National's policy paper

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A taskforce set up by the National Party has started developing the party's policy on super. Find out about its thinking on NZ Super, health, housing and retirement income here.

Tuesday, April 24th 2001, 5:26PM

PREAMBLE

1.	The Task Force was set up by the New Zealand National Party at its 2000 Annual Conference with the following terms of reference: To review New Zealand's current policies regarding Seniors and Superannuation and following consultation, recommend policies designed to overcome any shortcomings and to improve availability of services to existing and future generations of Seniors.
2.	Task Force members met in September 2000 to consider various submissions and papers received (including papers prepared by members of the Task Force). In October, members met by telephone conference call with the Hon Bill English. The members met again in November 2000 to review progress to date, to hear from the Rt Hon Wyatt Creech, and to discuss a paper prepared by the Chairman of the Task Force posing a number of issues for consideration arising from the terms of reference. A final meeting of the Task Force was held in February 2001. Representatives from the Office of the Leader of the National Party, the Rt Hon Jenny Shipley, attended both the September and November meetings.
3.	As a result of the November meeting, a questionnaire was distributed to the regional policy committees of the National Party by late November for response by 18 December 2000. The responses to the questionnaire and submissions from the National Party's regional policy committees, party members and groups interested in policy formation have been of considerable assistance in the preparation of this Task Force Report.

AN AGEING POPULATION

4.	Although the terms of reference refer to shortcomings in current policies and improving availability and delivery of services to existing generations of Seniors, there is little doubt that the real concern prompting the setting up of the Task Force is the economic and social implications arising from an ageing population.
5.	The problem of an ageing population does not start to arise until ten years from now, peaking in some 30 years time. The problem arises because of the baby boom following World War II, particularly during the decades of the 1950's and 1960's. These baby boomers will significantly change New Zealand's demographic makeup, with an increasing percentage of Senior citizens looking to be supported by a reduced percentage of citizens of a working age. We quote from a Treasury paper dated 15 June 2000 entitled Pre-funding New Zealand Superannuation, which gives specific details of these future changes: "New Zealand is facing a major change in its demographic structure, which will have societal, fiscal and economic consequences over the next fifty years and beyond. New Zealand's population is ageing. A consequence of this is that a greater proportion of the population will be of retirement age in the future. The ageing population is largely the result of lower fertility rates and higher life expectancies. The proportion of the population that is aged 65 and over is forecast to increase from 12% of the population now to 27% by 2060/61. Within this, significant growth is expected to come in the older age groups, those aged 75 and over. This group is projected to increase from 5% to 15% of the total New Zealand population by 2060/61." Later in the same Treasury paper are these figures: "The proportion of the population that is 65 and over is forecast to increase. Currently there are 450,000 people in this age group. This is projected to increase to over a million by 2032/33 and to 1.1 million by 2050/51." "By comparison, the working age population is projected to increase by only 93,000 between 1999/2000 and 2050/51. In fact, the working age population is expected to increase by 286,000 to reach 2,810,000 in 2019/20 and then beginning shrinking in absolute terms. This group falls from its current level of 66% of the population to 59% by 2050/51 and 58% by 2060/61. The proportion of the population that is under 15 is forecast to peak next year and then begin shrinking. Currently, there are 862,000 people in this group, but this is projected to fall to 688,000 by 2050/51. This group falls from its current 22% of the population to 16% by 2050 and remains at that level until 2060/61 These trends mean that New Zealand faces an ageing population, the impact of which begins to take affect around 2011- the time when the first of the baby boomers reach the age of eligibility for New Zealand Superannuation. From that point on, the proportion of the population that is of retirement age is projected to increase continuously through to 2060. As neither the working age or youth populations are increasing at the same pace, and as both eventually decrease in absolute terms, these groups both fall as proportions of the population."
6.	While discussion to date on the problem of rapidly increasing numbers of retired members of the community after 2011 has centred on the Government's ability to maintain superannuation payments at present levels, the rising proportion of Senior citizens has serious implications for all Government services funded by the taxpayer.
7.	Issues impacting on Seniors directly, apart from their retirement income, are the provision of suitable housing in retirement and the provision of health services. This Task Force Report raises those issues under three headings: Housing in Retirement Health in Retirement Income in Retirement
8.	The Task Force notes that in making its recommendations under these three headings, the full impact of the ageing population is still many years away and therefore needs to be prepared for in a careful, cautious and considered manner. This Task Force Report makes its recommendations as a result of the demographic changes occurring in the future having regard to the National Party's principles, and in particular, encouragement for individual enterprise and initiative together with support for those in need of help in the community. The Report also has regard to the fact that New Zealand in the future could be much different to the one we know today. To put planning for that time ahead in its proper perspective, 30 years ago the home computer, the Internet, and mobile phones did not exist. Who can predict with complete confidence what the New Zealand of 30 years time will really be like? Having said that, the Task Force recognises that individual citizens must make decisions about their retirement income, health and housing needs decades in advance. Any policies adopted need therefore to be sustainable, as far as tomorrow's taxpayers are concerned, over the coming 30 or more years.

