Explanatory information on the NZ Superannuation Bill

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The Bills Digest provides further information on the New Zealand Superannuation Bill.

Tuesday, January 16th 2001, 5:09PM

NEW ZEALAND PARLIAMENTARY LIBRARY

Bills Digest No. 733

Published by the Parliamentary Library

Parliament Buildings, Wellington

New Zealand.

07 December 2000

Prepared by John McSoriley BA LL.B

Legislative Analyst (Bills Digest Service)

Ph. (04) 471-9626 (Ext. 9626)

Fax (04) 471-1250

Caution

This Digest was prepared to assist consideration of the Bill by members of Parliament. It has no official status.

Although every effort has been made to ensure accuracy, it should not be taken as a complete or authoritative guide to the Bill. Other sources should be consulted to determine the subsequent official status of the Bill.

Copyright

(c) NZ Parliamentary Library, 2000.

Except for educational purposes permitted under the Copyright Act 1994, no part of this document may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, other than by Members of Parliament in the course of their official duties, without the consent of the Parliamentary Librarian, Parliament Buildings, Wellington, New Zealand.

This document may also be available through commercial online services and may be viewed and reproduced in accordance with the conditions applicable to those services.

NEW ZEALAND SUPERANNUATION BILL 2000

Date of introduction: 28 November 2000

Portfolio: Finance

Select Committee: As at 07 December, 1 ^st reading not held

PURPOSE

The aim of the Bill is to:

• establish a New Zealand Superannuation Fund (the Fund) to be administered by an independent Crown entity board, the Guardians of New Zealand Superannuation;
• provide through the Fund for both current and future payment of New Zealand superannuation entitlements;
• carry forward and consolidate in this Bill, entitlement provisions from existing legislation.

BACKGROUND

A media release, issued by the Minister of Finance, Hon. Michael Cullen stated

" The New Zealand Superannuation Bill is an opportunity to take super out of the political arena and to offer a much greater level of certainty to this and future generations of elderly,' says Finance Minister Michael Cullen

The Bill, introduced into the House today, consists of three parts. Part One pulls current New Zealand Superannuation entitlements into a single statute and cements into law the restoration of the floor to 65 percent of the average ordinary time weekly wage. Part Two establishes the financing and governance arrangements for the proposed New Zealand Superannuation Fund. Part Three provides a vehicle for other political parties to sign up either to Part One or Part Two, or to both ¹ ."

MAIN PROVISIONS

Existing provisions carried over

Certain existing provisions contained in the Social Welfare (Transitional Provisional Provisions) Act 1990 and other legislation are carried over into this Bill. These provisions, which are not changed except in relation to CPI adjustments, are:

• the age qualification (65 years);
• the residential qualifications;
• the standard rates (the same as at present);
• living alone payments;
• CPI adjustments (the "wage floor") are restored to 65% of the average ordinary time weekly wages (instead of the current 60%);
• non-standard NZ superannuation entitlements (residential disability services, hospital rates, and disability allowances);
• payment overseas of New Zealand superannuation (including rules in respect of certain Pacific countries (Part 1) .

New Zealand Superannuation Fund

The Bill establishes the New Zealand Superannuation Fund (the Fund) (Part 2, Clause 37) .

Required capital contributions to the Fund

The Bill requires the Treasury each year to calculate the amount of an annual capital contribution to the Fund. The amount of contribution to the Fund in any year is the amount which, if kept at the same percentage of GDP over the next 40 years, would be just sufficient to meet the expected net cost of NZ superannuation entitlements over these 40 years, taking into account the Fund balance at the beginning of the year for which this contribution is being calculated and projected Fund investment income over the next 40 years. The capital contribution to the Fund in any year is the amount by which the total contribution exceeds the net cost of the NZ superannuation entitlements in that year. The superannuation entitlement for the current year, as well as any capital contribution is paid into the Fund (Part 2, Clause 43) .

Annual expense payments

In each financial year the Minister of Finance (the Minister) must ensure that sufficient money is transferred into the Fund to meet the net cost of the New Zealand superannuation entitlements that are payable out of the Fund in that year. This obligation is different from the obligation to make annual capital contributions as described above (Part 2, Clause 45) .

Additional contributions

The Minister of Finance may pay any money into the Fund that is additional to that required under this Act (Part 2, Clause 46) .

Government withdrawals may be required

If the required annual capital contribution is less than zero, the Minister of Finance may, from and including the financial year beginning 01 July 2020, require a capital withdrawal to be made from the Fund equal to that amount, to be paid into the Crown Bank Account (Part 2, Clause 47) .

Guardians of New Zealand Superannuation

A Crown entity called the Guardians of the New Zealand Superannuation Fund (the Guardians) is established. The Guardians are incorporated with perpetual succession. They have full investment powers but they must invest the Fund on a prudent, commercial basis, and in doing so, must manage and administer the Fund in a manner consistent with:

• best-practice portfolio management; and
• maximising return without undue risk to the Fund as a whole; and
• avoiding prejudice to New Zealand's reputation as a responsible member of the world community (Part 2, Clauses 49 and 58) .

Control of entities

The Guardians must use "their best endeavours" to ensure that the Fund does not control any other entity or hold a percentage of the voting rights in any other entity that would require it to seek control of that entity (Part 2, Clause 59(1)) .

Investment management

The Guardians will have power to appoint, on any terms and conditions, one or more persons (including any government department) to undertake the investment of any part of the Fund (Part 2, Clause 62) .

Ministerial directions

The Minister may, after consultation with the Guardians, give directions to the Guardians regarding the Government's expectations as to the Fund's performance, including the Government's expectations as to risk and return. However the directions must not be inconsistent with the paramount duty of the Guardians to invest the Fund on a prudent, commercial basis (Part 2, Clause 64) .

Accountability

The Bill provides for accountability mechanisms such as statements of intent and financial statements in relation to the Fund. The Audit Office will be the auditor of the Fund. At lest every five years there is to be a performance review of the Guardians by an independent person appointed by the Minister (Part 2, Clauses 65 - 71) .

Political Commitment

The Bill provides that a leader of a political party represented in Parliament may notify the Minister in writing of the party's agreement or withdrawal of agreement to Part 1 of the Bill (relating to entitlements to superannuation) or Part 2 (relating to the Fund) or both. The Minister will then make a recommendation to the Governor-General for an Order in Council to add or omit the name of the party to or from the relevant parts of Schedule 4 of the Bill (Part 3, Clause 72 and Schedule 4) .

Amendment to the Act

If a Government intends to introduce a Bill into Parliament to amend the legislation, it must consult with:

• parties that are listed in Schedule 4 as being in agreement with the Part to be amended; and
• the Guardians (to the extent that the proposed amendment relates to Part 2).

The Government must start the consulting process at least 90 days before introducing the Bill (Part 3, Clause 73(1) and (2)) .

Individual accounts

If Parliament resolves that consideration should be given to converting the balance in the Fund into retirement accounts for eligible individuals, the Guardians must report to the Minister and the Minister of Social Services and Employment within 24 months of the date of the resolution, on options for doing so (Part 3, Clause 73(3)).

Taxation

The Fund will be subject to taxation in the normal way (Part 3, Clause 76) .

(c) NZ Parliamentary Library, 2000.

Media release, Legislation offers chance to put super above politics , Hon Michael Cullen, Minister of Finance, 28 November 2000.

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