie).

Now we are taking in immigrants and building house after house and of course Kiwis thinking they have done something really smart are following overseas investors and chasing the boom. Same thing happened in Australia prior to the GFC, except the Aus govt did the right thing unlike Keys and didnt protect real estate, nor did Ireland and the US.

Now I know we look at our currency and think our economy is strong, what happens if the RE boom pops? (no that couldnt happen in NZ could it). Of course those who bought a house to live in just wont care and nor should they.

But why does the guy who cant get any benefit due to circumstances beyond his control suffer.

Yet an Auckland multi millionaire sells his $4m mansion, retires and claims super.

Wouldnt the answer to housing and immigration to generate tax to pay for baby boomers pensions (because we didnt want to work to 70), be to means test pensions? Which in turn would cut down on the immigration we supposedly NEED and stop this crazy expansion and when it stops leaving builders out of jobs for decades.

Just a genuine question, no harm meant and not meant to rattle cages. I just think immigration is not the only solution to pay for the pensions.

Maybe others have ideas on the pension issue looming?

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Pumpedd

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#1678175 27-Nov-2016 10:44

I may be wrong but I believe I read in another of your posts today you have just returned from 15 years overseas?

If this is so, then maybe you were happier overseas?

floydbloke

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#1678177 27-Nov-2016 10:57

tealeaf:

..Yet an Auckland multi millionaire sells his $4m mansion, retires and claims super...

Assuming he is honest and paid his taxes, why would he not be entitled to his super?

So many people complaining about yogurt these days....it's becoming a culture.

Geektastic

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#1678179 27-Nov-2016 11:04

Pensions are not benefits, they are deferred savings plans to fund your retirement. Why should they be means tested?

You should get what you pay for. Many people getting pensions will have paid a fortune in tax in comparison to the bludgers living on the dole etc and never claimed anything.

In NZ, unlike most comparable nations, pension saving is not a tax free activity, either, so there's far less incentive for people to save into private schemes. You'd have to address that IMV before you could even consider means testing state pensions.

MikeB4

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#1678184 27-Nov-2016 11:25

Disclaimer; My signature says I am retired, this is due to disability. I am too young for Superannuation and I receive zero benefits form the Government except the medical subsidies we all receive.

nickb800

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#1678186 27-Nov-2016 11:32

I think the general argument against means-testing super is that the costs of bureaucracy involved in assessing it (e.g. income fluctuates weekly so super needs to be adjusted weekly) and impact of people re-jigging their affairs to get around the means-testing means that the total cost saving isn't that great.

The challenge with means testing benefits/super is that it leads to huge marginal tax rates which disincentive working. For a fictional example lets say you're 67 and still in good health, deciding whether to retire or keep working. You might be facing 30% marginal income tax plus 30% abatement on your super payments which amounts to 60% marginal tax on your wage/salary - this is a very strong incentive to retire! From the governments point of view - it's a very good thing if people keep working past 65 as they get to tax both their super payments and their wage/salary, most likely at a relatively high marginal rate (30% plus).

Income on investments is a similar story - abating super payments based on investment income would create a disincentive to save for retirement at the margin.

It may be that the govt would be marginally better off with means tested super, but it's unlikely to be a huge fiscal windfall that would justify the political fight to implement it.

Pumpedd

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#1678188 27-Nov-2016 11:37

I believe its simpler than this......if it was means tested it would be unpopular and probably cause an election defeat.

MikeB4

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#1678194 27-Nov-2016 11:43

nickb800:

I think the general argument against means-testing super is that the costs of bureaucracy involved in assessing it (e.g. income fluctuates weekly so super needs to be adjusted weekly) and impact of people re-jigging their affairs to get around the means-testing means that the total cost saving isn't that great.

The challenge with means testing benefits/super is that it leads to huge marginal tax rates which disincentive working. For a fictional example lets say you're 67 and still in good health, deciding whether to retire or keep working. You might be facing 30% marginal income tax plus 30% abatement on your super payments which amounts to 60% marginal tax on your wage/salary - this is a very strong incentive to retire! From the governments point of view - it's a very good thing if people keep working past 65 as they get to tax both their super payments and their wage/salary, most likely at a relatively high marginal rate (30% plus).

Income on investments is a similar story - abating super payments based on investment income would create a disincentive to save for retirement at the margin.

