Superannuation in the new parliament
SuperTalk looks at what impact the new government is likely to have on the superannuation and savings area. Is the Big Cullen Fund safe, What does United Future stand for, Are tax incentives coming and more....
Sunday, July 28th 2002, 9:20PM
Savings issues were notably absent from the election campaign over the past four weeks, however there is a feeling the new Labour-led government will be quite positive for the industry over the next three years.
Part of the reasoning behind this feeling is that there is a growing realisation amongst the politicians that savings issues need to be dealt with.
Also there is a slowly emerging consensus on some issues. The most noticeable area where this has occurred in the past three years has been around New Zealand Superannuation - the state pension.
Currently there is almost total agreement that NZ Super should be a universal entitlement set at no less than 65% of the average weekly wage for a married couple.
One other area of agreement is support for tax incentives for savings.
In previous years many parties totally ruled out the idea of tax incentives. Now nearly all of them are supportive of the idea.
That would indicate that we can expect some form of tax incentives to be introduced in the next three years.
Finance minister told Good Returns at a meeting in Rotorua before the election that sorting out tax incentives are "at the top" of his list of things to do in the next term.
His approach is to develop 'smart' incentives that can be used in the workplace superannuation area.
One of his ideas, which the Greens appear to support, is making the 6c tax break high-income earners enjoy available to people on lower incomes.
Cullen's preference is to put the incentives in at the workplace level as that is where they would be most effective.
Workplace super is also an area we are likely to see more on as the Government is taking a leading role in this area.
During the last term it formed a working party of ministers to look at ideas, plus it did a deal with the primary school teachers whereby the Government matches teachers contribution to a super fund fund.
Good Returns understands that is likely to start later this year, and the investment vehicle to be used is the Global Retirement Trust.
Before having a closer look at NZ Super it's worth explaining what the unknown party, United Future, is about on super and savings.
Most New Zealanders, including the majority of the 7% of the population who voted for United Future, will have no idea what is in the party's superannuation policy.
Leader Peter Dunne made no speeches on the subject during the campaign, so we are left with the little amount of information the party has on its website.
The key points are that:
- It supports the New Zealand Superannuation Fund (aka the Big Cullen Fund)
- Wants to have a new multi-party Accord on superannuation issues
- Supports '65 at 65', that is NZ Super being paid to each eligible married couple at 65% of the annual average weekly wage and wants the single allowance raised.
- Believes that more must be done to encourage private savings to supplement New Zealand Superannuation payments, including taxation arrangements more conducive to promoting long-term personal saving (Don't know what this means - Ed).
Among commentators Peter Dunne is considered to be one politician who has quite a good understanding of superannuation issues so it will be interesting to see what level of input he has into this area.
Key industry figures who have spoken to Dunne say he has savings issues high on his list of priorities.
One thing that is clear is that Michael Cullen will be driving the superannuation and savings issues, and he is unlikely to have much trouble dealing with the National party.
It is generally accepted that National's savings policy was not well thought out and that it appeared to be hastily put together before the election.
It is assumed that Don Brash will have a major impact on policy development in this area, so it will be interesting to see where he takes it. (For some clues on his thinking read the speech he gave to the Financial Planners and Insurance Advisers Association conference in Palmerston North. Click here to read it).
The blueprint for super and savings policy in the new Parliament was articulated by Cullen in a speech to the Association of Superannuation Funds recently. (Click here to read the speech).
The Big Cullen Fund
Superannuation was all but ignored in the election campaign, even though it is the Government's single biggest annual item of expenditure.
When it did get close to being raised in the televised leaders' debate the host quickly moved the programme on.
One of the surprising comments to be made during the election came from Cullen, in a speech to Grey Power, said the New Zealand Superannuation Fund was established to allow the government to maintain the level of NZ Superannuation after the baby boomers retire and the numbers over 65 double.
"This election is make or break for that fund," he said.
Although the fund was well-established National, Act and the Greens campaigned on its abolition.
However, the Alliance, New Zealand First and United Future all voted with Labour on its establishment.
Looking at how the numbers went on Saturday it appears the fund is safe with 76 votes in favour now.
(Labour 52, NZ First 13, United Future 9, Progressive Coalition 2).
"The Cullen fund is now secure," Investment Savings and Insurance Association chief executive Vance Arkinstall says.
The wildcard though is NZ First as it supported the fund on the premise that it could get it converted to individual accounts. However, if NZ First's support is subtracted the government is still left with the majority of MPs supporting the fund.
Currently there is about $700 million in the fund, and if the contributions happen at the rate expected there will be nearly $7 billion in the fund by the time the next election comes along.
In Cullen's view the fund, at that size, would be too big for politicians to meddle with.
The issue with the fund is that people think their superannuation is all sorted out now when in fact the fund will only meet a small portion of future state pension costs.
One of the worst things to happen in the campaign was that several people, including the Prime Minister Helen Clark, said the fund guaranteed superannuation in the future.
Tower New Zealand managing director Jim Minto says this perception is already starting to have a negative impact on the savings industry.
Health insurance
Two of the big issues here are tax incentives for health insurance and having a dedicated health tax.
It's unclear what will happen in this area, however Labour and National have both ruled out introducing tax incentives for health insurance. Likewise the Greens previously have opposed the idea.
Research released by Sovereign last week suggested the public were in favour of such a move, however it seems unlikely to happen.
Potentially more likely is that the government will ring fence a portion of its annual tax take for health costs.
This idea of a 'tagged tax' is similar to what Labour campaigned for with superannuation in the previous election. The idea was that part of the annual tax take would be invested into the Big Cullen Fund. In the end this position was modified by the Alliance, which said the money should come out of surpluses.
What this shows is that the idea of ring fencing a portion of tax for health is not beyond the realms of possibility.
Some people within the health insurance industry believe that such a move is almost a given as a lot of work has already taken place on it.
Industry buoyant
There is general agreement that the outcome of the election ensures the status quo, rather than making any major changes. On the plus side Labour has the luxury of having a number of options available when it comes to gathering support for legislation. On the left, and presumably on social issues, it can turn to the Greens, on the right it has the option of using United Future which is more business friendly. (Also there is the option of NZ First).
BT Funds Management chief executive Craig Stobo says there's no reversal of what was in place before. " I don't see any change of direction."
"Does it accelerate anything? It probably does on balance with United Future's steadying hand if (Labour) decides to use them more."
Stobo says he would like to see the government pick up on issues like the McLeod tax review's ideas for a risk-free rate of return method for taxing investments.
Tower New Zealand managing director Jim Minto, although having some concerns about specific issues, including health insurance, believes that the next three years will be good for the savings industry. However, he doesn't sheet that enthusiasm directly home to the new government.
"(The political parties) all recognise something has to be done."
Arkinstall is also positive on the outcome of the election.
"It's potentially quite a good outcome as far as the superannuation and savings industry is concerned," he says.
"We have now got a number of players who are supportive of doing things to improve the environment for savings."
Arkinstall says although the environment is supportive for positive changes the industry has to get in and help Cullen, especially as some of his officials oppose the changes.
"The industry has got to get in and give him support and put pressure on some of these other areas to make some of these changes occur.
"It's a good opportunity to actually get in and help Michael Cullen make some of the changes that he's said he might be interested in."
Arkinstall is optimistic the industry will see some of these changes during the next few years.
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