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Argument #1 – Superannuation is likely to go

Superannuation is increasingly unaffordable. This is all down to how it’s funded.

Many Kiwis assume that you spend your working life paying taxes and the government takes that money, invests it, and gives it back to you when you retire (through the pension).

That’s not how it works.

Here’s what really happens:

• You pay your taxes
• That money is given to people who are already retired
• When you retire, the government will tax people who are working
• And give you that money

The problem is that people are living longer, so way more retirees need to be supported. But we’re also having fewer babies, so there are fewer workers to pay for pensioners.

Problem #1: We’re living longer – and retirees are becoming more expensive

In 1983 the average Kiwi was expected to live until 74. Forty years later, it’s 83 (9 years longer). In another 40 years (2063) that is expected to grow to 88 (another 5 years).

While that’s a good thing (people are living longer), it does mean retirees are becoming more expensive.

Let’s spell it out. In 1983, if you retired at 60 and died at 74 (the average life expectancy in 1983), you required superannuation for 14 years.

In 2063, you require superannuation for 23 years if the age of eligibility does not change.

Problem #2: There are fewer workers to pay for each retiree

In the late 1950s, New Zealand was in the middle of a massive baby boom. At the time, women were having around 4 babies on average.

Those baby boomers are now reaching or well into retirement.

But today, New Zealand women have around 1.5 babies on average.

Because we are having fewer babies, there will be fewer workers relative to the number of retirees.

That means the cost of NZ Super will increasingly fall on a smaller share of working-age New Zealanders.

The Retirement Commission expects about 50% more people aged 65+ by 2050. At the same time, there will be a smaller share of workers to help fund government spending.

In our view, that will make NZ Super increasingly difficult to afford in its current form over the long term.

That is why substantial changes will be needed.

Argument #2 – Superannuation will survive but may be tweaked

On the flip side, there are clear arguments that NZ superannuation won’t be substantially changed.

Reason #1 – Big changes to NZ Super are politically difficult

NZ Super may become more expensive, but making big changes to it isn't politically easy.

That's because older New Zealanders make up a large share of voters.

At the 2023 election, people aged 65+ made up about a quarter of those who voted. People aged 45–64 made up another third.

Together, those aged 45+ accounted for around 60% of voters.

And older New Zealanders are particularly likely to turn up on election day. At the 2023 election, around 85% of enrolled voters aged 65+ voted.

That doesn't mean everyone in these age groups wants NZ Super to stay exactly as it is. But it does mean politicians need to tread carefully when proposing changes.

We've seen that debate play out for years.

Phil Goff proposed gradually raising the eligibility age to 67 ahead of the 2011 election. Bill English's National government announced a similar policy in 2017.

More recently, Christopher Luxon's National Party has proposed keeping the eligibility age at 65 until 2044, before gradually increasing it to 67.

So, changing NZ Super isn't politically impossible.

But history shows that major changes can be difficult. That's one reason any reform is likely to come with plenty of warning rather than happening overnight.

Reason #2 – The Retirement Commission is cautious about change

The Retirement Commission advises the government on retirement policy.

Over the years, its view on raising the retirement age has changed.

In 2016, it recommended slowly raising the age from 65 to 67.

By 2019, it had changed its mind and recommended keeping it at 65.

It said the same thing again in 2022, even though the OECD recommended linking the retirement age to how long people live.

The Retirement Commission reviewed the system again in 2025.

This time, it said New Zealand needs a long-term plan for retirement before making big decisions, like changing the age you can get NZ Super.

That's partly because changes to NZ Super don't affect everyone equally.

Some people reach retirement with plenty of money and assets. Others rely heavily on NZ Super.

Women, people with disabilities and some ethnic groups can also be more reliant on government support.

So, the Retirement Commission isn't saying NZ Super should never change.

It's saying any big changes need to be thought through carefully first.

What will actually happen to superannuation?

What actually happens to NZ superannuation is anyone’s guess, but it is likely to be somewhere in the middle of the two opposing arguments.

It probably won’t be cancelled altogether. But, there will likely be changes made over the years. In our view, here at Opes Partners:

1. The “age of eligibility” is likely to be raised

2. We also believe some form of means testing will be introduced at some point.

What does ‘means testing’ mean?

Means testing is where the pension is only given to people who don’t have a lot of money.

If you have wealth above a certain amount, e.g. $500,000, you might get a smaller pension or not get any government support.

Means testing is used (at least in part) in the UK, the US, Australia, Belgium, Italy, Austria,Hungary and Ireland. So, it’s not without precedent.

This is likely to be considered because some vulnerable groups require more government support. On the other hand, some groups aren’t as reliant on the pension.

We also anticipate means testing will be more politically possible than continually raising the age of eligibility.

How does this impact my retirement plan?

Crystal ball gazing about the future of the pension is vital for Kiwis planning their retirement.

For example, let’s say that as part of your Wealth Plan you want to live on a passive income of $100k a year, funded by investment properties and the NZ superannuation.

Here’s what your income might look like:

In this example, you are counting on superannuation to make up $25k of that $100k.

If a means test is introduced, the government might say: “Live on that $75k first, and then come back to us if you don’t have any money.”

Or, they could say, “If you have assets over $1 million, you get a reduced super. You get no super if you have assets over $2 million.”

We’re making these numbers up, as an example. But, the critical point here is that:

• if you are investing in property, and
• a means test is introduced

there is a good chance that (while the pension will still exist) you might not have access to it.

This will have a significant impact on your desired lifestyle because you’re unable to live on the same income you wanted.

This is why, if you:

1. intend to have a decent-sized passive income for your retirement (e.g. $100k), or

2. expect to have a significant number of assets

it’s a good idea to leave superannuation out of your plan. You could be means tested.

When to include superannuation within your retirement plan –

• If you are within 15-20 years of being eligible for the pension
• If you want to retire at the age of eligibility (currently 65)

When to leave superannuation out of your retirement plan –

• If you are more than 15-20 years of being eligible for the pension
• If you want to retire before the age of eligibility (currently 65)
• If you intend to have many assets at retirement ($2 million +), you could be means-tested.

Should I be worried about the pension being cancelled?

The key message is that while we don’t believe Super will be cancelled, it’s likely to change.

So, if you’re a property investor (especially if you’re more than 15-20 years away from retirement) and want to remove any uncertainty, plan for superannuation not to be there. That way, you don’t have to worry about whether you will have enough assets.

If it’s still there, you’ve got a nice bonus.