NATIONAL COUNCIL OF WOMEN SEMINAR ON SUPERANNUATION

Introductions

You have asked me today to speak on the proposed Retirement Savings Scheme - compulsory superannuation - and the Accord.

My view on super is well known. I personally do not support the compulsory proposal. I support the voluntary savings option recommended by the Todd Taskforce.

I support the Accord approach. Some people say that it is a pipedream -Maybe so. But a sensible retirement income policy must survive a working person's lifetime, and possible - some would say definite - changes of Government. The Accord approach says emphatically that superannuation is too important a policy area to change as the political makeup of the government changes. That frustrates everyone. It hurts rather than helps superannuation policy. Since I 'came out' - if I can safely use that phrase these days! - against the idea of compulsory superannuation and in favour of an Accord process, my office has received a lot of letters of support. We have had numerous interesting letters.

They too have been against a compulsory scheme, and have contained a number of compelling reasons why. One of the more entertaining took an historical view. It was headed "the Ghost of Harry Atkinson", and reminded me that the first hint of compulsory super in New Zealand was in 1882 when Harry Atkinson was colonial treasurer.

He advanced a scheme of compulsory levies, collected from workers by employers and paid into a national insurance fund. It was to cover a pension of ten shillings a week and a 'sickness benefit' of around one pound two and six a week. (More worthy to be sick than old, it seems.) The scheme received a chilly reception from the country, and in Parliament his speech was met with "scant attention and ribald laughter". Sounds like MMP these days!

In 1898 'King Dick' Richard Seddon introduced the Old Age Pension Act, based on a system of financing pensions out of general taxation. That is the basic approach that has more or less lasted till now. Seddon also put his energies into promoting "An Act to Encourage the Making of Provision for Old Age" - a voluntary system that sounds remarkably similar to the Retirement Commissioner's brief today.

Compulsory Super was next raised seriously in 1935 by J.G. Coates, and again in the early Seventies by the Labour Government.

From then on the question of retirement income has been kicked around, jumped on, and thrown high and wide by various political parties. It was to stop it being such a political football that we set up the multi-party Accord process in 1993.

You have asked me to explain the Superannuation Accord and what has since happened to it.

It started with the Todd Taskforce on Retirement income in 1992. The Todd Taskforce has to be one of our most successful public policy-forming exercises. It carefully examined in great detail the three basic options for retirement income - an improved version of the voluntary savings/public provision system, a compulsory saving regime, and the use of tax incentives to encourage savings.

After a full and prudently worked consideration - the most detailed technical work and economic analysis backed this expert committee's efforts - the Taskforce came to the conclusion that the arrangement that would best serve New Zealand needs overall for the future was an improved version of the voluntary savings/public provision system.

The Todd Taskforce acknowledged what is actually the bleeding obvious - that the policy settings must change over time to match the change in our circumstances as a nation. We cannot now know circumstances that far into the future. So rather than pretend we do, the Taskforce recommended regular technical reviews by an expert committee that would recommend the necessary changes to respond to changing economic and social realities as they became relevant. The scheme would be adjusted little by little as needed - but the first 'tweakings' would not be necessary until about 2015.

The first such technical expert report under the Accord was released the day before yesterday. As I expect you know, it confirmed that the present scheme is sustainable on reasonably conservative forecasts until 2015.

The expert group reports that NZ Super currently costs about 4% of GDP, and if it continues as now, without surcharge, it will reach about 9% of GDP in 2050. However, they say they don't believe even that would create an economic crisis. They also reiterate that a mixture of gradual adjustments will lower that figure and strengthen the sustainability of NZ Super well into the future.

The original Todd Taskforce recommended that political parties get together and agree on the basic understandings about retirement income policy - to develop a political consensus. This we did; after I may say long and often tiring discussions - (diplomatic speak) - we agreed to an Accord. In signing the Accord, political parties acknowledged the history of mistakes and unfulfilled promises in New Zealand's recent experience with superannuation, and fundamentally agreed that superannuation was too important a policy area to continue to be played about with; to continue to be a political football.

The history of the Accord since then is not all favourable. There have been efforts to re-politicise the subject, but the whole concept of a multi-party agreement was a positive step forward in this fraught public policy area. I strongly supported the concept then, and, in spite of being called a dreamer for doing so by some, I still do. But if public pressure gets behind the idea, it will be much harder for any political group to resist.

In our negotiations we took our lead from the Todd work by acknowledging that our country has an ageing population, but that the problems for retirement income policy that an aging population leads to could be solved with the combination of measures recommended by Todd. Those measures included encouraging private savings for retirement; a regulatory environment more supportive of individual savers; the need for a basic public provision system that incorporated targeting to those most in need; and raising the age of eligibility where necessary.

