OECD Urges New Zealand to Reform Superannuation and Energy Sectors

Key facts

• highlights need for New Zealand to reform pension and electricity sectors.
• Economic growth forecast at 1.4% for 2026, rising to 2.3% in 2027.
• Inflation expected to peak at 3.4% in 2026 due to energy and transport costs.
• OECD recommends indexing superannuation eligibility age to life expectancy.
• Finance Minister Nicola Willis rejects raising superannuation age and tax changes.
• Report calls for breaking the gas-electricity price link in the energy market.
• OECD director Luiz de Mello advises monetary policy focus on price stability.

OECD Flags Key Reforms for New Zealand Economy

from the Organisation for Economic Co-operation and Development (OECD) has outlined a series of critical reforms for New Zealand, urging significant changes to the nation's pension and electricity sectors. The international body also called for the expansion and strengthening of capital markets and an acceleration in the digitisation of the health sector. These recommendations come as the OECD assesses New Zealand's economic recovery, noting that while growth is gradually returning, it faces headwinds from global instability, persistent low productivity, and insufficient investment. forecasts a modest economic growth of 1.4 percent for the current year, projected to increase to 2.3 percent by 2027. However, it cautions that geopolitical events, particularly the conflict in the Middle East, are expected to delay this growth and contribute to a near-term spike in inflation. Inflation is anticipated to reach a high of 3.4 percent this year before settling back within the Reserve Bank of New Zealand's (RBNZ) target range of 1-3 percent. "Heightened uncertainty and higher energy prices weigh on real incomes, confidence and domestic demand," the stated, underscoring the immediate challenges. The organisation also pointed to long-standing issues such as high public debt and underinvestment in key sectors as significant impediments to sustained prosperity.

Pension System Reform: Indexing Age and Taxation

Central to the OECD's recommendations for the superannuation system is a call to raise the age of eligibility. advocates for indexing this age to life expectancy, a move intended to address long-term fiscal pressures associated with an ageing population. This proposal also includes provisions to account for the diverse circumstances of different ethnicities and work backgrounds within New Zealand. Furthermore, the OECD suggested a reversal of the current taxation policy on retirement savings. The current system taxes contributions and investment earnings while allowing withdrawals to be tax-exempt. The organisation proposes shifting this to a model that would likely involve taxing withdrawals, a move aimed at potentially increasing government revenue and encouraging different saving behaviours. However, these proposals have met with immediate resistance from the New Zealand government. Finance Minister Nicola Willis stated clearly that there are no plans to increase the eligibility age for New Zealand Superannuation. She also rejected the proposed tax changes, citing their significant potential impact on government finances and the current administration's focus on fiscal consolidation.

Electricity Market Overhaul: Tackling High Prices

also scrutinised New Zealand's electricity sector, identifying structural issues that contribute to persistently high prices. Despite a high share of renewable energy and a robust pipeline of new generation capacity, energy costs remain elevated due to a declining supply of natural gas and underinvestment in firming capacity. This reliance on gas has created a vulnerability, where dry years now trigger prolonged price spikes and force industrial shutdowns. The OECD argues that this gas-electricity price link must be broken to ensure affordability and resilience. suggests scaling up non-gas long-duration firming solutions, expanding demand response mechanisms, and strengthening competition within the market. To achieve these goals, the OECD recommends the establishment of a mandatory firming and flexibility market. It also suggests that government investment, potentially through minority stakes in independent projects, may be necessary to support long-duration, non-gas firming generation. The government's proposal for a Liquefied Natural Gas (LNG) import terminal is viewed by the OECD as a potential short-term transition tool rather than a long-term solution.

Monetary Policy and Economic Outlook

The OECD provided specific guidance for the Reserve Bank of New Zealand (RBNZ) regarding monetary policy. OECD director Luiz de Mello advised that the central bank should maintain its focus on medium-term price stability, advising it to look past the immediate, temporary effects of energy price shocks. To bolster the RBNZ's independence and credibility, the report suggested that its monetary policy mandate should remain unchanged for five-year periods. This structural stability, the OECD believes, would reinforce the central bank's operational autonomy. The broader economic outlook indicates that while recovery is underway, supported by accommodative monetary policy, resilient tourism, and exports, it remains fragile. Elevated unemployment, projected to stay above 5% before declining in 2027, and subdued net migration are further factors impacting the nation's economic momentum. anticipates inflation will rise in 2026 due to increased energy and transport costs before gradually easing towards the 2% midpoint, contingent on spare capacity and easing inflation pressures in traded goods.

Broader Challenges and Investment Gaps

Beyond the specific recommendations for superannuation and energy, the OECD survey highlighted several overarching challenges facing New Zealand. These include global policy turbulence, which adds to economic uncertainty, and significant investment gaps across key sectors. also pointed to limited access to risk capital, hindering the growth of innovative companies. Shallow capital markets were identified as a persistent issue, limiting the ability of businesses to raise the necessary funds for expansion and development. This, coupled with policy and revenue uncertainty, has stalled investment despite rising demand, leaving critical infrastructure systems operating close to their security limits. The OECD stressed the need for sustained reform momentum to address these complex issues. identified a need for greater resilience and affordability in the energy sector as an immediate priority, suggesting that without decisive action, these fundamental economic pressures will continue to hamper New Zealand's growth potential.

The bottom line

• The OECD recommends New Zealand index its superannuation eligibility age to life expectancy and reconsider retirement savings taxation.
• New Zealand's Finance Minister has rejected proposals to raise the superannuation age and alter tax treatment of retirement savings.
• High electricity prices are attributed to gas shortages and underinvestment in firming capacity, requiring market reforms.
• Economic growth is forecast to be modest, with inflation expected to rise in 2026 due to energy costs.
• The OECD advises the Reserve Bank of New Zealand to maintain focus on medium-term price stability.
• Sustained reform momentum is crucial to address investment gaps and shallow capital markets.