The Retirement Commissioner says developing a higher tax rate for high-earning pensioners so the country can afford the rising cost of superannuation is worth considering.
A report released by the University of Auckland's Retirement Policy and Research Centre as part of the three-yearly review of New Zealand's retirement income policies has found New Zealand is heading for an "explosive" rise in national debt due to the skyrocketing cost of superannuation.
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The pension currently costs the country $39 million in taxpayer money a day. That number is projected to hit $120 million in 20 years thanks to our ageing population.
Researchers Susan St John and Claire Dale assessed a range of potential solutions to the problem, but found that raising the retirement age or reducing pension payments would likely create new problems.
They also said means testing to prevent the wealthiest people from accessing Super has proven too "politically unattractive" in the past to consider.
St John and Dale instead found the idea of creating a new tax structure for high-earners over 65 to be the most viable way to raise enough revenue to cover the rising cost of superannuation.
This "tax-based claw-back" would see Super remain a basic income that is not taxed. A progressive tax regime would be introduced which would mean those earning above a certain amount would pay back the grant through tax on that additional income.
Were a tax rate of 39 percent to be imposed, pensioners would need to be earning $123,000 a year to reach the "break-even" point at which their Super plus extra income from work or investment would be equal to the disposable income of an ordinary taxpayer paying usual tax rates.
"Taking a 'basic income' approach may be simple to implement and operate but it requires a new way of thinking," the report says.
Interim Retirement Commissioner Peter Cordtz says the suggestions deserve to be considered.
"Tax has always been about the redistribution of wealth, so it's worth looking at ideas where income could be redistributed more equitably, particularly between generations," he said in a media release.
"Reductions in payments to high-income Superannuitants may release more taxes to fund services that benefit the population as a whole.
"NZ Super was established to prevent poverty in old age, and is still important to ensure all New Zealanders have an acceptable standard of living as they age. We want to make sure it remains as a backstop for future generations."
Public submissions on the retirement income policies review are open until October 31. Cordtz will deliver his report and recommendations to the Government in December.
Newshub.