As to what has happened to the Accord - effectively it is in limbo until the referendum in September. By speaking out I am endeavouring to keep the merit of a multi-party approach alive in this debate. And while to many, given the political track record in this area, arguing for the Accord now is seen as pie in the sky, after the referendum, that could easily change.

Whatever result of the referendum, if we are to ensure that our retirement income system is not subjected to the confidence-sapping effects of continued, politically-driven changes, we will need some form of agreement between all political parties. Thursday's report from the Todd group also made that point again. Once the public has voted, pressure will come on to make the decision work. All politicians should put their personal point of view aside and work together on the public's choice for a long-lasting system that will ensure - there are no real guarantees in this world - ensure all New Zealanders an affordable and adequate retirement income system.

As I have said, I do not accept that compulsory superannuation is the best way for New Zealand to go - for a number of reasons.

For a start, I do not believe we can sit here in 1997 and design a public policy that will work well 50 years out. The world of the future will be nothing like it is now. Take Budgets these days. They are planned in 3-year cycles - and even in that short a time what is predicted for the 'out years' needs to be changed to fit what actually happens economically over that short a period. With 50-odd years for forecasters to play with, any figures floated now could be out by miles.

Just look how much life has changed over the last fifty years. Then, more people went to Britain by ship than by plane. Now there are no regular passenger ships. I think back to changes since I was at school in the early sixties. In those days you had to have a doctor's prescription to buy margerine. Shops were never open at the weekends - if you forgot your Mum's birthday till too late you were in real trouble, unless she wanted a gallon of motor oil. Milk came in glass and only one type. Home appliances and cars were infinitely simpler. Computers were the size of rooms - no chance of one on your desk. Even teachers rode bikes to school - pushbikes, not motor.

In those Bob Dylan wrote radical protest songs, the Beatles were long- haired ragamuffins, the Rolling Stones dangerous and wild. I remember being told firmly by our music teacher this uncivilised noise was not music. Recently I visited a school and had the pupils sing for me in a mini concert: first, "Here comes the sun" - a Beatles number; then "Blowin' in the wind" - a Bob Dylan anthem, and "Ruby Tuesday" - a now standard from none other than those wild radicals, The Rolling Stones. How the world has changed.

It's not going to stop. The Dominion recently published a chart of what we might expect over the next 50 years.

By 2001 we'll have a 'virtual' company without physical headquarters, whose workers telecommute, on the Fortune 500 list. In 2002, we will be able to control our shapes with a 'fat destroying' pill - something that will be hugely acclaimed if my staff's occasional morning tea conversations are any guide! By 2004, we will have an international space station, and a year later animals specifically bred for organ transplants. Jump forward to 2015 for us to have pills that provide a person's total nutritional needs. They may fail though, because - according to the Dominion - people enjoy cooking and eating too much. Further on, humans on Mars, and later, microscopic machines that will travel round inside the body to repair cells and tackle disease. And by 2055 we will have "dial a mood" machines - machines that can trigger whatever emotion you want by stimulating the brain's mood centres.

But even those scientific forecasters aren't predicting the world economies of the future.

The super debate is not really a case of whose figures are right - or even a case of savings versus taxes. The guts of this issue is economic. It is our economy that pays for everything - health, education, welfare or superannuation. It makes no difference - we can only distribute the wealth we create. We should be addressing the wider question of what is sustainable for the economy as a whole. To some extent, we in New Zealand have become preoccupied with retirement income issues over the past generation. They have been at the centre of so much of the controversial end of the political divide. We must never forget that there are other issues - education and health for example - that it is equally important we prepare ourselves for, for the 21st Century.

And the best inheritance we can leave to future generations of New Zealanders is a strong economy. That is why I support sound economic management by the Government as a key driver of national savings. In particular, continuing fiscal surpluses, debt reduction and low inflation.

At any time, only a certain portion of the economy can be devoted to any one public policy area. We have to balance all the funding demands. If we take too much for social areas, we deprive the productive sector of the capital it needs to keep the productive effort strong - and finally it is the productive sector that creates the wealth. If we do not put enough into social areas like education we will not have the trained people we need to enable the productive sector to keep its productive effort up.

What we can afford in 40 years time for retirement income will depend on the state of the economy in 40 years time. The best way to ensure the welfare of future generations as well as our own is to run our economy well. We certainly can't plan the detail of their lives for future generations.

It is notable that in this week more economists and other experts have come out publicly declaring their concerns with this proposal. In addition to the Todd Review Committee, Banker's Trust, Spicer's Financial Services, Consumers Institute and others have made their views known.

