What is Saving New Zealand?
The ISI explains what Saving New Zealand is and how it works.
Monday, May 26th 2003, 1:00AM
Saving
New Zealand is a project instigated by the Investment Savings and Insurance
Association (“ISI") to bring a fresh view to the debate on savings in New Zealand.
The plan
is to form a ‘Partnership’ of government, individuals, employers, unions and
the financial services industry to design a framework for savings that will
enable New Zealanders to each accumulate sufficient personal savings to give
them more financial
freedom.
The ISI believes that private saving in New Zealand has been stifled by
the public’s confusion and general lack of understanding about how and why they
should save. Increased savings has the
potential to substantially increase both personal and national welfare.
Understandably,
there is some reluctance to lock savings away for a long period when the
immediate future appears so uncertain and there are other spending priorities
such as health and education.
We
believe the whole issue of savings needs to be looked at from a ‘lifetime’
point of view so that everyone will have personal savings that can be drawn on
for specified expenditure at different stages in the lifecycle.
Saving
New Zealand is intended to shift the current inertia around savings to a
broader vision, with the objective of achieving an integrated savings framework
for New Zealanders by the end of 2003.
Why do we need to encourage more private savings?
Savings
are important at the personal level and also at the national level. A fund of private savings gives each person
‘financial flexibility’, such as the ability to take time out of the workforce
to retrain, to have an overseas trip, or to have a hip replacement without
going on the public hospital waiting list.
Compared with borrowing (often at very high interest rates), saving for
goods releases income that would otherwise be spent on interest payments. Saving also allows for extra income in
retirement to supplement the amount available from NZ Superannuation.
All the major
political parties are committed to maintaining the provision of NZ
Superannuation in some form, and there is no suggestion that the current level
of state funding in other areas will be reduced. By the time the majority of baby-boomers retire, however, the
level of NZ Superannuation benefit is likely to be sufficient only for a very
basic standard of living. Anyone who
wants any extras should expect to pay for them from their own private savings.
At the
national level savings are important to drive the economy and provide sources
of investment from within the country.
In a speech to the 2002 National Summit on Retirement Savings the
Chairman of the U.S. Federal Reserve, Alan Greenspan, noted that savings are
crucial to economic growth in two ways:
• Savings contribute to
America’s capital markets by funding capital investments and thereby boosting
productivity.
• Savings give retirees
individual spending power.
What is the Framework and how will it help?
The savings framework is intended to be a plan, showing New Zealanders
what they can expect from the State, and how they can supplement that with
their own savings, especially through their workplace. Once agreement is reached on a way this can
be done, it will remove the confusion over why private saving is needed, what
the options are, what the tax treatment will be and what impact saving will
have on their future entitlement to state benefits. It will take the current level of state
benefits (including education, health and
NZ Superannuation) as the foundation and give
people the confidence to plan medium/long-term savings on top of that, with
some certainty about what the outcome is likely to be.
Why should I sign up to the Partnership?
The best way to achieve agreement on a framework for lifetime savings is
through a partnership between government, individuals, employers, unions and
the financial services industry.
With
co-operation, commitment and a concerted effort by all parties a framework can
be designed which will give the public some certainty in planning for their
financial milestones and some assistance in achieving lifetime security. This framework will set out clearly how
State provision and private savings can work together to cover expenditure
needs at different stages of the life cycle. For instance, tertiary education,
retraining later in life, medical treatment or the provision of retirement
income. It will also set out the
various options available for private savings and the tax treatments of those
options.
The success of such a framework in encouraging private saving will depend
to a large extent on public confidence.
That is why the ‘Partnership’ approach is important. It will catch the
public attention (such unity is unprecedented in NZ) and inspire the imagination with what is possible if we all work
together. A framework based on the
co-operation of employers, employees, Government and business will present a
firm foundation on which people can build their financial security.
What commitment is expected from the Partners?
It is important that anyone who signs up to the Partnership is prepared
to give a commitment to support the process of designing the framework. Some will choose to be more actively
involved than others.
We will
set up an electronic group so that we can seek comments from and distribute
information by email to all those who sign up as Partners. The most important input sought will be
suggestions for the design of the framework to be discussed at a mid-year
‘savings forum’.
The main contribution expected of Partners will be to participate in the
debate and support the process of designing a framework.
How can we make a difference?
We can raise the awareness of the need to save by publicising the
creation of the Partnership. Actual
progress will only be made once the framework has been designed and that will
be an outcome of the process. We envisage holding a “Savings Forum” mid-year to
provide a focus for the discussion.
Once the shape of the framework has been agreed we can do some further
work on the policy details
Step 1: Sign up Partners who are prepared to commit themselves to finding a way
to make a difference
Step 2: Identify the problems that need to be resolved in order to ‘kick-start’
savings and agree on the basic structure of a framework at a ‘savings forum’
Step 3: Agree on detailed policy design for
recommendation to Government and the Periodic Review Group.
| « Saving in New Zealand – some background facts | Plans to help Govt write savings policy » |
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