Your Pension – With a ‘Super’ History Like no Other!

It pops into our bank account every fortnight as if by magic. However, the superannuation payment you probably take for granted has a long and fascinating history which sets it apart from similar schemes around the word.

Superannuation is by no means specific to New Zealand. In 1889, for example, Germany introduced a pension scheme to provide for its seniors, and in 1891, Denmark introduced its own welfare payments. But the pension plan adopted by New Zealand in 1898 came with a very big difference to any others around the world. While other nations required their populations to contribute to super schemes throughout their working lives (backed up with support for those on low-incomes), our own Kiwi model was funded entirely from the general tax-take.

To begin with, it was provided to seniors (unless they were ‘Chinese and other Asiatics’) of ‘good moral character’ who were aged 65 and over and who had lived in New Zealand for 25 years. In cases where Māori were not able to prove their age because their births had not been registered, magistrates were charged with assessing age. In 1898, this pension was the equivalent, in today’s standards, of around $4,300. It wasn’t a lot when men, during the same period, were earning around 3 times that amount. What’s more, it was asset- and income-tested. But if you had nothing, it was a lifeline. By 1938, pensions had risen, Chinese New Zealanders were included in the scheme, and if you were a woman, you were eligible to receive your pension once you turned 60. By 1938, men aged 60 were also entitled to the pension.

Although there were tweaks along the way, the 1970s brought two big changes to the pension plan. The first, introduced under a Labour government, required an 8% contribution which was to be paid 50-50 by employees and employers. This brought New Zealand in line with many other developed nations’ contributory pension schemes, but it wasn’t to last. Under the National government, Robert Muldoon undid this scheme, portraying it to voters as a ‘burden’ and ‘overly complicated,’ creating an unnecessarily large pot of money. Many people now argue, had this contributory scheme continued, New Zealand would be better placed to provide for its seniors, going into the future. That aside, Muldoon’s government set the scene for a universal National Superannuation scheme, which was non-contributory, and available to everyone over the age of 60.

Without increased taxes to pay for this new non-contributory ‘National Super,’ government coffers began to decline. To compensate, over a period of years, pension rates were cut, and means testing introduced (and later, abolished), with surcharges being applied to recipients in higher income brackets and the age of eligibility rose to 65. In other words, the country was back to dealing with complexities.

New Zealand isn’t a country for holding referendums willy-nilly, but 1997 was significant in that a referendum rejected the option of introducing a compulsory contributory retirement scheme (by over 90%). The nation had spoken: we were to rely on tax revenue, alone, to support seniors. What has since allowed superannuation to continue in its present form, is what is colloquially referred to as ‘The Cullen Fund.’ Formally known as the NZSuperfund, it was sponsored into legislation by politician Michael Cullen, and began with a government contribution of $2.4 million. An Autonomous Crown Entity, its ‘guardians’ manage the investment under the auspices of the ‘Sovereign Wealth Fund’ which is now worth $79.9 billion dollars.

Although New Zealand introduced the Kiwi Saver Scheme as a way to encourage its population to independently save for its retirement, our government superannuation scheme remains as a universal welfare benefit. This means it is still as different to other retirement schemes around the word as it was when it first began. However, whether it remains this way, we have no way of knowing. Political views, and the views of different generations, change over time, and it may well be, the history of the New Zealand superannuation will change again. All of which is a good reason why it may not pay to take that fortnightly deposit into your bank account, for granted!