Bigger questions to ask of retirement policy: Report
Analysts says the 'jokey' 2016 review from the Retirement Commissioner missed some of the big questions.
Tuesday, July 25th 2017, 6:00AM 
3 Comments
The report, by Michael Chamberlain, co-founder of Superlife, and Michael Littlewood, co-founder of the University of Auckland's Retirement Policy and Research Centre, said it needed to be asked, among other things, whether KiwiSaver was working, whether New Zealand needed the Super Fund, whether superannuation at its current levels was actually unsustainable and whether regulation of financial markets was effective.
They said Retirement Commissioner Diane Maxwell had wasted an opportunity.
“We were very disappointed with the Retirement Commissioner’s 2016 review of retirement income policies. The findings were cloaked in a jokey, cartoon-like presentation on the website of the Commission for Financial Capability and amounted to 34 recommendations and observations with little to no supporting evidence for nearly all of them.”
In her review, completed at the end of last year, Maxwell said the retirement age should increase, people should have to live in New Zealand longer to get the pension, and the minimum contribution to KiwiSaver should increase.
Among the 22 sections in their report, Littlewood and Chamberlain pointed out other issues they said deserved attention.
They said the regulatory regime for financial service providers should be reviewed. Recent changes had not been for the better, and the FMA was trying to fix a non-existent problem.
“…with specific regard to superannuation schemes and the other collective investment vehicles used by New Zealanders to save for retirement, has there ever been a case of bad conduct; of a scheme failing or disappearing with the money? We cannot think of any so what precisely will be the measures of ‘success’ with respect to New Zealanders’ interactions with collective investment vehicles.”
Chamberlain and Littlewood said Maxwell had made it clear she thought KiwiSaver needed to be strengthened, but did not address whether it was working.
"That question was not even asked. ‘Does New Zealand even need KiwiSaver?’ Citing the number of members or the amount now invested in KiwiSaver doesn’t answer that question. Encouraging those numbers to grow won’t answer it either. Asking New Zealanders whether they think KiwiSaver is a good idea or whether they think they should be saving more is even less helpful.”
They also called for the Super Fund to be disbanded, its assets sold and the proceeds used to pay off debt.
“It costs a lot to run, raises the risk profile of New Zealand Inc and it won’t, of itself, reduce the cost of NZS by $1. That’s because the cost of the NZS pension will be the benefits that are paid and those have nothing to do with the NZSF," the said.
"The most the NZSF can achieve is a very minor smoothing of the incidence of the cost of NZS – more taxes today for a small possible reduction in tax-expenditure tomorrow. Over the next 100 years, the average annual drawdown will be less than one-tenth of the cost of NZS."
They said investing while the Government had debt was the same as borrowing to invest, which would be politically unpalatable.
The pair said the fund was designed to make the cost of super look less in future. But that was something for future taxpayers to discuss.
"Nothing that today’s taxpayers decide should interfere with that process in 2037 or 2060 – and it will not, even in the presence of the NZSF. That is the essential pointlessness of the NZSF which, if it achieves anything at all, will only get in the way.”
Maxwell defended her review. She said the process by which it was compiled offered a platform for many perspectives. "one resistance to the approach stemmed from the view that if the public became more informed it would undermine the role and status of those working in this space.
"Demystifying the facts, explaining dependency ratios in simple terms, and reducing complex notions such as intergenerational equity to straightforward questions such as ‘what do we owe the next generation and what do they owe us?’ threatened to democratise the conversation, which was surprisingly and unexpectedly uncomfortable for some.
"I do not believe it is a good use of taxpayers’ money to invest time and resource asking if KiwiSaver should exist. Over 2.7 million Kiwis have over $40 billion in funds under management. It’s here. We know we have an ageing population. It is possible, and even advisable, to prepare for the future. We ask it of our households and we need to do it as a country. The Super Fund should not be wound up, it should be supported. It plays a role in managing the future costs of super," she said.
"Across 2016 we spoke to and heard from thousands of New Zealanders. That engagement made our work better and gave us a far deeper understanding of the issues. The alternative is to sit in a room looking at spreadsheets, talking to people just like ourselves and drawing theoretical conclusions. Those conclusions are invariably based on our own agenda and world view and result in a form of blinkered, if earnest, elitism."
READ MORE: Government signals more KiwiSaver changes possible
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Egregious behaviour has been the province of the finance company sector and the managed funds industry has been somewhat crudely and I think unfairly lumped in with that group.
All of this, however, is of little consequence as the NZ regulator (and government) is simply following the overseas trend which has a very strong focus on requiring providers to evidence good conduct. This is against the backdrop of some serious issues in other jurisdictions. The government does not want to see regulatory settings in this country out of step with the rest of the developed world, so the current regulatory direction in NZ is not about to change.
In regard to the authors' comment, “…with specific regard to superannuation schemes and the other collective investment vehicles used by New Zealanders to save for retirement, has there ever been a case of bad conduct; of a scheme failing or disappearing with the money? We cannot think of any...". In the relatively recent past there has been one stand-out example of poor behaviour - the superannuation scheme provided by the failed listed meat processor Fortex Limited in the mid 1990s. From memory, there were several aspects of poor governance apparent in that example. The company provided the trustees, company contributions were only made annually (and were lost in the receivership) and, most tellingly, the assets of the scheme comprised shares in the company itself (ultimately worthless following the collapse).