ROTARY CLUB OF COURTENAY PLACE

WELLINGTON

President Bob Reid and your fellow Courtenay Place Rotarians, ladies and gentlemen.

The discussion document on retirement savings released on Monday was the first step in a process designed to have the people of New Zealand consider a solution to the problem of providing security of income in retirement to an ageing population.

The development of a White Paper to put to the people by way of referendum was a specific decision taken during the process of forging this Coalition Government.

The challenge is obvious.

Over the past 22 years, since the then Labour Government introduced a compulsory super scheme in 1975 until today, superannuation has been in a state of constant change.

All recent changes have been made on the basis of cost.

In 1977 the scheme introduced by Prime Minister Muldoon paid 80 per cent of the gross average wage to everyone at age 60 years.

Today that is being reduced to 65 per cent of the net average wage at age 65 years.

In the 20 years since the Muldoon scheme was introduced the number of people over age 65 years has increased from 290,930 to 422,667 - which required a significant reduction in the design of the scheme to make it affordable.

What happened in the past regarding the ageing of the population is modest to what will happen in the future.

In 50 years time around one in four New Zealanders will be 65 or over, compared to just one in eight today.

Given current policies, age related expenses are set to rise very significantly early next century.

The cost of the present pay-as-you-go New Zealand Superannuation is projected to grow from five per cent to nearly 12 per cent of GDP by the middle of next century.

There will be a similar doubling, or more, of health care costs for the elderly.

For example, the cost of health care for the over 70s will increase from 29 per cent of total health expenditure today to around 57 per cent of health expenditure by 2050.

The sharp growth in the over 65 year olds starts around 2010 - only 13 years away.

The White Paper "You and Your Retirement Savings" outlines a Retirement Savings Scheme which offers a solution to the pressures created by an ageing population by moving from the present pay-as-you-go approach to a funded approach.

Its design aims to offer a secure retirement income to all while significantly reducing the costs to future taxpayers of providing retirement income assistance.

The RSS is based on the straight forward premiss that if you are able to save for your retirement you will be required to do so.

If you are unable to save, because of low incomes or family responsibilities, then the Government will top-up your savings to enable you to buy a lifetime annuity at age 65 years broadly similar to today's superannuation which is 66 per cent of the average wage for a married couple and 33 per cent plus additional payments for a single person.

Because women live longer than men all women will receive a top-up from the Government to enable them to purchase an annuity equal to that of men.

So the RSS treats men and women fairly irrespective of their lifetime employment earnings or their expected longevity.

The RSS will be gradually introduced over 40 years and, while it will cost a little more in its early years to make the top-ups required, it is very affordable over the longer term.

Unlike the present scheme where the cost of super more than doubles in the future, under the proposed RSS the costs halve.

This is very important because it will enable the much higher health costs in the future to be paid for from a proportionally much smaller workforce.

We all look forward to enjoying a long and healthy retirement, but none of us know just how long it will last.

The need to provide the highest level of certainty possible to people when they reach age 65 years has been a key objective in designing the scheme.

The Retirement Savings Scheme shares that responsibility between the individual and the Government.

Ensuring an adequate and secure level of income for New Zealanders during retirement becomes a critical factor in judging the durability of any solution.

Mr Jeff Todd will report on an update on the present taxpayer funded scheme at the end of the month.

What we all know is that with the rapid ageing of the population the present scheme will require further change in the future to meet the inevitable doubling of the costs in real terms as the number of retirees more than doubles.

The number goes from 423,000 to over one million retirees.

For tomorrow's workers the news is much worse.

Today there are about five workers for every one in retirement, but with a further dramatic ageing of the population that will change to a little over two workers to every person over 65 years in 2050.

To meet the income and health needs of the retired generation in the future is going to be very demanding.

The rapid increase in costs starts soon which is why we are asking New Zealanders directly what they believe best suits the nation's needs.

We now have just over two months to consider the Retirement Savings Scheme proposal.

Each one of us now has an opportunity to study the issue, focus on the problem and vote on what is proposed as one solution.

To help inform the public an independent referendum panel chaired by Sir John Robertson has been set up to run an education and information campaign - a campaign which will assist New Zealanders to become fully informed and so to exercise their vote responsibly in the coming referendum.

Problems with the provision of superannuation are not new.

It has been a matter of contention since I was elected to Parliament and one trend has been consistent over those years.

Year on year taxpayer-funded super has had to be changed to make the scheme affordable.

Without a radical rethink the trend of the last 20 years is set to continue.

At the end of 1992 the Todd Task Force Report on Superannuation told us the present super scheme was sustainable on an income tested basis.

Broadly the proposal was to tighten the rules on the surtax to prevent avoidance and to encourage voluntary savings.

