Superannuation speech to Levin Branch of the New Zealand Labour Party

Good evening everyone and thank you for the invitation to speak tonight. I would like to also acknowledge the MP for Otaki, Judy Keall, who is attending an exhibition opening with the Prime Minister, Helen Clark.

Prior to the election, I was the Party's spokesperson on Youth Affairs. People did think that it was ironic that the Youth spokesperson became the Senior Citizens Minister.

However, in my experience I have found the issues are not entirely different. I have visited numerous Grey Power and Age Concern meetings all over the country in the eight months or so we have been in Government, and have told them all the same things: when young people do not have a sense of belonging and participation, they can become alienated and troubled. Older people can become isolated and afraid.

So, building or maintaining the ability to participate, and nurturing that sense of belonging, are vital at either end of life's spectrum, which is why I am a strong supporter of the positive aging approach in my role as Minister for Senior Citizens.

Another point I often make is that while I am the Minister of Immigration, I am the Minister for Senior Citizens. This means I advocate on behalf of senior citizens. It is my role not to advance legislation, but rather promote issues to the portfolio Ministers with responsibility in the particular area.

A recent example was having older people included in the review of the drivers' licensing regime announced recently by the Minister of Transport, Mark Gosche.

So, I consider myself their your voice at the Cabinet Table. Fortunately, this is not a difficult task.

This coalition Government values the contribution older New Zealanders have made, and continue to make, to this country.

That is why we made the promise before the election to restore the superannuation floor. It was one of the seven commitments Helen Clark made to the electorate, and we have delivered. And what is more, we delivered, not merely on the actual promise, but also on the spirit of the promise.

When we took office the method for calculating the average wage had been adjusted by Statistics NZ. A strict application of our commitment would have seen a modest increase in superannuation but we decided to use the old calculation, which meant superannuitants received the increase they were expecting to receive.

And the feedback has been positive. I've received letters and phone calls, as have all my colleagues, thanking us for delivering what we promised.

But why should we be congratulated for keeping our promises? It should be expected that we do. In my experience it has been older New Zealanders who have been the most bewildered by the change to MMP, the Party-hopping and the failure to keep promises ¾ what was essentially a breach of faith between the political parties who made up the last Government and the people who elected them there.

And in that regard, I see it as an important function of this Coalition Government to restore faith in the parliamentary process. That's why I am such a strong advocate for the anti-defection Bill that is currently before the House. That Bill basically says - if you leave the Party that got you elected to Parliament then you have to leave Parliament as well.

I am amazed at those who oppose the Bill - if you want to be an independent MP then stand as one. If you want to join another Party, then stand for it. If you want to form your own Party, then stand under its banner. To allow this situation to continue is, in my view, dishonest, unethical, and it lacks the political mandate required of a House of Representatives.

POSITIVE AGEING STRATEGY

I have brought a new focus to the role of Minister for Senior Citizens. In my view the previous administration placed too much emphasis on ill health and disability. My role is to develop a Positive Aging Strategy for New Zealanders, focussing on well being and participation.

Society needs to realise that just because people have retired from work, that it does not mean they have retired from life. Society needs to recognise the value of older New Zealanders, and older New Zealanders need to value their own capacity to contribute to the next generation. After all, it is that ability to participate in our communities, that sense of belonging, that makes us part of our communities.

It will not be my role to deliver on the strategy, per se, but rather to promote an inter-sectoral approach to the range of issues that affect older New Zealander's ability to participate.

That range of issues stretches from Superannuation, through Housing, Health, Disability Support, Adult Education, Transport, Community Involvement, Security, Residential Care, Carer Support, Home Help … the list goes on. It is a different approach that places the older person at the centre of the picture, and ensures that the range of services and the support mechanisms are appropriate to encourage continued participation in the community and independence.

The Ministry is working on draft objectives for the Positive Ageing Strategy, and I expect the first reports to go to Cabinet in about September. The development of the work plan will be the next step, which will align all Government departments with positive ageing objectives, and act as a framework by which the strategy can be implemented.

SUPERANNUATION

Which brings me to the topic of tonight. You asked me to speak about superannuation.

