Rod Donald lays out the Green's super policy

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The Green Party’s retirement income vision for all New Zealanders.

Wednesday, September 1st 2004, 7:36AM

Your focus on workplace super is both timely and necessary. While politicians are often blamed, with some justification, for New Zealanders’ poor level of savings and their bad attitudes towards providing for their retirement, because of both our failure to reach agreement on retirement income policies and our failure to provide the right environment, framework and incentives to encourage saving; the industry has to wear its fair share of responsibility too. I say this not just as an MP, but also as a trustee of a superannuation fund.

The public do not have the confidence they deserve to have in super funds, often because they were lead to expect unrealistic rates of return and have instead seen their savings shrink as a result of poor investment decisions.

Unless parliament makes employer subsidised personal retirement saving compulsory - something our party does not support - no amount of tax or other incentives we offer people to save for their retirement will result in them doing it through a fund if they don’t trust you. Solving your credibility problem is therefore in my opinion a prerequisite to New Zealanders becoming better private savers.

Credibility remains the key issue when we consider the public provision of superannuation. It is unfortunate, but not surprising, that many people have no confidence that there will be a state pension when they reach retirement age. That’s because it’s been a political football for so long. It’s also because a significant party, namely National, refuses to sign up to Part 1 of the NZ Superannuation Act 2001, despite then leader Bill English saying he would at the time the bill was passed.

Instead, current leader Don Brash has told all of us who are under 50 that we will have to work past the age of 65.

The Green Party signed up to Part 1 of the Act because we are committed to giving New Zealanders of all ages the certainty and security they deserve. We support universal public provision of superannuation from age 65 at a minimum of 65% of the average ordinary time wage for a couple and 60% of that amount for a single person and we are confident that New Zealand can afford to keep the current scheme for the foreseeable future - same eligibility, same entitlements, same mechanisms for calculating and delivering it.

What’s more, we believe that super provision should remain “pay-as-you-go”, funded through government revenue. In other words, we continue to oppose the Cullen super fund and would dismantle it if we had the opportunity. While we accept that one of Labour’s motives for establishing it was to address the credibility and confidence issues I raised earlier we believe the fund is giving kiwis a false sense of security and represents an enormous opportunity cost.

Briefly, our arguments against the fund are:

• Its justification is open to question because it is based on the projected ratio of working age population to superannuitants instead of actual working people to all dependents. Of course we accept that we have an ageing population but, with fewer young people and higher labour participation rates, the problem will not be as large as the government makes out.
Gambling two thirds of the fund on the overseas share market is not prudent and may not yield the capital gains needed to meet the fund’s targets. If you don’t believe me I suggest you read the Economist’s Economic Focus (19 August), which argues at length that returns on equities are going to be much lower than expected. Dr Cullen should take heed of Martin Barnes, who asserts that “anyone who has based retirement plans on the assumption that equities will do as well in the future as they have done in the past is in trouble”. If he is right then we are all in trouble.

Even if such predictions are too cautious why is Labour investing our tax surpluses in the businesses and the economies of our competitors? Instead of this short sighted strategy, the government should be investing the $2 billion budgeted to go into the fund each year, as well as the $4 billion that is already in it, in the infrastructure New Zealand needs to make our economy self reliant and sustainable - such as rail, public transport, wind and solar energy, and in our people, especially but not only our young people, so that they are more productive. Only then will I have any confidence that I can look forward to a public pension with any certainty and security.

Despite my concern being shared by most kiwis, at best only half of us are saving for our retirement. However, nearly a third of New Zealanders have a good excuse - they simply cannot afford to save anything.

Compulsory saving would only make their immediate predicament worse.

Tax or other incentives won’t help either, yet they are the people who most need to have a retirement nest egg. What they need is an adequate income, and I challenge the government and employers to meet that need.

I also challenge the government and employers to get serious about workplace saving schemes for those who can afford to save. I believe it’s time to carefully consider up-front-tax incentives to give workers the encouragement they need to save rather than spend. I can think of nothing better than to deduct super savings before PAYE. If TTE is to be changed then the E at the end would need to become a T, and perhaps the T in the middle would become a little t, to then be offset against the big T at the end, in recognition of the different marginal tax rates of the worker beneficiaries. This approach has the added advantage of deferring some government revenue for 20 to 50 years, when it will be needed more than it is now.

I do acknowledge that Labour has taken four good initiatives in the last year. In fact, I am pleased to take credit for one of them. Ever since the 6% tax differential between SSCWT and PAYE was introduced for those earning over $60,000 I have lobbied Dr Cullen to extend this tax incentive to all savers. While I didn’t win that concession, I did convince the minister to remove the tax penalties that discouraged those earning less than $38,000 to save for their retirement.

The Green Party also supported reducing scheme compliance costs by abolishing the prospectus requirements for all schemes and the need to send full annual accounts to every member.

And we are delighted that the government has established a new public service workplace saving scheme. It is a pale shadow of the GSF and the NPF, it restricts savers to very limited investment choices and it starts at a very modest level but at least it’s a start, and it sets an example for private sector employers to match or better.

They need to. At June 2003, the most recent figures I have, there were only 246,946 employees in 514 employer sponsored savings schemes. That does not compare well with the 1990 figures of 310,741 employees in 2,242 schemes. No wonder the Reserve Bank recently reported that New Zealanders had a household savings rate of minus 9.5% for the year to March and expects this to deteriorate to minus 11% this year. No wonder that our household debt-to-income ratio, which was just over 60% in 1992, is now over 125%. No wonder that our national debt has just reached $107 billion.

Some of that debt is in real estate and I am very concerned that a cooling in the housing market will expose many people who borrowed more than they can manage in the hope of capital gains on their investment property purchases. But I firmly believe that living in a freehold home still represents the best form of retirement saving. Many, many people who retire with a well maintained debt free home can live comfortably on the pension. You can’t do that if you are still retiring your mortgage or, even worse, paying market rents. And if, for whatever reason, you do have an income shortfall you also have the option of a negative mortgage to maintain your lifestyle rather than your off-springs’ inheritance.

Despite the benefits of home ownership the proportion of New Zealanders who own their own home is dropping, most steeply amongst the younger generation. If we don’t reverse this trend we face a time bomb in the future as they retire with no savings, no home and, in some cases, the remains of a 50 year old student debt.

I doubt that you will be surprised to hear me say that I believe New Zealand has a savings crisis and that the Green Party believes the Retirement Commissioner has a pivotal role to play in educating, encouraging and enabling New Zealanders to adopt and embrace a savings culture. We want to see a lot more resources made available to make that possible on a serious scale. That includes a mandate to review, in consultation with stakeholders, all relevant government policies, including tax, and to recommend radical improvements.

New Zealand Superannuation is and should remain the bread and butter of our retirement income and if we want jam we will have to make it ourselves, but the government should provide the sweetener to encourage our thrift.

There are speech notes for Rod Donald's address to the ASFONZ National conference in Auckland. Donal is the Green Party Superannuation spokesperson.

« Superannuation under threat again: Act backs Brash

Greater encouragement needed for private super: United Future »

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