KASPANZ (Kiwi Saver, Annuities, New Zealand Superannuation Protection Society) WWW.KASPANZ.com.Alec Waugh Editor alwaugh@xtra.co.nz 027 2111479

News release Topic No 2:

 

THE CONSEQUENCES OF CHANGE: NEW ZEALAND SUPERANNUATION

                    One of the most salient features of NZ culture is that there is so much bullshit. Everyone knows this, each contributes his share.

                                                Harry G Franfurt, 1988 Seminal essay : On bullshit:

New Zealand Superannuation is a big-ticket Government cost issue, the platform for all Retirement Income policy and discussions. Rated by some as the best Tier one Superannuation scheme in the world, two schools of thought always pop up.

Attacked by commentators as fiscally too expensive, no whole of policy alternative has ever emerged. The attackers usually propose lowering the cost, either by raising the age of entitlement or means testing, and sometimes suggest changing the annual link to wages by using the CPI index instead.

All changes suggested begin with fiscal savings goal, and are usually one lever only suggestions, rarely whole of policy approaches. The attackers, often economists, rarely discuss the fiscal consequences of suggested change e.g. increasing unemployment benefit, hardship grants, accommodation supplement increases, the difficulty of finding regular work,  nor the possible unintended consequences that might arise.  They never mention the “smoothing affect” of the unique NZ Super Fund, and rarely mention the cost of NZ Superannuation is offset by the fact it is taxed,  nor the billions saved by the fact seniors dominate the voluntary work sphere.  The attackers have control of the 5 second sound bite, to make their case e.g. Cut costs, has an attractive certainty.

The defenders are usually better informed and whole of policy focussed, but too wordy to challenge the  attacking clowns, relying  on the evidence of the researchers, e.g.  Hawes, Littlewood. Menzies, Hunnard, St John, Dr Claire Dale, Allison O’Connell and the New Zealand Retirement Commission, and Societies of Actuaries all of whom defend the status quo, or support minor tweaking only. “Mess with good policy at your peril”, is their mantra.

New Zealand reviews of retirement income have been piecemeal, the Todd Taskforce in 1991, and the 2000 NZ Super Task force on Superannuation, and the 2008 Preston Report, all played a role in reflective Policy, but the timing is ripe, for a full review of Retirement Income Policy.  The Retirement Commission under then CEO Jane Wrightson was onto this, and the new Commissioner David Boyle has an excellent opportunity to reinforce the need for a full review.

The 24 OECD countries have a range of pension schemes, making comparisons difficult. Our closest partner Australia has one of the cheapest Superannuation schemes, but means tested and complex, with a huge extra cost linked to their scheme, in the form of costly Govt tax credits, which usually follow compulsion savings schemes. Tax credits are a government cost. The suggestion of adopting part or all of the Australian scheme, is superficially attractive, but informed opinion advises, the Australian scheme is cumbersome, and complex, impossible to replicate in any useful form.

At 4.4% of GDP net Super  New Zealand’s scheme is one of the cheapest, efficient and effective schemes, near half the costs of other countries schemes, and arguably New Zealand Superannuation has kept New Zealand citizens from the poverty door for many years. It’s a big-ticket item, but no costed alternative that works has emerged, and Nationals current proposal for compulsory Kiwi Saver, is a pre cursor to costly tax concessions, means testing and raising the age of entitlement.

A national accord on retirement income  is the dream, and dreams are important. Sigmund Freud referred to dreams as being the royal road to the unconscious. He believed they held huge significance to our unconscious thoughts, feelings and desires.  Here in New Zealand, we have  a right-wing obsession with balanced budgets operating  like modern witchcraft—waving a broom of austerity to magically vanish public debt, while leaving the social safety net in tatters. Let’s hope our political party leaders can rise above this curse and  still dream!

 

This article was written by Alec Waugh, MPP, Research associate Auckland business School Pensions and Generational Equity Hub