Cost Of Living Impact on Retirees

The Background:

Better Later Life – He Oranga Kaumātua 2019 to 2034 strategy document acknowledges that for some retirees NZS is no longer sufficient to live in dignity in retirement:-

“NZ Super is provided to assure a basic standard of living for older New Zealanders. It is one of the government’s key contributions to the financial security of those aged 65+”

“As our population continues to age and numbers of older people increase, central government will need to spend more on NZ Super and health care costs. We also expect to see increased numbers of financially vulnerable older people needing extra support, including housing support.”

The United Nations Independent Expert on the Enjoyment of All Human Rights by Older Persons, Rosa Kornfeld-Matte, reported some key issues regarding the current level of NZS in NZ for some of our more vulnerable older people.

“Old-age poverty is below the Organization for Economic Cooperation and Development (OECD) average. Nevertheless, as the basic pension remains very close to the poverty threshold and house prices rise, there are still concerns about poverty among older persons. A large group of older persons, around 60 per cent of singles and 40 per cent of couples, have little or no additional income apart from the New Zealand Superannuation, which makes them very vulnerable to any changes in policy or economic circumstances.

Moreover, the Superannuation is based on the assumption of mortgage-free homeownership for older persons. As private rental housing is becoming unaffordable under this regime and in view of the ongoing changes of tenure patterns, the number of older persons facing material hardship will increase and many of them will be in rental accommodation. The homeownership rate for older Māori in 2018 was 48 per cent, compared to 58 per cent of older persons of European descent. There is also considerable variation by age group, with a much higher poverty rate for persons aged 75 or more. There are also important disparities for older persons living in rural areas, including higher levels of poverty.”

Those most affected, particularly during periods of high inflation are those with minimal financial reserves in retirement - women with a history of intermittent employment and low savings; those without a mortgage free home; those in rental accommodation; those with disability or poor health; those who have encountered a relationship breakup, those made redundant prior to retirement when re-employment is challenging, as well as many Māori & Pacifica people.

Securing adequate support for the more vulnerable retirees is not always easy and many older people are reluctant to ask, or to persevere with WINZ, to secure the help they are entitled to receive.

In addition, a recent report has revealed that MSD is failing to pay 43% of beneficiaries the correct amount. The majority are likely to have been underpaid.

"To assess eligibility and entitlement staff must go between as many as 10 systems requiring re-keying of information, separate logins, and switching between multiple screens," said a report into the overhauling of the IT systems.

"The different applications have different rules, calculations, and payment functions that do not allow for one source of truth or easily accessible data on a client and their circumstances. As a consequence, staff struggle to provide our clients with full and correct entitlement.",versus%20those%20getting%20too%20little.

The adequacy of the NZS single living alone rate, equivalent to only 64% of the minimum wage, could be strongly contested. Many seniors who are dependent on NZS as their sole, or dominant income, are living in poverty unable to afford needed medical care, energy costs, transport & even food as they face increasing rent, and inflationary cost increases. The current level of NZS as sole income for retirees is insufficient to enable a significant proportion of retired people to have the economic freedom to be active participants in society in line with the Government’s “Better Later Life 2019-24” objectives.

Utilising the Immigration Department’s Cost of Living in NZ Calculator, indicates that for a single person on a living alone NZS payment, living in a rural city, and not paying KiwiSaver, would have net income of $488.21/week, but average expenses of $1078.40/week! This is a weekly deficit of $590.19 per week. Little wonder that we see many of our seniors struggling to survive with growing cost-of-living pressures.

Grey Powers Evidence:

Recent media reports have highlighted case studies where retirees are cutting back on food and energy usage to survive – particularly the growing number who are renting.,barely,-improved%20in%2070

The 2022 Massey University New Zealand Retirement Income Expenditure report calculated the savings required for a retiree to supplement NZS to live either a “no-frills” or a “choices” lifestyle with NZS current settings. (See chart below for savings required to fund the difference between household expenditure and NZS payments.)

The No Frills guidelines reflect a basic standard of living that includes few, if any, luxuries. The Choices guidelines represent a more comfortable standard of living, which includes some luxuries or treats.

