Richard Prebble puts his case
ACT leader Richard Prebble puts the case for a savings based, rather than a tax-based super scheme.
Wednesday, October 14th 1998, 12:00AM
SPEECH TO BIRCHLEIGH RETIREMENT VILLAGE DUNEDIN2.30 pm Wednesday 14 October 1998
SUPERANNUATION
I have chosen today here in the Birchleigh Retirement Village to talk about the issue of superannuation.
I believe one should start by talking about the principles of a good superannuation scheme. First is security.
People must know that their retirement income is secure. Those in retirement are very vulnerable because their income is fixed. If government changes the rules, the retired have no income generating ability to accommodate the rule change. The retired just have to take it.
The second principle is fairness. The superannuation scheme must be fair not just to the retired but also to those who are paying taxes today - intergenerational fairness.
The third principle is dignity. The question that none of the parties in Parliament have examined is - is the basic pension enough to live on in dignity? I do not believe the pension is generous.
The fourth principle is sustainability. Will what we do be sustainable?
If you look at our present scheme against these principles it fails. The scheme is not secure. There have been many major changes to superannuation.
There was the Norman Kirk scheme, then Sir Robert’s, then the surcharge, then the Accord, and then that within the Accord, over a dozen significant changes.
Two weeks ago we had a unilateral change to the formula. It appears likely that this will be the trigger to further political promises and more insecurity.
Before making these latest changes there appears to have been no study of whether the present formula is fair. Is it fair to link super to wages? Is it fairer to link super to the cost of living?
Much is made of the fact that this year wages have gone up faster than inflation. With our present Governor of the Reserve Bank, inflation is low. Of course we can remember times - not long ago - when inflation was 17 % and wage increases were less. Mr Anderton and the Alliance want a new easy credit policy and higher inflation. But the same people who call for wage linked pensions will then call for the inflation link.
Which one you favour depends on who you think will win the next election. Both formulas miss the real point - is the present pension adequate? I don’t think so.
I am going to accept the Prime Minister’s invitation to attend the multi party talks. I am going to say to the Prime Minister, you’ve got to survey the people and find out if the pension is adequate. Surely the real question is not what the formula is, but is the pension enough?
Then we must examine the issue of sustainability. Here we know the answer. A universal tax-based super scheme is not sustainable and the formula change made last week does not alter this fact.
Work this year by actuaries employed by the private superannuation industry show that work by the Treasury showing the sustainability of the pension was conservative. The Treasury had not allowed for the blow out in health costs when the number of retired increases rapidly as the baby boomers retire.
I am a baby boomer. There are more New Zealanders within a year of my birth than at any time in our history. There are a lot of us. There were more students in my year in law school, than in the whole law school when my older brother went through. We will bust the scheme. We have now just 15 years to prepare.
The answer is still to switch to a savings rather than taxed based scheme. Savings in your own name meets the four point test. It’s fair, the money’s secure, it’s your own money so it’s dignified, and it’s sustainable.
The voters turned down Mr Peters’ compulsory savings scheme but a recent poll says that 85% of the electorate believes the tax-based scheme is not sustainable and 52% favour a savings-based scheme. I believe we can put together a savings scheme that is voluntary, and that is so attractive that most of the work force would join in sufficient numbers to make superannuation sustainable.
At present the Government calls on us to save for our retirement but at the same time creates an environment that makes it very difficult.
Most people who have belonged to the schemes have been members of employer schemes. Employer schemes have been closing at a rate of two a week for the last three years. An employer scheme, because it spreads risk and spreads administration costs, is a very good way for people to save for retirement.
ACT believes government should review the incentives for employers to offer good quality superannuation packages. ACT says employers should be encouraged by the tax system to offer such schemes, not discouraged.
A second platform is the tax treatment of superannuation. At the moment we have what is called Tax-Tax-Exempt. We pay tax on contribution (when it goes in). There is tax on the super funds earnings (when it’s in there). Only the pay out is exempt from tax.
More logical would be to tax-exempt savings. In other words, give tax incentives for people to save. The key issue in superannuation is saving. We’ve got to make it easy for people to save - not hard, as it is at present. If you tax-exempt savings, then you can tax the super fund and tax the pay out. (Clearly those in the present regime must be ring fenced off. Having paid tax twice it would be wrong to be triple taxed.) I am going to suggest to the Prime Minister’s joint party talks that we look at tax exempting retirement savings.
I believe the three practical policy suggestions ACT has made could transform the present debate.
First - let’s have an independent panel examine what is an inadequate pension.
Second - let’s remove the tax penalties from employers who provide superannuation
Third - let’s tax exempt contributions to super schemes and tax pay outs - that is, reverse the present system.
I think political parties should try to be bi-partisan and not play politics with superannuation.
I am just as critical of Labour and the Alliance as I am of National. Both Labour and the Alliance have blocked ACT from joining Accord talks.
ACT welcomes Treasury looking at our ideas. We want independent actuaries to look at Labour’s so called savings scheme. We think Labour’s proposals are fraudulent. It’s a bogus savings scheme. Actuaries who have looked at Labour’s idea have said it won’t work. What Labour has said is, let’s take the surplus and declare it to be a savings scheme. Well, what surplus? We are now in a deficit.
The Alliance says that the present scheme is sustainable - all we have to do is lift tax to 66 cents in the dollar. That’s just not realistic.
I call on Labour and the Alliance to sit around the table - to put the country first.
Between us, with good will, we can create a superannuation scheme that is secure, fair, gives dignity and is sustainable.
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