Much has been made of the tax reduction argument. The Government's position is clear. Tax reductions now or in the future depend on the ability of the economy to afford them; they will happen if social and economic conditions allow. That is the sensible approach. No one in this debate can promise tax reductions to win voters to either side.

The argument that compulsory super will relieve the pressure of national superannuation on the Government's finances appears to forget that the proposed scheme promises a tax break to fully fund the contributions. There would also be the additional pressure caused by the amount of top-up needed for those who fail to save $120,000. And taxpayers 10 to 15 years hence would in effect be funding double the payments - both the existing super scheme for those retired now and their own contributions for the future.

Some say that the proposed compulsory superannuation will discriminate against women. The arguments around that have been well-canvassed. Being here I will probably get a bit of flak for saying so, but with the top-up approach proposed, I am not entirely convinced of that view. I think it equally disadvantages all of us as a nation, regardless of our gender.

One of its big disadvantages is the effect it will have on rural districts like my electorate. Under compulsory super the decisions on the investment of the huge sums of money collected will be in the hands of large insurance companies and fund managers. Remember, up to 8 percent of all capital income will be collected - that's a large part of the investment in smaller businesses that provide much of the employment in New Zealand.

The people managing these superannuation funds prefer larger, one-off type of investments. I can't see them being interested in putting money into such things as a homestay in the Wairarapa, a West Coast rural enterprise making exportable food products from local produce, an antique businesses in Otago - or even a vineyard in Martinborough! Fund managers prefer equities in big companies, bond and finance market investments and big property investments in the main. Capital will go into larger industries at the expense of small businesses.

It's unfair in other ways too. Several people have already pointed out that the scheme favours high-income earners at the expense of low. Those on a high income will quickly reach their $120,000 target. They then keep their 8% tax cut to spend as they wish. Low-income earners will probably have to keep juggling day-to-day priorities to pay 8% till the end of their working life - to be able to live on the fabulous sum of $8,352 a year.

Many parents feel that feeding, clothing and educating their children; paying the rent or mortgage, power bills, repairs and so on is more of a priority than retirement saving, at least in the early part of their life. Compulsion takes away that choice.

Then there's the argument that a savings-based regime is invulnerable to political change in future. No Government would dare interfere, the argument goes, with these private nest eggs. I simply do not believe that - our history shows otherwise. Back in 1975, the then National Government overturned the 1973 compulsory scheme. The accumulated savings were simply paid back and a more generous pay-as-you-go scheme was put in its place. And we all know how many times the 1975 National Superannuation Scheme has been changed, despite the 1975 promise that it would stay forever.

The proposed compulsory scheme is just as susceptible to political tampering as any other statutory-based scheme. It has its own form of targeting too - given the outcry over the surcharge it's surprising hordes haven't objected to the fact that the more you save the less you're entitled to via taxpayer funding.

My view has always been that it was not so much the concept of targeting publicly-funded retirement income that people objected to, but the failure to deliver on commitments solemnly made. If there is a lesson for society generally and politicians in particular in that experience, it is that it is a mistake to rely on, or make commitments, without really knowing the situation being faced. Better to promise to run the country properly than to make a specific commitment that turns out to be unaffordable.

But clearly I acknowledge that as the proportion of those retired to those in the workforce increases dramatically next century, non-targeted retirement income will become increasingly unaffordable. When that time comes adjustments will need to be made.

To me, the logical approach is to introduce a degree of universal super so all who pay taxes get a return when their time comes to retire. And for those without enough, a means-tested age benefit would cover the gap.

At the end of the day that arrangement, as part of a multi-party accord approach, is better than any other for a sustainable and fair retirement income policy that will survive a working person's lifetime and possible changes of Government.

Both sides of the debate claim that the other's preference limits choice. In one way we're both right. A compulsory, savings-based scheme means you have no choice but to contribute - if you don't the IRD will get you. And the current scheme is funded by taxes - if you don't pay your taxes the IRD will get you!

I have talked to you about this today because I believe opponents of the compulsory super scheme have to speak up now and speak loudly. A $5 million dollar publicity campaign to sell the scheme has just started. It is to be neutral; to simply lay out the facts of how the scheme would work. But its brief is to present only one side of the story. People with contrary points of view have to make sure they're heard as well.

I hope that a positive outcome will come from this debate. We need public and political consensus. The issues of superannuation have been around for a long time. Even our attempt at an Accord in 1993 did not include every party. Until it does the problem will go on. With this referendum, the public can finally decide what superannuation system we want for a country of only 3.6 million people.

I'll leave you with something another famous Winston - Churchill - is reputed to have said on the subject: "Saving is a very fine thing. Especially when your parents have done it for you!"

Thank you for the opportunity to speak to you. I wish you the best for the remainder of this seminar and will be interested in your conclusions.