National's super policy

Security in Retirement - Superannuation and Retirement Income Policy

Executive Summary
Security in retirement is an issue that concerns all New Zealanders - those currently in retirement and those who are planning for it. Most have high expectations about the quality of life they want to achieve in retirement. The material living standards of retired people and all other people are ultimately dependent on the performance of the economy.

National’s economic policy, which will boost the rate of economic growth, is of vital importance for the security of those in retirement, and those who will retire in the future. National supports current arrangements for New Zealand superannuation - 65% of the net average wage at 65 for a married couple.

However, National acknowledges this will only ever afford a modest lifestyle in retirement. Beyond that, National believes a strong emphasis should be placed on private provision. That can be assisted by firstly, removing disincentives to save and secondly, to actively incentivise saving for retirement.

National will:

• Continue to support current arrangements for New Zealand Superannuation at no less than 65% of the net average wage at age 65 for a married couple.
• New Zealand Superannuation will be funded from general taxation. National will abolish the New Zealand Superannuation Fund (The Cullen Fund).
• Removing the disincentives to save

National will:

• Reduce personal, company and related rates of income tax. This will reduce the disincentive to save.
• Lower the disincentive for people on modest incomes to save.
• Creating incentives to save for retirement income

National will:

• Introduce an up-front rebate of 15c on savings up to $2600 per annum which are placed in long-term savings schemes.
• Evolve this policy over time with the retirement savings industry as fiscal conditions permit to add a tax-deferred element.
• Compliance and other issues

National will:

• Work with the savings industry to minimise compliance costs.
• Retain protections for employer-sponsored schemes and simplify the requirements for a prospectus for employer-sponsored schemes.
• Move responsibility for the Office of the Retirement Commissioner from Social Services to Finance.
• Properly fund the Office of the Retirement Commissioner to 1999 levels.
• Introduction

National supports current arrangements for New Zealand Superannuation. At the same time, we acknowledge that New Zealand Super only affords a modest lifestyle in retirement. Beyond that basic level of state provision, National believes the emphasis should be on self-reliance and self provision. People who are able to do so should save for their own retirement.

There is considerable ongoing debate in New Zealand about the level of household savings. A conclusion on whether New Zealand has a savings problem depends on what data is used and how savings are defined. There is no consensus.

There is a greater degree of consensus however around the fact that New Zealanders are poor at saving for retirement income. At the same time however, people are ambitious about the kind of retirement they want to enjoy. National believes it is the combined roles of both the state and the individual to provide for that retirement.

Retirement income policy is usually formulated along the line of three Tiers:

Tier 1: national superannuation

Tier 2: workplace superannuation

Tier 3: voluntary superannuation

National’s Superannuation and Retirement Income Policy will provide certainty around national superannuation and, at the same time, lower the disincentives and provide incentives to enhance the environment for both Tier 2 and Tier 3 savings.

New Zealand lacks a clear framework that sets out the role of the state and the individual in the provision of retirement income. Because of that, there is considerable uncertainty in the community about what people should be doing for retirement saving and too many are doing nothing.

The Cullen fund has exacerbated the problem by suggesting to many people that retirement income is more secure than it was before, or is set to provide more than it was before. Recent surveys on retirement income show a worrying decline in the percentage of people actively saving for retirement purposes.

National does not support the Cullen fund. We believe that the best security for current superannuation arrangements is to ensure the economy is growing fast enough to meet the needs of our ageing population.

National supports current arrangements for New Zealand superannuation. For the first time in many years both major political parties agree that current arrangements will remain in place. People have security in retirement.

However, we do disagree on how New Zealand Superannuation should be funded. Labour believes the best way forward is to partially prefund future entitlement. Whereas National believes that the best security is a strongly growing economy that can meet the needs of its citizens in the future.

National believes that it is important that there is a framework for retirement income that sets out clear responsibilities of the state, and the responsibility of the individual to provide for retirement income.

National will

• Continue to support current arrangements for New Zealand Superannuation at no less than 65% of the net average wage at age 65 for a married couple.
• Will fund New Zealand Superannuation from general taxation. National will abolish the New Zealand Superannuation Fund (The Cullen Fund).

Earnings from savings invested through superannuation funds, life offices and similar entities are taxed at 33c in the dollar. This tax treatment acts as a disincentive to save for those on lower marginal tax rates (people earning under $38,000). At the other end of the spectrum, those on the marginal tax rate of 39c (those earning over $60,000) are given a tax incentive to save. This situation adversely affects women who generally earn less than men and live longer.

National’s tax policy will alleviate some of this disincentive over time as the tax rate that applies to savings is brought down in line with the corporate tax rate. However, even then, there will still be a disincentive for those on lower incomes.

National will set up a working group between Government and the savings industry to look at how that disincentive could be removed more quickly, with minimum compliance costs on the Government and the industry.

National will:

• Reduce personal, company and related rates of income tax. This will reduce the disincentive to save.
• Lower the disincentive for people on modest incomes to save.

National will assist people to save for their retirement by offering a tax incentive.

There is considerable conjecture about the impact of incentives on the quantum of savings in the economy. National believes that an incentive will help people who are not saving to do so.

We also believe there may be some ability to change the type of savings. With this policy we intend shifting the focus to long-term savings and to saving for retirement income in particular.

National will introduce a tax incentive for savings locked into a long-term savings scheme. This will take the form of an up-front rebate on a capped level of savings directed into an approved locked-in savings scheme.

This product will evolve over time with our preferred option at this stage being to add in a tax-deferred element as fiscal conditions permit. This will put the tax treatment of these savings on a similar footing to the tax treatment of superannuation savings in Australia, but without the compulsion element.

National will:

• Introduce an upfront rebate of 15c on savings up to $2600 per annum which are placed in long-term savings schemes.
• Evolve this policy over time with the retirement savings industry as fiscal conditions permit to add a tax-deferred element.

National will work with the industry to minimise compliance issues and disincentives to save. Regulation must be clear, simple and light. The industry will be consulted on compliance cost implications of any changes to the current savings regime so that those costs can be minimised.

All changes to the tax system must act to reduce rather than increase tax anomalies for employer contributions and investment earnings to superannuation plans.

Excessive compliance is part of the reason for the dramatic decline over the years of employer superannuation schemes. National will retain protections for employer sponsored schemes and simplify the requirements for a prospectus for employer-sponsored schemes.

National will move responsibility for overseeing the Office of the Retirement Commissioner to the Finance portfolio rather than Social Services. Retirement savings are an economic/fiscal issue, not a welfare issue. Restore the funding of the ORC to 1999 levels.

National will:

• Work with the savings industry to minimise compliance costs.
• Retain protections for employer-sponsored schemes and simplify the requirements for a prospectus for employer-sponsored schemes.
• Move responsibility for the Office of the Retirement Commissioner from Social Services to Finance.
• Properly fund the Office of the Retirement Commissioner to 1999 levels.

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