NZ Super was designed with the assumption that most people will own their home and be mortgage-free by the time they retire. That’s increasingly not the case.
This article was first published in Bernard Hickey’s newsletter The Kākā.
Retirement commissioner Jane Wrightson published her three-yearly retirement policy review yesterday with a warning that the number of retirees renting is likely to double to 600,000 by 2048, and that an increasing number of both renters and those with mortgages are spending more than half their pensions on rent and borrowing costs.
This challenges the entire basis of New Zealand’s universally available and non-means-tested superannuation system, which is based on providing enough income to live well – but only with the assumption that the retiree owns their own home.
The review recommended:
- the retention of the universally-available and wage-linked nature of NZ Super available from the age of 65;
- an increase in the asset threshold for Accommodation Supplement access to $43,700 per person from the current $8,100, which is unchanged from 1993, and to look at inflation-adjusting the threshold;
- finding ways to stimulate an increasing supply of affordable, healthy and accessible housing for pensioners, including smaller properties for downsizing and larger properties for multi-generational living;
- removing barriers to building on collectively-owned Māori land; and,
- researching whether to encourage the availability of hard-to-access reverse equity mortgages and home reversion schemes that would allow home owners to draw down on equity while living in their homes.
The review commissioned research that found the Accommodation Supplement (AS) was already being paid to 50,808 pensioners as of March 2022, up 14% from three years earlier, but that the share of the pension-aged population on the AS had increased only marginally to 6% from 5.8% – in part because so many were ruled out by having KiwiSaver accounts and other assets worth more than $8,100.
“The dominant narrative of retirees as people who own their own home outright is certainly not true for all,” said the retirement commissioner. “It has always been significantly more reflective of Pākehā than Māori or Pacific People.”
Overall, 66% of New Zealanders aged over 65 own their home outright, but this is the case for only 47% of Māori kaumātua and just 27% of Pacific matua. Overall, 13% of people over 65 have a mortgage, but that includes 18% of Māori kaumātua and 27% of Pacific matua.
And overall, 20% of over 65s pay rent, but this increases to 35% of Māori kaumātua, and 46% of Pacific matua.
“This is important because there has been an implicit assumption underlying NZ Super that by the time people become eligible, at age 65, they will own their own home outright or be in secure and affordable public housing,” Wrightson wrote. “This is not explicitly stated in legislation, but reflects the dominant narrative of retirement as experienced largely by Pākehā.”
The report also found a growing proportion of pensioners with mortgages that were consuming most of their pensions, although some may also have other incomes.
Of those people still paying off mortgages, 80% were spending the equivalent of more than 40% of NZ Super on housing costs, and more than half were spending the equivalent of more than 80%.
Of those people paying rent, two-thirds of those aged 65-74 were spending 40% or more of NZ Super on housing, as well as over a third of those aged over 75. Some were paying more than 80% of NZ Super on housing costs, including 40% of those aged 65-74 and 16% of those aged over 75.
Those who own their homes outright much lower housing costs. About 80% of outright homeowners spent less than 40% of NZ Super on housing costs and more than half spent less than 20% of NZ Super on housing costs.
Treasury found that mortgage and rent costs had risen faster than outright ownership costs, with rents increasing at a higher rate than mortgage costs.
The Commission also recommended a closer look at the assumptions about living costs for those on their own, as opposed to couples.
The numbers have changed dramatically since NZ Super’s current settings were locked in place in the early 1990s. In 1986, 87% of those in their 60s were homeowners, with mortgages paid off, and for the most part were not in paid work. In 2018, 80% of those in their early 60s were homeowners, but 1 in 5 were still paying off mortgages, 20% paying rent, and many still in paid work.
The balance of home ownership is expected to shift to 60% homeowners and 40% paying rent by 2048 – up to 600,000 people.
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