Recommendation 1

That the National Party should have as a policy plank for the 2002 General Election "Preparing for an Ageing Population".

HOUSING IN RETIREMENT

9.	The National Party Research Unit have advised the Task Force that, based on the latest available figures, 89% of those over the age of 65 remain in the family home or a smaller home bought on retirement, with 11% going to a retirement village, rest home or geriatric hospital. In detail, the figures are: 35.8% of people over 65 have a mortgage free home 27.9% of people over 65 live in their own home but have a mortgage 25.7%of people over 65 live in rented accommodation 2.8% of people over 65 live in retirement villages 7.8% of people over 65 live in Rest Homes or Geriatric Hospitals The view of the Task Force is that every encouragement and assistance should be given to Seniors to provide for themselves as much as possible by staying in their own home during their retirement years. A mortgage free home, either the family home or a smaller home bought on retirement, should be the objective of every person reaching retirement age, as the payment of a mortgage or rental imposes a serious burden on retirement income.
10.	Many New Zealanders will, either before or during retirement, move to a rest home or retirement village. Retirement villages are relatively new for New Zealand and are a useful alternative for those looking to leave the family home for accommodation more suited to their needs. Because of the rapid increase in retirement villages, the question arises as to whether there is appropriate legislation to protect the investor (in retirement villages, the buyer is often also an investor), as the legal arrangements can be quite complex. Older New Zealanders face many choices and challenges when considering purchasing a unit in a retirement village, the most important of which is what are the financial obligations if a person decides to leave. The Task Force considers that the National Party should examine whether there is adequate protection for those using retirement villages as an alternative to the family home.
11.	There has been much debate over recent years regarding asset and income testing for the funding of elderly in full time care at rest homes. Asset limits for a Residential Care Subsidy are set out in Section 69F of the Social Security Act 1964 and were changed in 1996 to: 1. For an unmarried person - $15,000 2. For a married couple, each of whom are receiving residential care disability services - $30,000 3. For a married couple, only one of whom is receiving residential care disability services - $45,000 The questionnaire distributed to the National Party's regional policy committees and party members and groups interested in policy formation asked the question: Should asset and income testing be retained for state funding of elderly in full time care? As was to be expected from a broadly based political party, widely divergent views were expressed. A number of respondents were opposed to any form of asset and income testing, a number of respondents supported asset and income testing, although most support was with qualifications. An observation from the Southern Regional policy committee seemed to reflect the middle view: "Against completely getting rid of asset testing, but the methodology of asset testing should be looked at to ensure it is fair and the level to which assets are stripped before the Crown pick up the cost needs to be re-evaluated (and raised)." And the Young Nationals policy committee commented as follows: "This is an established policy; it would seem unnecessary to further increase costs by ending it. Difficulties associated with asset and income testing should be noted, particularly the use of Trust Funds and the like to "hide" funds."
12.	The Young Nationals policy committee raises an important long-term issue regarding the use of family trusts. Anecdotal evidence suggests that the use of family trusts is increasing and will increase further as the baby boomers plan for their retirement. This has the potential to create enormous pressures on government funding as a greater percentage of those requiring rest home care will be able to gain access free of any contribution to the state. The Task Force accepts that this is a difficult philosophical issue for the National Party, as the protection of one's assets could be argued to be a matter for the individual and not the state. Never-the-less, the long term implication of the growth of family trusts as part of retirement planning at least warrants consideration as New Zealand faces major demographic changes in the years to come. Recommendation 2 That the National Party, as part of its policy on "Preparing for an Ageing Population" places emphasis on ownership of a mortgage free property at time of retirement.   Recommendation 3 That the National Party, as part of its policy on "Preparing for an Ageing Population" offers every encouragement and assistance to Seniors to stay in their own homes during their retirement years. Recommendation 4 That the National Party consider legislation providing protection to investors in retirement villages. Recommendation 5 That the National Party undertake to increase asset limits as set out in Section 69 F of the Social Security Act 1964 when it returns to office in 2002.