The No Frills Guidelines are based on the average expenditure of the second quintile of the HES for retired households, while the Choices Guidelines are based on the average expenditure of the fourth quintile of the HES for retired households.”

A survey of close to 3000 Grey Power members in June 2022 revealed that 51% had cash reserves of less than $50,000 to access in their remaining retirement years.

For those with cash reserves, over 75% are drawing down up to $20,000 per year to manage their retirement living costs. Little wonder that 44% of respondents were worried about their likely financial situation in 10 years’ time, if the average reserve is less than $50,000.

The Accommodation Supplement maximum rates have not changed since April 2018 , yet from April 2018 to January 2023 the median rent across NZ has increased by $150/week from $425 to $575. In addition, the cash asset level for eligibility for an accommodation supplement has been pegged at $8,100 for a single person and $16,200 for a couple for well over 10 years.

For an independent retiree with a small car to maintain independence, $8100 is a stressfully small cash reserve to have for emergencies such as unexpected vehicle expenses or even replacement of the vehicle. Many also like to have some money saved and earmarked for their funeral, so drawing down their assets to under $8100 to become eligible for an accommodation supplement is not an easy option – especially for those in their 80’s living alone.

In contrast, those qualifying for public/social housing are allowed up to $42,700 in cash assets. Also, those on NZS in social housing will only pay rent equivalent to 25% of their weekly after-tax income. There is no such ceiling for those renting privately or residing in pensioner villages run by Councils or Service Clubs such as RSA.

Grey Power was disappointed to note that while maintaining the Winter Energy Payment, there was no provision made for a CPI increase in 2022 or 2023. This was a missed opportunity, especially as a large % of retirees are on low-tariff plans that are being phased out, with increasing costs for retirees trying to manage their energy consumption.

For those dependent on NZS as their major income, the Winter Energy Supplement has been a much-appreciated boost, allowing many to maintain their homes at a healthier temperature during winter. The GPF survey showed that for the 26.5% of members struggling to pay their living expenses on NZS, their greatest concern was meeting energy payments – identified by 68% of respondents. For this reason, GPF would support the continuance of the Winter Energy Payment, but with it indexed by the CPI each year.

For those living in their own home who are asset rich but cash poor the ongoing rise of Local Body rates have become a significant burden for those on fixed incomes. Roger Hawkins in a recent NZ Herald article on Rates – an existential crisis for the elderly, observed: “As rates increase faster than the ability of the elderly (65+) on fixed incomes to accommodate those increases – so the need for reform increases.” He argues that these long-term homeowners who have already paid for much of the infrastructure, should be charged rates based on their income.

Rates for homes that elderly live in themselves should be set at no more than 10 percent of projected net after-tax income for that ratepayer, each year.”

In the meantime, the Rates Rebate Scheme remains the only universally available means for those facing escalating rate bills to obtain some relief. Unfortunately, the before tax income-level to qualify is far too low at $30,000, well below the NZS rate for a married couple on NZS who earn $45,738 before tax. In addition, while the Rate Rebate amount is indexed by the COL increase each year, the value of the rebate (currently capped at $750) is often less than 25% of the average rates bill (Regional Council + Territorial Authority), and the application procedure is cumbersome, with many of those eligible failing to apply.

Grey Power recommends:

Recognising that a significant proportion of retirees dependent on NZS alone, and with cash reserves under $45,000, are frequently unable to live with dignity and mana in their retirement. The following solutions are recommended to provide urgently needed more targeted support: -

  1. Urgently review and increase the Accommodation Supplement maximum rates to better reflect the increases in median rental rates over the past 5 years and provide an annual review and adjustment.
  2. Urgently increase the cash asset level for the Accommodation Supplement eligibility to match the level allowed for those in social housing.
  3. Index the annual winter energy payment by the cost of living increase each year.
  4. Reduce the tax burden on those who are struggling most with the rising cost-of-living by considering options such as removing GST on food, a lower, or zero rate of tax on the first $10,000.
  5. Increase the household income threshold for the Rates Rebate Scheme an amount equal to that of the NZS couple’s pre-tax income. Consider setting the maximum rebate to at least 35% of the median NZ residential rates (Regional + Territorial Authority).