Workplace savings not the panacea
AXA's head of wealth management, Ralph Stewart, runs his eye over the Periodoc Review Group's report on superannuation and concludes there are good things in it, but issues too.
Monday, December 22nd 2003, 1:11AM
by Ralph Stewart
The PRG is clear in identifying the problem of insufficient income for retirement is for those that will be retiring closer to 2020 and not for those in retirement today. The report concludes that most retired people are doing well and those close to retirement are likely to have an adequate standard of living in retirement.
The challenge is with heartland and young New Zealanders, low and middle-income earners with the least ability to save. While there is time to consider the specific issues it is a relief to read that a Work Based Savings Group (WSG) is being proposed to promote work based savings by the end of 2004.
Under the current policy another review would not have been completed until 2009, by which time the first wave of under - funded retirees would be rapidly approaching.
In our view the recommendations are practical and realistic in that they narrow the debate to the central issues and, in themselves, are achievable in a sensible time frame.
The Retirement Commission is central and will be co-ordinating the research into future savings habits increasingly influenced by new factors such as higher debt levels, student loans, lower levels of home ownership, etc. This is practical and given the key savings education initiatives revolve around the Sorted website and campaigns run by the commission is a logical place to build activity from.
The report focus on the workplace to deliver savings and the establishment of the Work Based Savings Group (WSG) to drive implementation recommendations. The role of the workplace in capturing savings is obvious, the application is difficult.
The attitudes of employers vary considerably. For many staff superannuation is a duty of care, for foreign owned companies operating in New Zealand, workplace savings vehicles can be considered mandatory, for some companies the funding of employer contributions can be a financial burden, and for a great many staff superannuation is simply a function of benefit structures established decades ago.
For suppliers the economics of providing savings products to the work place are not immediately attractive. While the emphases has shifted from stand alone schemes to portable master trusts that can be shared by a number of different companies, the mechanics of achieving economies of scale are along way off.
There needs to be a better understand of the profitability of workplace savings. At present levels there is little room for employee education and on going savings support. Technology, the role of the Internet, specifically the Retirement Commission’s Sorted site, is a refreshing new approach to the traditional lunchtime meeting in the staff cafeteria.
There are plenty of challenges for the WSG in unlocking the opportunity in the work place. The inherent economies of scale referred to in the report will not be easily achieved.
The PRG's recommendations surrounding taxation are practical, but to get some serious traction, need to acknowledge the taxation issues are not unique to savings and requires the Governments input into taxation of investments generally. There is some positive activity in this direction however, with the tax on employer contributions being normalised this year and the working group on international taxation releasing the officials paper earlier this month. Bottom line however, no specific tax incentives for savings as endorsed by the PRG, has to be good news.
The PRG notes a number of specific recommendations with regard to regulation and the operation of the financial services market. Of these the removal of prospectus requirements from employer superannuation schemes as currently proposed by the Business Reform Bill would be a great outcome, and lower employer / scheme member costs significantly.
The PRG has done well in breaking down the wide reaching debate on retirement savings and setting a workable scope and time frame. The challenge of providing for retirement in the relatively near future remains a major issue for the country and, as we all know will not be resolved by the NZ Superannuation Fund alone. The success of the PRG's recommendations are increasingly important.
Ralph Stewart is the general manager Wealth Management at AXA New Zealand.
Ralph Stewart is a director of NZ Income.
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