 

HEALTH IN RETIREMENT

13.	It seems likely that the rapidly increased pace of technology as it applies to the delivery of medical services will ensure New Zealanders reaching 65 in (say) 30 years time will retire later and live longer than at present. This will inevitably increase the pressure on the public health system as increasing numbers of an ageing population require medical attention. The issue the National Party needs to address is the role of the private provision of health as the need for health services starts to increase the demand on the public sector in the foreseeable future. The Task Force believes that the private health sector has a vital part to play in the delivery of services to existing and future generations of Senior Citizens.
14.	Voluntary and charitable services like meals on wheels, home nursing and other similar services to older New Zealanders (sometimes referred to as the "Third Sector"), already under pressure, will be in danger of collapsing as a result of the increase in the ageing population. The questionnaire asked the following question: Do you support tax incentives for donors to Third Sector providers of services to the elderly? As in other questions, widely divergent views were expressed. The middle view seemed to be that the current level of support was about right. However, it should be borne in mind that, if Seniors are to be encouraged to stay in their own home during their retirement years (paragraph 9), provision must be made for the availability of adequate health support, either at home or at Health Centres. A similar concern relates to those who chose a retirement village as their retirement housing option (paragraph10). Many retirement villages offer full service, including full medical services. In the cases where medical services are not available, investors should be warned to consider what options will be available in the event of ill health.
15.	A major concern for all New Zealanders in retirement is the ability, when in pain, to access medical surgery at short notice. Many Seniors have chosen to pay premiums to health insurers to be assured of early medical attention and the return to a normal lifestyle. The Task Force supports the availability of private sector hospitals to complement the public health system, and takes the view that health insurance cover should be encouraged for Senior Citizens. The questionnaire asked the following question: Do you support the proposition that providing a tax deduction for payment to private health insurers would improve the availability and delivery of services to existing and future generations of Seniors? The responses to this question were many and varied but on the central issue of providing a tax deduction, this comment from the Tauranga Electorate Executive summed up the majority view: "Yes. It would encourage more people to take out health insurance thus decreasing the demand on the public purse (the tax payer)." The view of the Task Force is that providing a tax deduction for payment to private health insurers by Seniors is both a short and long term answer to the many pressures on the public health system, although it should be noted that it was not the role of the Task Force to review the public health services as a whole. The new claim form IR 527 for Personal Tax Rebate for donations, childcare and housekeeper payments used by Inland Revenue could be extended to include payments to private health insurers with relative ease.
16.	With the exception of tax deductions for payment to private health insurers by Seniors, it must be emphasised that the issues raised under the heading "Health in Retirement" are essentially long term. As we have said under the heading "An Ageing Population", the problem does not arise until ten years from now, peaking in some 30 years time. The Treasury paper we have quoted in paragraph 5 goes even further, talking in terms of the next fifty years and beyond. This puts into its proper perspective the long term planning needed on health issues as New Zealand prepares for the major demographic changes confronting our country. Recommendation 6 That the National Party incorporate into its 2002 General Election policy Taxation deductions for payments to private health providers for retired New Zealanders.

 

