Learning from, but not copying Australia

Although Cullen isn't advocating compulsion in New Zealand, comments made to the Association of Superannuation Funds annual meeting last week show that he has seen how the Australian experience developed. (This should be no surprise considering Cullen's academic background in history).

The Australian superannuation scheme was developed almost by accident in 1986 by the unions. Essentially the unions wanted a pay-rise, the employers said no. The compromise that developed was that workers would get a pay rise, but employers had to pay that money into a superannuation scheme.

Originally the contribution level was 3% and that has risen to 8%.

The key point to note about the Australian experience is that their compulsion level kicks in at the tier two or workplace superannuation level, not at the state pension level.

This distinction is important as much of the recent debate about the New Zealand Superannuation Fund (aka the Big Cullen Fund) relates to whether it should be in individual accounts. The net effect of such a move would be compulsion at tier one. (Government would collect your tax and put a portion of it into an account in your name).

Putting the money into individual accounts at this level would create a major bureaucracy and tracking each individual and making the appropriate allocation would be difficult. Consider examples where life companies have demutualised then struggled to fund their members to give them their shares.

Likewise, the government is still looking for about 40,000 people who put money into a state super scheme established in the mid-1970s.

In his recent speech Cullen discusses tax incentives and says the bland up-front exemption of a set dollar figure per year lodged with a superannuation scheme fails to meet a number of tests such as efficiency and equity. A rebate scheme is better, he says, but is more expensive to implement and, because of its complexity, has to be generous enough to encourage people to use it.

"These considerations lead me to favour an incentive package that concentrates on trying to reinvigorate employment based retirement savings schemes," Cullen told the meeting.

Cullen says work is being done on establishing how systems can be put in place to reinvigorate tier two savings, and he has invited the industry's comment on such issues.

The point which bears the most resemblance to Australia is that Cullen is asking employers and unions to put pay rises into super funds.

"The first goal is to try and make it more attractive for employers to offer a retirement savings plan, and to divert money that would otherwise have gone into salary to that form of remuneration. The payback for an employer is to reduce staff turnover and thereby raise productivity; but as the declining numbers of participants shows, this incentive has not been enough to maintain employer interest."

Instead of the sledgehammer Australian approach and forcing workplace super on the nation, Cullen suggests it can be more voluntary and will work if the systems and incentives are good, and workers and employers get behind it.

He says that the Government wants to take a leadership role on the issue.

Firstly he acknowledges that closing the Government Superannuation Fund (GSF) to new members sent the wrong signal to the public.

"The government is, though, interested in working with state unions and departmental chief executives in charting a way back," Cullen says.

"A small, but significant start was made during the primary teachers pay negotiations when a part of the money that could have been incorporated into base pay was diverted into a retirement savings scheme."

Cullen and State Services minister Trevor Mallard have set up a small working party to scope the potential to create a new scheme that would roll out through the collective bargaining process. This scheme would involve an element of diversion of potential pay increases into retirement savings, and there would be matching contributions of new money from the government to state employers to leverage the employer contribution.

"We are walking our talk, and stand ready to put money in to make sure that a scheme gets off the ground," Cullen says.

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