Author Katrina Shanks, CEO Financial Advice NZ Article originally published in Stuff.co.nz.
The age of eligibility for New Zealand Superannuation has long been an issue of hot discussion.
It’s been part of our welfare support system since 1898 when the means-tested Old Age Pension was introduced for people 65 years of age and over.
The eligibility age was changed to 60 in 1938, and testing for income and assets was removed in 1977. It now kicks in at 65, where it has been since 2001.
But as our population ages, and people live longer and spend more time retired, the arguments grow around the affordability of the scheme, and the extra cost burden those who are still working and paying taxes will have to bear.
Recent figures show it costs around $39 million a day. But it’s estimated that in 20 years’ time that will have climbed to around $115m.
So, how does NZ Super work?
Eligibility at age 65 is open to all New Zealand citizens, permanent residents, those holding a residence-class, residents of the Cook Islands, Niue or Tokelau, and those have lived here for at least 10 years since they turned 20.
Importantly, because it’s not income tested, you don’t have to be retired from work to get NZ Super.
You can have a healthy KiwiSaver account, a big shares portfolio, a rental house and still be working full time – and still get the pension.
But any of that other income you earn will affect the tax code you use for your payments, and can affect any extra financial help you may be eligible for.
It doesn’t arrive automatically in your bank account the day you turn 65 – you have to apply for it at Work and Income – and you should do this at least a few weeks before you turn 65, because the date you apply will affect when your payments start.
If you apply after your 65th birthday, and you qualify, your payments will start only from the date you apply. They will not be backdated.
There are a few documents you need when you apply so the Government has proof of who you are and that you’re eligible to receive Super. And all documents you have to send in must be either originals or certified copies.
You also need to provide two forms of identification: either two government-issued IDs, or one government-issued ID and another document that proves your identity. Other documents include rates notice, bank statement, insurance policy, phone bill.
If you have a partner, they may need to provide these documents as well.
On top of all that, you’ll need to provide evidence of your bank account that shows your name, account number and the bank’s logo, and details of any overseas pension you get or qualify for.
The fortnightly payment you get varies depending on your circumstances, including whether you are single or not, live alone or with others, or whether you or your partner receive any overseas benefit or pension.
The after-tax rate for couples who both qualify is based on 66 per cent of the average ordinary time wage after tax, while for single people it’s based on 40% of that average wage. Payments are adjusted every year on April 1.
The current payment for a single person living alone is $925.88 after tax per fortnight. That same person sharing accommodation gets $844.66.
People with partners, who both qualify, get $712.22 each. But if you qualify and your partner doesn’t, you get just the $712.22. This is paid into your bank account automatically on every second Tuesday.
If you live alone, you may qualify for an extra amount that recognises the costs of running a household on your own. You may also be able to get this payment if you have a partner in residential care, hospital or prison.
There are conditions attached to receiving NZ Super.
Your payments will continue if you go overseas for 26 weeks or less, but if you don’t return within 30 weeks you may need to repay everything back since you left.
If you weren’t born here, or have lived or worked overseas, you may be entitled to an overseas pension and you must apply for this if you are eligible. If you don’t, you could lose your entitlement to NZ Super.
Extra financial help is also available for those on NZ Super, though most is income tested and some is asset tested. This includes money for accommodation, disability, emergency help, help to care for children if you are the main caregiver, and a funeral grant.
You can also get help with residential care costs if you need long-term residential care in a rest home or hospital.
Payments from accident insurance or ACC may also affect your superannuation.
There’s a lot to digest here, but it’s good to know you can be supported, if only to a moderate degree, in retirement.
The amount you receive for superannuation is well below what the Massey University Retirement Guidelines states you need for retirement.
This is why, for many, KiwiSaver has been life changing in their retirement and allowed them to obtain more financial freedom.
As my financial adviser would say – you should treat NZ Super as a backstop, never as your main source of income. That means saving and investing from an early age – and it is never too late to start.