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

13 thoughts on “NZ :The Lucky Country re Superannuation

  1. Mark Huston

    This government seems to ignore the fact that there are high percentage (from the comments I have viewed) of retires are living frugally and with the calendar withdrawl of the Heating Allowance of which they spent these funds on other priorities, will just exacerbate this problem. The other aspect is with rising costs.
    I just carn’t believe that Labour/ NZ First has come out with this expenditure on Gold Card awareness and discounts on products when the majority carnt afford them anyway.
    A better way would be to allow income tax removal or put us all on the minimum wage.
    I would also like to mention the retires that I know are still working would prefer to retire but cannot due to their economic status.
    I think NZ First’s policy on Superannuation reform is a must for this country. We have always had an attitude of “she will be right” or “rolling over” when the hard decisions need to be made.
    It will be interesting to see how many lollies with be thrown around before the election next year as the retirement sector is growing by the day and the present government cannot expect to get the same amount of support as it did in the last election.

    Reply
    1. Alec Waugh Post author

      Hi Mark. Good to see you picking up fact most seniors working do so by economic necessity and not by choice. The research says only the educated with money have any choice here, which cuts out most people . Both Labour and National are pushing the propaganda line, that seniors wish to work and the opportunity to do so is there. Both assertions are not correct!

      Reply
      1. Paul

        Mark, personally I’d work if I could. But my health doesn’t really allow that. So I am scraping by… just. And that’s with my wife working and she’s only 57. Winter Energy Payment has been handy. But for those struggling they should have prioritised spending on heating… and yes, I know that not all people can do that, but a bit of creative thinking often comes up with some solutions. I recall back in the 70’s many people complaining, especially retirees, about the cold when we had rolling power cuts across the country due to lack of water storage in the Hydro lakes. And as I remember my mum commenting, why don’t they stay in bed on the cold days with their blankets and wooly garments to stay warm. Imagine how much tougher things today would have been for retirees if National was still in power. I shudder to think about that scenario.

    2. Paul

      I found it interesting to see how many people lived in areas where there were minimal to no businesses that provided discounts for Super Gold card holders.

      Paraparaumu is woefully bereft of businesses that have climbed aboard the gravy train of spending Superannuitants so to speak.

      Reply
  2. Mark Huston

    There was an recent article recently by a contributor (I thought It was Stuff) entitled Comparison of international pension systems. I cannot locate the contributor as I only down loaded the chart.
    The ranking chart showed the Overall Score and the Netherlands was 1st (80.3%), Australia was 4th (72.6%) and we, NZ, came in 9th at (68.5%). The lowest rating was the USA who came in at 19th (58.8%).
    There is a lot of difference between the Netherlands and ourselves (11.8%) over seven places but not a lot of difference between us and the USA, 9.7 % over 10 places.

    Reply
    1. Alec Waugh Post author

      The comparison of international pension systems often does not take into account the fact NZ Superannuation is taxed. I am not certain to the reference article you mention, but if its the one I think it is, it makes the ranking scale useless

      Reply
      1. Paul

        The reality is that the “tax” on NZ Super is a total sham. It is simply an electronic/paper exercise. No “real” money changes hands. Its only purpose is to aggregate with any other income a superannuitant might have, e.g. employment, investment earnings etc.

    2. Paul

      As Alex says, ours is taxed at source and other countries are not. I recall seeing somewhere (probably on Stuff) whereby if you take the tax that needs to be paid by retirees in other countries on their pension systems then compare the nett results then NZ comes out pretty much on top.

      Take the States for example they have to pay tax on their pensions (called Social Security), and, backward country that it is, they pay it at the end of the financial year. And if they have private pensions too they have to somehow factor that into how much they need to pay on their Social Security pension. And as my niece and her husband in Texas say, its about as black and white as a gay penguin. Gotta love their sarcastic humour.

      Reply
  3. 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
  4. 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
    1. Paul

      “…every kiwi living in this country has paid taxes for forty plus years and therefore should qualify for NZ Superannuation.”

      Technically incorrect, there are some people who have never paid income tax for various reasons, quite legitimately btw. Disabled people who physically, or mentally, cannot work. Beneficiaries, while “technically” paying taxes don’t, it is just a government spin doctor’s con job to make them look like contributors. And no, I’m not bitter at beneficiaries having been one 3 times in my working lifetime, and now a bone fide NZ Superannuitant.

      The Australian model is a logistical nightmare. Change your job and you get whatever superannuation scheme the employer uses. Some create their own then steal the money and total the business in one fell swoop. At least Cullen hand the nous to keep Kiwisaver out of the hands of employer created super schemes. I know of one woman who reached retirement to find her entire supercontributions and all growth in the funds had vanished, along with the employer and the business that was to be the keeper of the keys so to speak. This woman, now in her 70’s is dependant on the Australian Government Super Scheme for low wage earners etc. But you know what? That’s life in the Lucky Country.

      Reply
      1. Mark

        Talking about those people who have been on a benefit and transferring to superannuation is a low percentage of our population, otherwise the superannuation scheme would not be sustainable. It is those that are in employment who finance NZ Superannuation.

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