The rules pertaining to the surtax were not tightened because Parliament wasn't prepared to face the inevitable criticism.

Now it is proposed that we go the other way and dump the surtax which will increase the cost of the present scheme still further.

The last 20 years should tell us something.

For 20 years New Zealanders have grappled with superannuation - state-funded, taxpayer-funded superannuation - and have had to change it every few years to make it affordable.

It is a nonsense to pretend that we can double the number of people retiring without implications for the sustainability of the process.

There are clear implications. We should address them. We should be honest.

What we set out to do when we formed the Coalition was to design a scheme that was worthy of putting to New Zealanders.

We've done that.

I think New Zealanders now should take a deep breath, calmly listen to the arguments and assess the position themselves.

Put some of the extravagant political rhetoric to one side.

My ambition is that New Zealanders intelligently debate retirement income, and when they make their decision in September they make it on the basis of real knowledge, so there will be nobody having regrets afterwards.

The left will promise the world by the sound of their initial response.

The left failed to deliver the world when they were in Government before.

It was they who introduced the surtax to reduce costs.

In the early seventies the Labour Party introduced a compulsory scheme so there's no honest philosophical debate there either.

Mr Anderton was part of the Labour Party when the compulsory scheme was introduced, as was Helen Clark and Dr Cullen.

Dr Cullen as recently as 1989 when he was Minister of Social Welfare spoke of the merits of a compulsory saving scheme.

So let's take away some of the irrelevant political grandstanding that the political left are engaged in and address the issue honestly.

And that's all I ask people to do.

People will come to different conclusions with an honest assessment, because you can do that.

I don't mind people doing that, but I think we should try and diminish the grandstanding that has no basis other than political point scoring.

Ultimately the choice is between the two alternatives.

Continue with the present pay-as-you-go taxpayer funded scheme, but run it on a tighter income tested basis as recommended by the Todd Task Force on retirement income so that it is affordable by not paying full superannuation to those with adequate other income - or - introduce the proposed Retirement Savings Scheme which requires people who can to save during their working lives, and if they cannot save sufficient then the Government will top up their saving so they can purchase a whole of life annuity at age 65 years.

In my view there is another important distinction.

If the public vote "no" and so we continue with the present scheme on some form of income tested basis, then this could affect present retirees as well as future retirees.

The RSS is put forward on the basis that it's affordable to individuals because we will make tax cuts that are broadly equivalent to the savings required.

Further, that future retirees will have greater security in having both their own savings and any Government top-up in a savings account in their own name.

It is in effect their personal account, so free from interference by any future Government.

People aged over 60 years today will not be affected by the new proposal as they will not be required to join the RSS and will continue to receive superannuation as at present.

The proposed scheme has been developed carefully with input from senior parliamentarians and senior officials, consulting with the private sector.

In supporting it I also draw on my experience as a parliamentarian that one of the key concerns of New Zealanders has been the constant change in their retirement expectations.

And the parliamentarians of the last 20 years didn't amend and amend superannuation because they enjoyed it.

The Labour Party didn't bring in the surtax because they enjoyed upsetting the elderly.

The National Party didn't continue the surtax because it enjoyed upsetting the elderly.

We didn't increase the age of eligibility from age 60 to 65 years to be difficult, but to make the present scheme more affordable.

Both Governments made various changes because they found it was essential to do that to make the scheme affordable.

These are realities we should understand before we vote.

By going to a funded scheme you have a much higher level of certainty than hoping, when you retire, that the taxpayers of the day will look after you in your retirement.

Whether you make a significant contribution through your own savings or whether you will be relying substantially on the top-up from the Government of the day, you will have the confidence of knowing that you have made your preparations for retirement during your working life.

But each generation of 65 year olds will have their retirement set firmly in place when they're aged 65.

The proposed scheme accepts that provisions for a secure and comfortable retirement is a shared responsibility between each individual and the Government.

The Coalition Government has in good faith honoured its agreement to draw on the best possible advice to bring together a very good retirement saving scheme and put it to the public by way of referendum.

Economists will argue every side of every issue and will do so on superannuation.

Others will argue we should wait a little longer, for what I wouldn't know, the facts won't change.

Others will seek to make political capital out of the superannuation debate as has happened over the past 20 years.

This time in the calmness of your own home you are going to make the decision by postal ballot.

It's now entirely over to the public.

I think the important thing here is that I can have my view, every opponent can have their view, and every supporter can advance his or her view.

But finally the public are going to determine, and they'll determine one way or another and then we should, as parliamentarians, honour that vote and go forward.

I believe this is a good scheme.

I will personally vote "yes".

Thank you.

ENDS