INCOME IN RETIREMENT

17.	Debate on income in retirement during the latter half of the year 2000 as a result of the Labour/Alliance government's scheme to partly pre-fund New Zealand Superannuation has concentrated on the ability of taxpayers to maintain the present levels of superannuation when the baby boomers start retiring after 2011. The Task Force takes the view that the issue of income in retirement is much more than simply the level of New Zealand Superannuation and includes consideration of savings for a better standard of living than the basic superannuation can provide in retirement. As well as income in retirement, housing in retirement and health in retirement should also be seen as integral parts of the standard of living which will be available to Senior citizens on their retirement.
18.	However, before this Report canvasses matters relating to income in retirement appropriate to "Preparing for an Ageing Population", the Task Force has considered a suggestion for giving immediate benefit to current superannuitants. To test the idea of a Seniors Card similar to Australia, the purpose of which is to provide a Senior Citizen with direct financial benefits by way of discounts on products and services, the questionnaire asked whether members would support a "Seniors Card" which could attract private sector discounts. The result of the questionnaire showed overwhelming support for such an idea. The Australian model is well known in New Zealand and clearly influenced the responses to this question. More work needs to be done to suit this idea to New Zealand market conditions, but the suggestion of a "Seniors Card" seems a worthwhile proposal for the National Party to develop in preparation for the 2002 General Election.
19.	The 1997 Retirement Income Report from the Periodic Reporting Group, known as the Todd Task Force (which for convenience we will refer to as the Todd Report), includes the following statement on Page 3 of its concluding Report: "In terms of retirement income policies themselves, we conclude that a balanced mix of voluntary private provision and public provision from general tax revenue is the best arrangement to maintain a system of adequate income support for the retired population, while at the same time assisting the broader economy. Among the many advantages we see are that: Public provision ensures an adequate income for all retired New Zealanders, and has some flexibility to be adjusted over time to reflect society's views about how the income generated in the economy is to be shared within and between generations; and Private provision enables people to draw on additional resources in retirement in a way that minimises distortions. Private contractual claims impose only the opportunity cost of delayed consumption. By contrast, taxes needed to fund public provision impose deadweight costs on the economy. This means that the economic cost of consumption in retirement is likely to be less if it is financed from private rather than public consumption." These are important statements of principle and for that reason, need to be borne in mind when scrutinising the Labour/Alliance government's scheme to partly pre-fund New Zealand Superannuation and when considering any alternative course of action on superannuation proposed by the National Party. But before that, the view expressed on the issue of pre-funding on page 41 of the Todd Report is worth noting: "After considering the issue again, we confirm our view, as outlined in the Interim Report, that we see some advantages in allowing tax smoothing to the point that net debt falls to zero. This means the Government should generate fiscal surpluses in the near term, and use these surpluses to pay off debt, so that by 2015 (when the baby boomers retire in large numbers) the Government is in a stronger financial position. We do not see a strong case for pre-funding."
20.	Not surprisingly, the Todd Report's rejection of pre-funding of New Zealand Superannuation is in moderate terms compared with the submissions from National regional policy committees and party members, best summed up by this comment from the Otaki Electorate: "We have difficulty understanding the rationale of the Cullen scheme, which, in simple terms, is a diversion of surplus (if there is a surplus) from government spending on health, welfare and education. The money can't be spent twice, unless, of course, he intends to raise taxes again!!"
21.	An analysis of the official superannuation model off the Treasury's Web Site by the Hon Bill English and his advisors indicates that at its peak around 2040, the partly pre-funded scheme as proposed by the Labour/Alliance government based on the standard assumptions used by the Treasury, would contribute only 14% of the then current cost of New Zealand Superannuation in 2040 and 86% would still need to be funded from general taxation. This is but one of several major deficiencies in the Labour/Alliance superannuation policy. An equally important flaw in the policy is a commitment of government surpluses over the next 25 years to the proposed fund. The irony is that the Labour/Alliance minority government will not be able to contribute $2 billion a year to the proposed fund during its present term of office, but is seeking to bind future governments to this commitment. It is also a fact that, over the last 25 years, only a National or a National led government has achieved a surplus in excess of $2 billion in any one year. A further concern if Labour's superannuation fund was ever established is the potential for government intervention into the way the fund is invested. One of the problems facing any government in the MMP environment is the ability of a minor party to force the government of the day to instruct the funds' managers as to the way the fund is invested. The Todd Report deals with this problem on page 40: "As well, if the government were to build up assets in a central fund, the fund could become subject to political interference. This might be by directing investments or even drawing on the funds to meet other spending priorities. These risks are likely to become more pronounced over time as the fund accumulates." One final thought on pre-funding. If pre-funding is the answer to the affordability of New Zealand Superannuation, why not pre-fund health, or pre-fund education, or pre-fund the many other social welfare expenditures governments of the future will confront as New Zealand's demographic profile changes? All in all, it is hard to escape the conclusion that the Labour/Alliance Government is playing a confidence trick on voters by proposing a flawed long-term scheme for short- term political purposes.