This Government believes that it is a fundamental duty to guarantee its citizens an adequate income in retirement.

But unless new initiatives are taken soon there can be no guarantee that access to a universal, government-funded basic retirement income is secure.

New Zealand Superannuation, payable from age 65 and based on a link to at least 65 percent of the net average wage, is easily affordable and will remain affordable for some considerable time.

The danger is that this can lull governments and the general public into a false sense of security. In 30, 40, even 50 years time, as the numbers in retirement increase relative to the rest of the population, the equation will change significantly.

Whereas now the net cost of super is around 4% of GDP, that cost will more than double to 9% of GDP by the middle of the century.

If nothing else is done, New Zealanders face three choices:

· Reduce the level of New Zealand Superannuation, particularly in relation to average incomes in the rest of the community,
· Introduce tighter eligibility criteria by, for example, raising the age of eligibility, applying harsh income and asset tests or withholding super from those who are still economically active, or
· increase average tax rates to cover the additional costs.

The Government does not believe that any of these options is desirable or politically sustainable. The only way to sustain universal superannuation is to start saving now so that there is a source of income available in the future to augment the money raised from taxes.

The problem, for the Government as for any individual saving for retirement, is that time is of the essence. Delays are costly: putting off decisions until later makes the cost of dealing with the problem much higher.

The general principle of pre-funding New Zealand Superannuation is that smoothing the annual cost across many decades spreads the burden. When government surpluses emerge, instead of dishing them out as tax cuts and living for today, the Government saves them to provide for tomorrow.

There are still discussions going on between Labour and the Alliance on how much can and should be put aside each year.

An illustration about how it could work was set out in the Budget. In that option, the Government sets a time horizon of 40 years and asks the question: what do we need to put into a fund so that super, on current rates, will be affordable without raising taxes?

Then in one years time it asks the same question. This "rolling horizon" keeps superannuation affordable over time but also makes a large number of small adjustments to take account of changes that have taken place since the last estimate. It avoids a "once and forever" guess about the future.

A number of commentators have suggested that repaying debt is a better option than establishing a separate fund.

There are three reasons that justify establishing a separate fund alongside nominal public debt at roughly existing levels.

First, government bonds are not the highest yield investment option. Assume that the Government took the advice and decided to repay its debt. In effect, that would mean the New Zealand Government would go out into the marketplace and buy back government bonds.

What would a stand-alone superannuation fund do? It would go into the marketplace and buy a mix of bonds and equities, government and corporate. So if government bonds were the best deal it would buy them. It cannot do worse than earn the same as repaying debt; it can only do better.

This is why all fund managers only keep a portion of their assets in government bonds.

Secondly, a stand-alone fund is much more secure from political raiding for short-term advantage than is a general reduction of debt. As debt reduces, the ability to borrow increases and it is much easier and more tempting to make one-off decisions to expand the debt again.

Finally, paying off all debt does not deal with the problem of meeting the costs of the emerging population structure. Even if the government had no debt the basic options still stand: build up financial assets, or increase the average tax rate dramatically in the future, or cut superannuation entitlements, or introduce a savage income and assets test.

A number of commentators have suggested that instead of pre-funding NZS, the government should cut taxes and allow people to save for themselves.

This confuses the universal, basic, government funded first tier of the retirement income package - NZS - with the "second tier" of personal provision to augment NZS.

Nobody who argues that they would rather save for themselves also volunteers to waive their rights to NZS.

The Government is going to look at the regime that covers private savings after it has secured the future of NZS, and hopes to make private savings more attractive. However, this can only be done in addition to, rather than instead of, pre-funding NZS.

Unfortunately I cannot give you a timetable for the introduction of new superannuation legislation. We are hoping to have this in the House sometime in October. Unfortunately, as we need agreement from other parties, this is taking longer than expected.

We would hope that the legislation is passed sometime in the early New Year and operational by 1 July 2001.

I would like to reiterate that the ringfencing of a superannuation fund is the best way of ensuring a sustainable superannuation fund.

Thank you for allowing me to address you this evening. I'll be happy to take questions.