THE INSURANCE INSTITUTE'S NATIONAL CONFERENCETreasurer
WELLINGTON CONVENTION CENTRE
Someone once said that the only two certainties in life were death and taxes. Ironically, these two ``certainties'' are closely linked to the subject of this national conference.
We all want to live a long and healthy retirement. During retirement we are faced with the certainty of death but the uncertainty of when this will happen. Ensuring an adequate and secure level of income during what is an unknown length of retirement should be a key objective for any retirement policy.
The other certainty is taxes. The current New Zealand Superannuation scheme is compulsory. You have to pay taxes to maintain it.
Projections of an ageing population combined with current expenditure settings, including those on New Zealand Superannuation, imply a substantial increase in future taxes if we are to maintain a balanced budget.
Is the current scheme sustainable into the future? That is the critical question facing voters in the September referendum.
For there is widespread agreement that the scheme, as we now know it, will not be able to withstand the pressures of a significant increase in our aged population early next century.
Don't take my word for it. Michael Cullen in 1989 said: `` . . . most of us are coming to terms with the fact that there is a severe problem on the horizon which we have to tackle soon.''
Simon Upton six weeks ago: ``. . . we can't have it all ways. Lower taxes, more generous tax-payer funded super and an ageing population don't add up.''
And Jenny Shipley at the weekend said: ``In truth we can afford the current New Zealand Superannuation . . . if we are prepared to consider such options as raising the age of entitlement to 67 . . . and slowly reducing the amount of universal superannuation to everyone . . .''
So, dealing with the first assertion in this debate; ``New Zealand Superannuation is affordable for current retirees.''
Even the harshest critics of a retirement savings scheme admit that the current scheme is not sustainable without clawbacks, either through raising the age of qualification still further or substantially reducing what you get in your hand every fortnight. Alternatively, if there are to be no clawbacks, taxes need to be increased.
So if the current scheme is unsustainable, what are we going to do about it?
Are we going to continue with the soft option . . . allowing politicians to tinker away and hope for the best . . . or take decisive action now and put our future in our own hands?
The September referendum gives us a window of opportunity to put in place a retirement savings scheme that deals with the problem in a sustainable, fair and affordable way.
It's a decision that will be in the hands of New Zealanders. Politicians may have the loudest voices, but at the end of the day the people have the vote.
Between September 5 and September 26 the voting public will have their say. A ``yes'' vote will give Parliament a clear policy directive on superannuation . . . one that it cannot ignore. A ``no'' vote will mean we are still stuck with the fundamental problems of sustainability and political interference.
This referendum will give New Zealanders something they have never had before on this issue . . . a chance to make a direct decision. If they don't take that chance, politicians will decide for them.
And voters must be trusted to make the right decision. It is our responsibility to put in front of voters the best possible Retirement Savings Scheme and then provide all the information they need to make that decision.
Last weekend the Minister of State Services started to do that. Some of her criticisms were:
To save for an adequate retirement income, women need to save between 11 and 14 per cent of their current income.
Not so. In reality people will be expected to save 8 per cent of their total income. The Government will guarantee a top up to enable people to buy an annuity equal to the superannuation payout.
Contributions to the retirement Savings Scheme will be offset by tax cuts to the same amount.
It is therefore incorrect to claim that individuals need to save more than 8 per cent. If they wish to do so of course, that is their business.
Only 10 per cent of women and 50 per cent of men will save $160,000 by age 65.
True. But that is why the Government will provide a guaranteed top up to allow all New Zealanders who reach 65 to buy an annuity equal to the superannuation payout.
Just doing nothing means the poor will get a paltry state super payout.
The Retirement Savings Scheme will leave women exposed to the whims of future governments.
Not so. That's the record of the present scheme. In contrast, the Retirement Savings Scheme will help ensure superannuation is no longer subject to the whims of government intervention. Raising the age of entitlement and reducing levels of payment is the political record since 1977.
Tax cuts to fund the Retirement Savings Scheme will squeeze out new spending initiatives in education, health and welfare.
But last year it was agreed that 3% tax cuts would happen anyway. The design of the Retirement Savings Scheme is yet to be finalised, but contributions to the scheme will depend on whether the government can afford further tax cuts. Under the status quo, taxes will have to increase as the country struggles to cope with more retirees next century, not just for superannuation, but for greater health costs for the aged.
Spending the surplus, cutting social spending or increasing taxes will have a negative impact on issues that most concern women.
No. Staying with the current scheme will mean that more and more benefits are likely to be income and asset tested as governments try to cope with the social costs of larger numbers of superannuitants coming through the system.
In short doing nothing means that people worried about social welfare should indeed be worried.
A $160,000 lump sum will buy a lower level of income for women than men.
