New Zealand’s current settings mean renting retirees who do not have at least $200,000 saved may be better off to have nothing.

The accommodation supplement is available to help with housing costs for people on lower incomes, but it requires that single people only have assets of $8100.

Couples or sole parents can have $16,200. This asset limit has not changed in the time the supplement has been in place.

The amount available as a weekly payment depends on the area that a person lives in and whether they have children.

A couple without children can access up to $235 in the highest payment area.

Simplicity chief economist Shamubeel Eaqub calculated that a renter would need to have about $200,000 saved to generate sufficient money to replace that, assuming the money was drawn down over 25 years.

“The effective tax rate for the first couple of hundred thousand of savings is 100 percent.”

At the end of last year, there were 48,789 people receiving NZ Super and an accommodation supplement, up from 47,223 in December 2023 and 34,279 in December 2019.

Eaqub said the system needed to be redesigned to make it fit for purpose in the future.

“That argues for a better design for eligibility rather than a cliff at one cutoff point.”

He said it could be that there was a small free zone and then a gradual taper so that saving a bit more did not leave people worse off.

“The Australian method, the deemed rate of return, is an easy way to convert income and assets into one income test for AS. That makes it all nice and tidy in my view. But it would increase the cost of AS because more people would be able to access it.”

People who decided not to save would be relying on the continued availability of the accommodation supplement, which is not guaranteed. Eaqub said it was likely that fewer people would be eligible for it in future.

Teresa White, general manager at ACBC Financial Mentors, said the cash asset limit did stop some people accessing the supplement but there needed to be fairness in the system.

“Perhaps it is the cash asset limit needs more regular review, especially now as we are seeing more people enter retirement without owning their own home and having to rent.

“The tension between savings and the cash asset limit is likely greater on low to mid-income workers with limited savings or those who have been on a benefit leading up to retirement age with KiwiSaver that they can now access, which could put them over the cash asset threshold. But is still not enough to compensate fully for not getting the accommodation supplement and maintain a decent level of savings. Essentially then the KiwiSaver then steps in as the supplement until it reaches the cash asset limit.”

She said it was generally better to have savings, even if people ended up having to use it to fund their basic costs.

Ministry of Social Development group general manager of client service delivery Graham Allpress said he would encourage people to speak to Work and Income to understand exactly what they may or may not be entitled to before making significant decisions.

“How people approach paying for accommodation in retirement will depend on their personal circumstances, and ultimately is their choice.

“There are likely to be a number of factors that feed into these decisions, and so we wouldn’t be able to say either way if there is a ‘better’ option to pay for rental accommodation in retirement.

“However, having smaller financial assets may limit people’s options in other areas of their lives, and this is something we would encourage people to take into account.”

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