NZ :The Lucky Country re Superannuation

This 2017 article is very applicable. I have just returned from Aussie, where protection of Superannuation Investments by Australians is the current rage, including the regulators and Boards adjusting to the new reality of protecting  the consumer, and focusing on fees, regulator performance etc and investors interests

This article takes us back to the basics, the excellent model of NZ Super we operate in this country

Many Australians would gladly swap;New Zealand’s pension provision for theirs.

OPINION

The heated discussion about superannuation – age of entitlement, generational fairness, gender equity – is a good one for New Zealand to have now.

This is a global issue that every country is wrestling with and there are no easy answers to the fiscal reality of an ageing population and prudent provisioning for a universal pension payment.

The good news is New Zealand is in an enviably good place – in terms of government finances, the performance of its sovereign wealth fund, which starts making payments to the government in 2036, and strong immigration to address declining birth rates – compared to its international peers.

But you wouldn’t know it to listen to the various voices in the media. I get the distinct impression that Kiwis don’t know how lucky they are.

It’s fair to say there are many Australians who would gladly swap New Zealand’s pension provision for theirs.

To give readers some perspective, I’m going to share some of the faults of the Australian system which are absent from New Zealand’s super scheme.

Australia has one of the most complex super schemes in the world. It features a plethora of electable options that are confusing to the average person. It has provisions for insurance and for disposing of estate property, neither of which is an option in New Zealand.

This complexity is a cost on savings, reducing returns and diverting resources away from retirement income.

Australia features tight pension asset tests, as well as superannuation tax concessions, both of which are proving a bonanza for the financial planning industry, further siphoning resources away from its actual purpose.

If you want to talk about generational fairness, Australia has already implemented a gradual pension age increase to 67 years (for those born after 1 July 1952) and if the current government is returned at the 2019 Federal Election, the pension age is slated to increase to 70 years. Editor note , this last provision has been rescinded

New Zealand’s system, by contrast, is probably the simplest pension scheme in the world. There is no asset testing, you can work and continue to receive the pension, there are no electable options and there’s an absence of fishhooks to indirectly benefit the financial services sector as families struggle to understand and comply with a raft of Byzantine rules.

The government has said it will raise the age of entitlement as life expectancy increases  but by international standards 67 years is a generous provisioning and it won’t be phased in until 2037. Set at 65 per cent of the average wage, New Zealand’s pension is higher than many other countries.

The other benefit New Zealand has over other countries is the relative absence of political meddling and 1993’s multi-party accord has delivered real benefits to Kiwis via that policy stability. Changing the age of entitlement in 2037 will be the first substantive change in 44 years.

If there is a blot on Godzone’s retirement landscape, it’s the parlous state of private saving. New Zealand was a late adopter of workplace savings schemes and KiwiSaver, while a good start, will take time to adequately provision its citizens for gradually withdrawing from the workforce.

But that is a minor quibble. When it comes to superannuation, perhaps it’s New Zealand that should be called the Lucky Country.

Alex Malley is chief executive of global accounting body CPA Australia

Posted by Alec Waugh 23 July

2 thoughts on “NZ :The Lucky Country re Superannuation

  1. Paul

    New Zealand’s one BIG BLOT on the Super provisioning regarding Kiwisaver is that it is not ‘mandatory’ for those in paid employment. Therefore there are (probably) many tens of thousands of workers who are not in Kiwisaver because their employer blatantly does not automatically enrol new employees into the scheme as is required by law let alone inform them. This is especially true in the low paid industry and services sectors.

    My son joined an international fast food franchise and missed out on 3 years of Kiwisaver contributions because of that. I litereally had to drag him to his bank and get him to sign up and hand the form to his employer.

    Did he get the sack? No. Why not? Because 1) they knew that they’d probably get done on that legally, and I’d have most certainly lodged a formal complaint to ensure that happened and 2) he’s their most valued employee, indeed their longest serving employee now. And in a managerial position to boot.

    Government needs to legislate that EVERY employed person who is paid is enrolled into Kiwisaver and that the Kiwisaver contribution CANNOT be rolled into their remuneration rate. Oh, and that employees cannot opt out.

    Reply
  2. Mark Huston

    I understand there are several european countries who have a superannuation scheme like ours but also have capital gains tax to correct their economic status.
    The Australian pension model is not a major concern to most australians as employees have various superannuation funding models. If Muldoon adopted the same strategy when he was in power we wouldn’t have this problem today. You tried your best Winston.
    To sort out the problem we have to make the NZ superannuation sustainable by implementing qualifying criteria like NZ First drafted a submission last October, supported by National. Heaven knows what had happened since then other than Labour wanted to introduce their own submission during the same period. Here we are ten months down the track and nothing has happened. The other option is perhaps means testing superannuation but having said that every kiwi living in this country has paid taxes for forty plus years and therefore should qualify for NZ Superannuation.

    Reply

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