22.	It has been suggested that the Task Force look overseas for a guide to assist the National Party in its policy approach to superannuation issues. The Hon Bill English advised the Task Force that most countries New Zealand tends to compare itself with follow a superannuation model endorsed by the World Bank, IMF and OECD. This model comprises three pillars or tiers: Tier 1: Safety-net age pension Tier 2: Workplace superannuation Tier 3: Voluntary superannuation Australian follows the three pillars (or tiers model), as does the United States and the United Kingdom. All three have a universal basic pension at Tier 1, but at a lower proportion of average earnings than New Zealand. (Note: comparing nominal dollars can be misleading because it ignores all other welfare contributions and the cost of tax incentives). All three countries have a tax-favoured Tier 2 with variable levels of compulsion. The tax treatment is different in each country. The logical country to study is our nearest neighbour, Australia, to see if it offers a guide to New Zealand. Under Australia's Tier 1, there is an income and asset tested minimum entitlement from age 65, the present level of payment being about 25-30% of total male average weekly earnings for a single person. A married couple receives about double this amount. There are also extensive concessions for retirees for travel, transport and recreational activities. At Tier 2, employers make compulsory superannuation minimum contributions on behalf of all employees at the rate of 8% rising to 9% in 2002. All funds must be retained until age 55 otherwise tax penalties apply. The tax concessions for saving through superannuation schemes also apply to Tier 3. The Young Nationals policy committee in its submission said: "New Zealand is not Ireland or Australia or the US; New Zealand solutions should be developed for New Zealand issues."
23.	The Task Force agrees with the Young Nationals and does not see following Australia's complex superannuation policy as offering any solution to New Zealand's situation. New Zealand has a relatively simple structure for both public and private income in retirement. The Task Force would be reluctant to see the complexity of the kind faced by the citizens of other developed countries introduced into New Zealand. Fortunately for us, the Todd Report of 1997 points National in the right direction to assist in solving the superannuation dilemma. We have quoted in paragraph 19 the Todd Report conclusion on Retirement Income Policies, which is summarised on Page 3 of its Report in these words: "For many reasons, we conclude that a mix of voluntary private provision and public provision is best for supporting the retired while maintaining growth." The Labour/Alliance Government, by pursuing a different course to that recommended by the Todd Report and deciding on a scheme to partly pre-fund superannuation, has made superannuation an election issue which seems certain to divide the country. To quote from Page 2 of the Todd Report: "Retirement income policy can quickly become bewildering in its complexity and breadth- it touches on many other policy areas, and impacts on a large proportion of the population for a long period of time (especially if the period of preparation for retirement is included)."
24.	This Task Force Report uses the Todd Report as the basis for its recommendations. However, as the Todd Report will be five years old at the next General Election in 2002, the Task Force has taken the recommendations of the Todd Report into account in the preparation of this Report. A submission to the Task Force from the Lower North Island Region said: "One of the dilemmas of the debate is the apparently widespread expectation, particularly among those under 40, that universal superannuation will be defunct by the time they are of retirement age. Whether the result of affordability, mismanagement, or duplicity, it seems that future governments are simply not trusted to be able to deliver against people's retirement needs. A probable corollary of this is a growing resentment on the part of younger voters of any form of taxation that is tagged, or perceived as being tagged, for superannuation purposes. Anticipating the need to fund their own retirement, they are unlikely to accept what they perceive as a government imposed responsibility to fund the retirement of others. This, coupled with other disparities in cost structures across generational groups- tertiary costs for example- reinforce both fiscal conservatism and hostility to universality and wage-linked payment thresholds among the under 40s." The Task Force believes that the best way to address the issue is to follow the recommendation made by the Todd Report ie paying off government debt by the time baby boomers start retiring in large numbers. In our view, the commitment to reduce government debt to zero by 2015 should be a key plank in the National Party's policy of "Preparing for an Ageing Population" and the best way to give certainty to National's superannuation policy.
25.	The questionnaire asked two questions on superannuation: Is the current level of superannuation adequate and fair? Should New Zealand Superannuation be universally available without reference to income and asset testing? The response by a large majority to the first question was that the current level of New Zealand Superannuation was adequate and fair. The response to the second question, again by a large majority, was that New Zealand Superannuation should be immediately available without reference to income and asset testing. It is clear from these responses that the National Party membership supports the current situation with regard to payment of New Zealand Superannuation to every New Zealander who reaches 65. That brings the Task Force to the question of certainty of the provision of New Zealand Superannuation in the future. For at least the next 10 years, the Task Force considers that the current level of New Zealand Superannuation is sustainable, but a strong economy is the key to meeting New Zealand Superannuation payments in the longer term. The Economist in its magazine of 2 December 2000 writing on the New Zealand economy had this to say: "New Zealand's small population and geographic isolation from large markets also limits its scope for exploiting economies of scale. As "the last bus stop on the planet," New Zealand is at a disadvantage compared with other small economies such as Ireland and Finland. A circle with a radius of 2,200 kilometres centred on Wellington encompasses only 3.8 million people and a lot of seagulls. A circle of the same size centred on Helsinki would capture well over 300 million people. Even if New Zealand had the best economic policies in the world, its isolation would probably still constrain its growth rate." These words of realism emphasise the need for the careful management of the economy as New Zealand prepares for an ageing population and underlines the importance of the choice of Government by voters over the next 20 years. As we have already said, the Task Force believes that at least for the next 10 years, the present level of New Zealand Superannuation appears sustainable. As to the years beyond 2011, the Todd Report quotes Labour's greatest Prime Minister, the Rt Hon Michael Savage, as saying on the introduction of the Social Security Bill 1938: "For those who are due to get the universal superannuation or pension, I do not care how it is described. So long as the money is there, it can only come from the productive forces of New Zealand. We cannot give them any more. It does not matter how much we try to manipulate the money system we cannot give the people any more than they are able to produce." These words ring as true today, and will in 60 years time, as when they were spoken by Michael Savage over 60 years ago.
