Super policy answers two questions
One of the interesting things about the Government's proposal to prefund New Zealand Superannuation is that two fundamental questions have been answered unilaterally.
Friday, October 13th 2000, 12:00AM
One of the interesting things about the Government's proposal to prefund New Zealand Superannuation is that two fundamental questions have been answered unilaterally.
First up Dr Cullen has declared NZ Super is a universal entitlement and it will stay that way. He says the electorate has spoken on the issue and there is no need for discussion.
Others disagree. Auckland University senior lecturer Susan St John says there is no evidence that New Zealanders have said NZ Super is a universal entitlement.
St John is in a good position to comment on this issue. The Periodic Review Group, of which she was deputy chair, presented its paper to Government in late 1996. In that document the group said one of the key issues that needed to be discussed was what form NZ Super should take. It presented five options ranging from the universal entitlement through to a harshly applied benefit.
The second decision that has been made is that the state pension should be set at 65% of the average weekly wage.
The issue here is that the figure has been set at an arbitrary level. No work or discussion has been undertaken on what is the appropriate level of NZ Super.
Making important public policy decisions in this way is not good. New Zealanders have clearly said they want some form of political consensus on the issue.
Cullen's policy announcement on Tuesday has put the issue of super back on the agenda and hopefully some sort of consensus can be reached between the various political parties.
While Cullen's scheme is by no means perfect (is there such a thing?) it is something that is saleable to the public.
Its appeal is that it is simple and provides a degree of certainty in the area of public pension. (One of the interesting questions is if the fund doesn't grow as quickly as expected, or the actual level of funding is less than budgeted then cuts or tax increases are inevitable).
Secondly it is understandable. While the purist argument is that debt should be paid off before savings start, that doesn't necessarily reflect what people do.
For instance, often a couple will start a savings fund for their kids' education, while at the same time paying off their mortgage.
The dedicated fund is no different to this concept.
Finally, it does have some degree of equity between the generations (despite what National claims).
One of the biggest issues, particularly for the baby boomers is that under the current pay-as-you-go scheme they are paying their parents' pension, while at the same time being conditioned to the belief that there will be nothing for them when they retire.
With the Big Cullen Fund some of the taxes paid by their parents will be invested to help pay for the future generation's pension.
While the prefunding idea is saleable, the question remains whether or not Dr Cullen can close the deal with fellow politicians and the public.
The prefunding idea will no doubt receive plenty of criticism. However, the Government deserves credit for taking the initiative.
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