Knowing that the market may discriminate against women because they live longer than men the Government will be looking very closely at providing women with a top up to a higher level to ensure they get an annuity equal to the current level of New Zealand Superannuation.
The Retirement Savings Scheme could interfere with marital and inheritance issues.
Not so. The Retirement Savings Scheme will not interfere with a person's estate.
Under the current system, if your spouse dies all of their taxes are lost. Under the proposed Retirement Savings Scheme, if a partner dies before retirement, all of the partner's contributions go to the estate. If the partner dies within 10 years of retirement, the remainder goes to the estate.
To say that this is bad for women is simply not true. It is the current scheme that is bad for women. They don't get a thing if their partner dies. When you come to think about it, nor do men.
The Retirement Savings Scheme will be hard on part-time workers and people who have a broken employment history.
Wrong. There will be an exemption threshold under which people will not have to make contributions. All we are asking is for people to contribute 8 per cent of their total income; for those on low incomes, say of $10,000 a year, this would amount to only 4 per cent with a $5000 per annum exemption.
The Retirement Savings Scheme will hurt the quality and values of New Zealand family life e.g. home ownership.
Not so. The Retirement Savings Scheme and ensuing tax cuts will lead to more savings and home ownership. They have abroad - Why not here in New Zealand?
The Retirement Savings Scheme will force people to pay up to 5 per cent of the value of their investment to independent savings advisers.
Compliance costs can be kept to a minimum. In terms of costs to investors, we should bear in mind Singapore has been able to achieve a flat fee of around $30 per contributor.
No one will be forced to use an expensive savings adviser. Comparative commissions and fees will be known to savers.
The Retirement Savings Scheme will be more administratively costly than current New Zealand Superannuation.
Where is the evidence? We are looking at a design which provides the most efficient and cheapest structure, such as the collection of contributions through Inland Revenue.
The Retirement Savings Scheme is unfair in tax terms.
Far from trying to trick people into paying more tax, the Government is currently working on making the tax treatment of super funds and other investment products more consistent and fair.
Flexibility will be a key design feature of the Retirement Savings Scheme.
The Retirement Savings Scheme will have a major impact on the economy.
Yes it will have an impact . . . a positive one. Just look at the boom economies of South East Asia. We risk being left behind economically unless we move to a savings-based scheme.
New Zealand is the only country in the OECD without a savings based scheme.
The economic impact of the Retirement Savings Scheme may be more significant than has been predicted at a time when the economy is only experiencing modest growth.
On the issue of economic impact, there is no argument: New Zealand's population will age dramatically over the coming decades and if we keep the existing pay-as-you-go scheme, either entitlements will be cut, or taxes raised, or both.
The 1991 decision to lower payments and lift the age of entitlement had a positive impact on the cost of the current scheme.
It may have had a positive impact on government coffers, but it hurt many New Zealanders and sent all the wrong signals to our young, ie, that saving is bad . Those decisions highlight the dangers of future political interference in the current scheme when a government faces budgetary constraints.
New Zealand Superannuation is affordable for this generation of retirees.
New Zealand Superannuation has to be affordable, not just now, but in the future. The truth is that the current scheme is not affordable for the next generation of retirees and subsequent generations. That is what the Retirement Savings Scheme is being designed to address.
Commentators are right to say that it is a myth that New Zealand has historically been able to afford a universal, state-funded retirement scheme and that it can afford it into the future.
Those who argue for the retention of the current scheme, help perpetuate that myth.
One thing is clear, future politicians are going to be more reluctant to fiddle with private savings than with a tax-payer funded scheme. If anyone doubts that, they need just look at the constant changes made to government-run schemes, here and abroad.
In 1978 National Superannuation was worth 80 per cent of the gross average wage . . . now it's worth 68.2 per cent of the net average wage and under the Accord it can fall to 65%. Current retirees won't be exempt from future clawbacks and will see the value of their state-provided retirement income falling.
Under the Retirement Savings Scheme, current superannuitants will not only be protected, but their current level of superannuation guaranteed.
When the current scheme was introduced in 1977, the age of entitlement was 60; now it is 63. By 2001 it will be 65. How much higher will it go after 2010 when the ``Baby boom'' generation starts to reach retirement age.
The Retirement Savings Scheme offers the chance . . . and perhaps the only chance . . . to simultaneously:
reduce the risks to government finances caused by an ageing population;
reduce the risks to the adequacy and security of retirement income; and
reduce the risk of future tax increases.
Voters in September should engage in a bit of time travel. Those among us who are thinking of voting ``no,'' and have young children, should start preparing answers for the inevitable question: Why did you do nothing when you had the opportunity?
Or you could put yourself in the position of a future retiree - Why didn't we take the opportunity to take our future into our own hands rather than leave it to the whims of politicians?