26.	That brings this Task Force Report to the third issue, the crucial role of private savings, not only to ensure the continuance of economic status in retirement, but also to strengthen New Zealand's economy in the future. The Task Force agrees that savings for retirement should be voluntary and not compulsory, as with Australia's mainly compulsory scheme. The question considered by the Task Force was that, having regard to the importance of private savings to the economic future of New Zealand, should tax incentives be provided to boost private savings. The questionnaire asked the following question: (a) Do you support tax relief for private Superannuation savings? (b) If you support tax relief for private Superannuation savings, should it be: (1) Employer related (2) Private (3) Both There was virtually unanimous support for tax relief on private savings for superannuation and a lower level of support for employer related superannuation savings, indicating a strong desire in the community for tax incentives when long term contractual savings are undertaken. In the words of the Northern Regional Chair, Richard Yates: "We should do everything possible to encourage people to save for their retirement. Tax relief should apply to both employer related savings and private savings but only if it is tied down until the saver is 65." Richard Yates raises an important issue. The long-term contractual nature of the tax incentive is vital to ensure benefits to both the country and the individual. This confirms the view of the Task Force that long-term savings for superannuation should be in private hands and not in the control of Government, with all the risk entailed in leaving funds in the control of any Government. As the Task Force suggested in paragraph 15, the claim form IR527 could also be extended to include payments for long-term contractual savings, whether direct by individual taxpayers, or through an employer related fund. Just as donations have to be made to approved bodies to sustain a claim, so would it be necessary for approval to be granted to fund management organisations so that the taxpayer qualifies for the claim of payment to that fund.
27.	The Task Force views on superannuation in summary using the same headings as outlined in paragraph 22 are as follows: (a) Tier 1: Safety-net provision The Task Force considers that, for at least the next 10 years, the current level of New Zealand Superannuation is sustainable and should be maintained by an incoming National Government. (b) Tier 2: Workplace superannuation The Task Force considers that employers should encourage employees to commit to managed superannuation funds by voluntary deductions from salary or wages. (c) Tier 3: Voluntary superannuation The Task Force considers that all taxpayers should be encouraged to make private provision for superannuation by providing a tax incentive for long- term contractual savings.
28.	Tax on funds invested as long-term savings warrant close attention. The present tax system for superannuation savings is Tax (T) paid on contributions to schemes, Tax (T) on income earned from investments, Tax Exempt (E) at payout on retirement. In short, T.T.E. If the National Party accepts the recommendation of the Task Force, the tax regime would become Tax Exempt paid funds used for investments (E), Tax on income earned from investments (T), Tax Exempt (E) at payout on retirement. In short, E.T.E. This taxation approach would give a sharp boost to private savings, and make it easier for baby boomers to provide for their retirement income.
29	The Task Force noted earlier in paragraph 13 that New Zealanders could retire later and live longer. One outcome is that, as the years go by, more and more New Zealanders could be working past age 65, the present age of eligibility for New Zealand Superannuation. In these circumstances, an improvement on the present system would be for a person still working at 65 to defer applying for the superannuation entitlement, but then be paid at a higher level on retirement. Although this proposal arises as part of this Report's comments on "Preparing for an Ageing Population", the Task Force considers that this proposal could be implemented on National's return to office in 2002 as a signal that National is fully committed to addressing the issue of demographic changes which New Zealand faces over the next 50 years. Recommendation 7 The Task Force recommends that the National Party, as part of its policy of "Preparing for an Ageing Population", consider taking the following steps regarding superannuation: That the National Party oppose the Labour/Alliance government's scheme to partly pre-fund superannuation, on the grounds that it will provide only 14% of the current cost of superannuation at its peak in 2040 and is a flawed long-term scheme proposed for short-term political purposes. That the National Party, as the key plank in its superannuation policy, provide a tax incentive for long term contractual savings. That as part of its superannuation policy, the National Party commits to the reduction of net government debt to zero, so that by 2015 when the baby boomers retire in large numbers, the Government is in a stronger financial position to meet the increased demands of an ageing population. That the National Party encourages employees to commit to managed superannuation funds by voluntary deductions from salary or wages, but the tax benefit should be by the employee making a personal claim to the Inland Revenue. That as an improvement on the present system, the National Party allow a person reaching 65 who is still working to defer applying for the superannuation entitlement, but then being paid at a higher level on retirement. That the National Party implements the concept of a Seniors Card when it returns to office after the 2002 General Election, as a means of giving immediate benefits to current superannuitants.

