An alternative to the Big Cullen Fund
Instead of taking another shot at the Government's super policy critic Michael Littlewood explains what he wants to see.
Saturday, October 21st 2000, 12:00AM
Politicians want simple answers because, like soap powder, they’re easy to sell. Well, life’s often not like that. Forced saving for retirement whether it’s done by governments on our behalf or by everyone because they’re told to is a simple idea gone bad. That makes it simplistic. Forced public saving won’t necessarily help New Zealand survive the coming demographic deluge.
My son told me that I have to write a piece about what I’m for rather than what I’m against. It’s too easy to be negative about the stuff we’ve just been handed by the government so this article is mostly about what I think should happen.
So, if the Big Cullen Fund is such a terrible idea, what should the Government be doing? Here is the list arranged in order – Task 2 can’t be completed before Task 1 is finished; Task 3 before Task 2 and so on.
Task 1: Let’s start a debate on what New Zealand Superannuation might look like from, say, 2020 onward. That leaves it as it is for the currently retired. We need a properly researched debate on the future annual amount, starting age, purchasing power protection, qualifying conditions and whether it should be paid to everyone, regardless of income and assets. We also need to settle transition arrangements between the old and new schemes.
In all the 25 years of change that we have endured on public provision for retirement, we have never had such a debate. It simply isn’t credible for any of our political leaders to suggest otherwise. If they do, just keep asking when it was settled, for whom, by whom and on what basis. And don’t be satisfied with political flannel.
Task 2: Once we have agreed on the shape of New Zealand Superannuation, we need to model its costs (and the costs of other government programmes) to see if tomorrow’s economy can afford the new scheme. If not, then the benefit coat will have to be cut according to the likely economic cloth.
What tomorrow’s taxpayers might think of today’s benefit design is an important part of a secure retirement pension arrangement. Tomorrow’s possible costs will be a vital component of the scheme’s fiscal and political sustainability. If tomorrow’s taxpayers don’t much like what they see, they’ll change it. Constant change is, as we have discovered, no basis on which individuals can plan their futures.
Task 3: Then we can discuss how New Zealand Superannuation will be paid for – out of current taxes? Totally pre-funded or, as the present government suggests, partly pre-funded?
This is very much a third order, rather than a first order decision.
Task 4: Should the government change public policy on private provision? Can tax incentives really contribute in the way their advocates claim? Is there still a role for compulsory private provision on top of the new New Zealand Superannuation, as its advocates claim? Given that both tax incentives and compulsion involve change, their supporters will have to provide evidence of likely gains. On these, we need to decide finally whether the 1992 and 1997 Todd Task Forces were right when they said that these strategies won’t help. Are there changes (other than tax incentives and compulsion) that governments could make to help private saving schemes?
Task 5: No modern democracy can survive an ageing, hungry voting population of baby boomers, no matter how well we have redesigned New Zealand Superannuation or how successful private saving might be for those who have it. So what more can governments do?
The state should next concentrate on the things it has a unique capacity to do well. Running a sound economy should be its first priority. That includes getting inflation down and keeping it down; growing our infrastructure, managing the country’s finances prudently; getting rid of debt and getting all taxes down. Publishing good data on all aspects affecting retirement saving and spending is another state responsibility.
Maintaining consensus on the whole strategy should be its final role under this heading. We must never endure again the political huckstering of the last 25 years on retirement income policies. We really don’t need yet another monument in the superannuation graveyard but that’s what we’re about to get with the Big Cullen Fund. Continuing public and political consensus on the whole retirement income structure is absolutely essential.
Task 6: The government should then leave citizens and their employers to get on with the rest and let them make their own decisions on what suits them best. They’ll make some mistakes along the way, but that’s OK. Letting New Zealanders decide where to invest their own money is likely to be the best way to grow the economy. And that’s what really finally matters for a secure retirement income system, both public and private.
Despite all our recent experience, this isn’t such a difficult issue. Simple answers don’t have to be simplistic. My suggested strategy does, however, require our political leaders to listen, to learn and to lead. These are skills that this government hasn’t acquired yet. It’s much more interested in selling soap powder.
Michael Littlewood is a former member of the Task Force on Private Provision for Retirement, and the author of How to Create a Competitive Market in Pensions.
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