It may be that the govt would be marginally better off with means tested super, but it's unlikely to be a huge fiscal windfall that would justify the political fight to implement it.

The staff required by MSD to assess an Income Tested Superannuation would see MSD nearly double in size.

BlinkyBill

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#1678195 27-Nov-2016 11:44

There is in place a social contract that future pensions are funded from historical income tax payments. Means-testing pensions breaks that contract.

Ouranos

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#1678199 27-Nov-2016 11:58

BlinkyBill: There is in place a social contract that future pensions are funded from historical income tax payments. Means-testing pensions breaks that contract.

Not true - NZ Superannuation is funded from current taxes. There is a provision for some pre-payment in the future, via the NZ Superannuation Fund, but that hasn't yet started to contribute to current payments.

BlinkyBill

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#1678201 27-Nov-2016 12:10

Ouranos:
BlinkyBill: There is in place a social contract that future pensions are funded from historical income tax payments. Means-testing pensions breaks that contract.

Not true - NZ Superannuation is funded from current taxes. There is a provision for some pre-payment in the future, via the NZ Superannuation Fund, but that hasn't yet started to contribute to current payments.

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'.

Ouranos

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#1678202 27-Nov-2016 12:16

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 social contract has been changed several times over the last few decades. There's no reason why it can't be changed again.

For example, I assume that the introduction of KiwiSaver was a move towards removal of universal superannuation. That is, save for yourself and don't expect a payment from the Government. It will take a decade or two, but that is where it is going.

TeaLeaf

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#1678206 27-Nov-2016 12:26

BlinkyBill: There is in place a social contract that future pensions are funded from historical income tax payments. Means-testing pensions breaks that contract.

Thats not true. But Disability benefits were also paid by your taxes (which yes even though living overseas I have contributed too also).

But going by your logic, WINZ has broken that contract when they changed Disability Support, by means testing. So when someone whose family income only covers cost of living, there is no chance to live a high standard of living (dont tell me this rubbish Auckland is the most livable city in the world).

Im not refering to me, I just find this policy from WINZ to be extremely unjust in comparison to the Elderly, both are unable to work due to means beyond their control (potentially, some work to 75). So why are we discriminating against people with severe disabilities, or bludgers as the earlier post calls them, but not pensions?

Not an economist, I just think its extremely unjust system and the concept of immigration to pay for baby boomers who reaped all the benefits of NZ prior to changes that the next generation didnt and will not get (ie free University, disability benefit) to be a silly way to pay for that pension.

And whats the bet the next generation will have their pensions means tested?

Not stirring the pot, just saying, it seems contradictory to change policy per generation simply due to an incapable policy and economy.

Thanks for the replies, I take on board other peoples opinions.

MikeB4

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#1678207 27-Nov-2016 12:29

TeaLeaf:

BlinkyBill: There is in place a social contract that future pensions are funded from historical income tax payments. Means-testing pensions breaks that contract.

Thats not true. But Disability benefits were also paid by your taxes (which yes even though living overseas I have contributed too also).

But going by your logic, WINZ has broken that contract when they changed Disability Support, by means testing. So when someone whose family income only covers cost of living, there is no chance to live a high standard of living (dont tell me this rubbish Auckland is the most livable city in the world).

Im not refering to me, I just find this policy from WINZ to be extremely unjust in comparison to the Elderly, both are unable to work due to means beyond their control (potentially, some work to 75). So why are we discriminating against people with severe disabilities, or bludgers as the earlier post calls them, but not pensions?

Not an economist, I just think its extremely unjust system and the concept of immigration to pay for baby boomers who reaped all the benefits of NZ prior to changes that the next generation didnt and will not get (ie free University, disability benefit) to be a silly way to pay for that pension.

And whats the bet the next generation will have their pensions means tested?

Not stirring the pot, just saying, it seems contradictory to change policy per generation simply due to an incapable policy and economy.

Thanks for the replies, I take on board other peoples opinions.

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.

TeaLeaf

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#1678208 27-Nov-2016 12:30

BlinkyBill:

I am talking about the social contract, not the mechanism.

Thats the point, there is NO social contract. You if say 45 now, may not receive a pension. So why should we be relying on immigration and discriminating disabled people yet paying out pensions without means testing.

Just my 2c.

TeaLeaf

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#1678209 27-Nov-2016 12:31

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?

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