CONCLUSION

30.

The Task Force emphasises that this Report is not National Party policy, but a consideration of retirement issues as a starting point for policy preparation by the National Party for the 2002 General Election. The Task Force anticipates the matters raised and the recommendations made in the Report will promote and encourage robust debate within the National Party membership. It should be noted that Task Force members differed on some of the recommendations in this Report, particularly recommendation 6 on tax deductions of payments to health providers for retired New Zealanders and the section of recommendation 7 referring to a tax incentive for long-term contractual savings. (For those interested in the arguments for and against tax incentives for long-term superannuation savings, we attach the conclusions from pages 10 and 11 of the 1997 Todd Report for your information). The information and recommendations in this Report have yet to be considered by the National Party's Regional Conferences, the National Party's Caucus and the National Party's Policy Committee. This Report concludes the work of the Task Force. We thank all those who have made submissions, particularly the National Party's regional policy committees, the Young Nationals, party members and groups interested in policy formation, and the many members who responded to the Task Force questionnaire. We also wish to record our thanks for the assistance received from the Hon Bill English and from representatives from the office of the National Party Leader, the Rt Hon Jenny Shipley.

Sir George Chapman
Task Force Chairman
March 2001


ATTACHMENT TO SENIORS & SUPERANNUATION
TASK FORCE REPORT

1997 Todd Report - Pages 10 and 11

There has been some call for tax incentives. The 1992 report of the PPR Task Force presented a detailed examination of the arguments for and against, which we summarise below.

Since the referendum, calls for tax incentives to assist in increasing private savings have increased. In 1992, the PPR Task Force made a detailed consideration of tax incentives. We do not see merit in trying to traverse all of that ground again, as the PPR Task Force found support for tax incentives to be even lower than that for the compulsory option. It is helpful to reiterate the main conclusions. The main arguments for tax incentives are that they: Provide explicit encouragement to save; Give a strong signal from government that individuals should take more responsibility for their own retirement; Could be used as a lever to encourage specific design features for savings vehicles that the government may consider desirable (such as lock-in to retirement age); and Enhance individuals' retirement income prospects.

We think the reasons for rejecting tax incentives are still valid

Despite these possible benefits, we consider that the reasons for rejecting tax incentives still hold: at a time when tax incentives are generally being stripped out of our income tax legislation, it seems inappropriate to introduce incentives for retirement savings; tax incentives are costly for the taxpayer. There would be no obvious advantage if government provision of public pensions were simply replaced with government provision of tax incentives; tax incentives primarily benefit those who would have saved anyway. High income earners would inevitably be better placed than others to make best use of the concessions; tax incentives would inevitably result in switching of investment activity to tax preferred products, but there is no certainty that total savings levels would rise; an incentive by definition, provides favoured treatment for one part of the savings industry over others. It is impossible to devise a scheme that could apply fairly to the array of options available under the voluntary approach. Further regulation would be required, and compliance and administration costs would rise; and a dollar of government savings put in private hands (through a tax concession) would be only partly saved. This suggests caution in trying to promote private provision in ways that involve a fiscal cost.

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