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Why Did NZ Super Not Increase When Tax Rates Dropped?

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Contributor:
Mary Holm
Mary Holm

Question:

I wonder if you can tell me why the rate of NZ Superannuation did not increase last October 1 when income tax rates went down.

People receiving NZ Super did get an increase in the hand as their tax rate went down.

But if NZ Super is calculated as a percentage of the after-tax average wage, the after-tax average wage must have increased when tax was reduced.

I would have expected that to cause NZ Super to increase as a result. It did not. Will there be an increase in the near future?

Answer:

Yes, in the very near future.

This coming week, in fact.

As you say, after-tax NZ Super did go up last October when taxes were cut. However, adjustments to keep NZ Super in line with inflation and the average wage - which affect the pre-tax levels - take place only once a year.

"On April 1 each year, net NZ Super rates are increased in line with the change in the Consumers Price Index, and the net married couple rate must be at least 66 per cent of the net average wage," says a spokesman for the Ministry of Social Development.

What they do is firstly increase NZ Super by inflation. Then they check the new married couple rate against the average wage. If it's too low, they make further adjustments to NZ Super.

This year, the new net married couple rate - after adjusting for 3.38 per cent inflation in 2008 - was 66.15 per cent of the net average wage. So there was no need for a further adjustment.

Some examples of the increases taking effect on April 1:

* A couple who both qualify for NZ Super will each receive $239.19 after tax per week, up $7.82 each.

* A single person living alone will receive $310.95 after tax per week, up $13.16.

Hardly life-changing amounts, but it all helps.

Beneficiaries, students receiving student allowances and people on the Veteran's Pension will receive similar increases.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      

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