For as long as I can remember, there’s been national angst over what to do about superannuation.
As a 14 or so year-old, I watched Muldoon axe the Roger Douglas scheme, which I barely understood. Being an obligatory lefty, I cheered when the courts slapped Piggy down.
The pattern was set for caprice for the next nine years, and the entrenchment of superannuation entitlements that everyone knew were technically unaffordable, but remained a potent vote-winner among those who actually needed the pension to live on.
There were tax changes in the 80s – taxed/taxed/exempt replaced exempt/taxed/exempt, or some combination of the aforementioned. Finance Minister Ruth Richardson had the guts to raise the age of entitlement to 65 from 60 over a period of years in the 1991 “mother of all Budgets”.
I remember the look on her face when it dawned on her that she had just lengthened the careers of various long-tooted press gallery critics.
Then there were the Cullen initiatives: the New Zealand Super Fund and KiwiSaver, both of which are increasing the stock of national savings in ways that are certainly useful, but far from sufficient to explain how all these old white people are going to live off a shrinking pool of working age adults after about 2020 – if not sooner, the cost of geriatric medical care being what it is.
So it is that the superannuation issue has again slipped onto the agenda in the last couple of weeks, in the way typical of the Key administration, where they would much rather someone else take the heat than raise an issue themselves.
A major step in that process was last week’s superannuation conference, held by the Office of the Retirement Commissioner, as part of its regular process of superannuation policy review.
There was a mix of compelling, if not always consistent, views.
Perhaps most challenging is the idea that much of the New Zealand universal pension scheme is good and may not need radical repair – a view put by Prof Peter Whiteford of New South Wales University’s Social Policy Research Centre.
He argues the current scheme helps New Zealand to one of the lowest levels of recorded poverty in the OECD, and is remarkable for its relatively equal treatment of elderly men and women, avoiding poverty traps that women more often fall into in old age. The scheme is also “relatively low cost, compared to a lot of other countries”.
He also outlines a fact that a National Party-led government might want to keep quiet about: the current pension system technically treats the poorest best.
The combination of the non-means tested state pension and a working life of contributions to KiwiSaver will give the lowest income earners 80% of their previous income, albeit that income may not have been much to write home about. Conversely, the wealthiest can expect only 23% of their income to be replaced. The balance tips more towards the wealthy in many countries.
Elsewhere, the cast was gloomier, with newly appointed Treasury deputy CEO Gabs Mahklouf warning in the very best bureaucratic code that if pension policy stayed unchanged, there would be trade-offs taken elsewhere to pay for it – say, investment in New Zealand’s children? A collapse in support for the currency?
Then there’s the Prime Minister’s promise to resign as leader if the pension age changes on his watch – a promise that wouldn’t necessarily preclude a national discussion about moving that age after he’s likely to be gone. Say, around 2015?
And finally, there’s the current upwelling of murmurs, possibly traceable to the Labour Party trying out new lines, about introducing compulsory superannuation savings – ie, KiwiSaver with no choice in the matter.
With all those elements in the mix, those who stay close to the retirement savings industry are picking up the scent now of potential formation of a Tax Working Group-style body that could have the conversation openly, but with help from officials, and bring a rounded, publicly debated proposal for politically safe implementation.
In the shorter term, Key’s focus is more on the role retirement and other existing savings can have helping kick-start the moribund New Zealand capital market scene.
Opening the swanky new offices of JB Were Private Wealth Management in Wellington last night, Key spoke about the need for private equity and funds managers to step more actively into the kind of capital provision undertaken by finance companies before they all went west.
For companies that are beyond venture capital, would benefit from public disclosure disciplines, and could make a lot more money with new capital carefully applied, this should become a route to public listing, all too rare and too often failures on the NZX at present.
Among the ideas that could gain traction: a mandate to KiwiSaver, NZ Super and other government-sponsored savings funds to put an appropriately small proportion – 2% – of their funds under management to private equity capital-raising opportunities.
New Zealand is full of businesses that turn over maybe $5 million, whose full potential has yet to be fulfilled. Sometimes that will be “founder syndrome” stopping a company going ahead, or a reluctance to punt on much bigger risks when it’s all working well at a smaller scale. Sometimes that’s just how big the business should be. Very often, with baby-boomers heading for retirement, these are businesses that will be looking soon for new owners as their founders seek exit strategies.
In that way, there would be a greater hope of achieving with our own wealth-creating efforts of solving the superannuation problem by the best known means: making the economy grow a lot faster.
Hi Patrick
Great piece. I was working for ANZ Funds Management 1990 when the working group came around for feedback on the three option; (1) Voluntary, (2) Tax incentive or (3) Compulsory. I knew at the time it was always going to come out as (1) as that was the political preference of the day i.e. no votes lost and at no immediate cost (within the parliamentary term). While (1) sounded good, it is simply utopia – turkeys don’t normally vote for Xmas. (2) only benefits one group. I recommended (3) with all the issues that go with it i.e. state telling people what to do, but people get used to it i.e. the Labour scheme in early 70′s. We would be the Singapore of the South Pacific now if not for Muldoon seeing an opportunity to forsake the country’s future by using a “reds under the bed” marketing campaign – it worked unfortunately. Ignoring Peter’s efforts in the 90′s (wrong man for the job), I am 50 and have planned for zero retirement income from the government (i.e. if I got anything it would simply be a bonus), we need non political economists, journo’s and others as a group to constantly talk openly about making KiwiSaver compulsory and moving the retirement age to 70 (we are living longer), leave the politicians out of it as this is taboo for them and guaranteed to loose them votes. The talking needs to go on without them and hopefully we can get to a point the Australians did i.e. when the Unions and politicians put down their agenda’s and agreed on a very good scheme that we can only a dream of. No wonder people are moving to Australia, at least they have planned for their countries retirement vs. the NZ strategy of keeping in power at all costs and hope for miracles. Kind regards. Dave