Young People and Compulsory Superannuation

Wellington Bridge Club, Tinakori Road

Good afternoon, and thanks for the opportunity to speak to you today.

I've always been appreciative of the work that Rotary does since my experience as a Rotary Matched Town exchange student to Australia in 1987.

As you all know I'm the Minister of Youth Affairs. My main duty in this portfolio is to try and ensure that government policies are sensible and providing the right environment for young people.

Not only do I need to look at what we're doing for young people now, but I need to ensure that tomorrow's young people are going to inherit a healthy, safe and enterprising New Zealand.

I need to look at policies for the future. One of those is compulsory superannuation.

The Superannuation debate has started, and rightly so.

We should all listen to this debate and make an informed decision in the referendum in September this year.

The Government is working to ensure that the public is provided with the best and most accurate information about the proposed Retirement Savings Scheme.

The Design Team who are putting the scheme together are likely to report in June. We should all keep our minds open until then. Because it is such an important issue, I would hope that people will have an informed debate, not one based on political bias.

An independent panel has been appointed to provide information about the proposed retirement savings scheme. The panel will ensure that voters have sufficient, factual, balanced and impartial information about compulsory superannuation.

It is vital that people have enough information, otherwise politicians will continue to meddle in your savings.

Since being elected to Parliament I have found that politicians have it easy. They have voted themselves one of the best pension schemes in the land. They don't have to rely on national superannuation. With this being the case, how can they really understand what is happening to people who have to survive on national superannuation?

Planning for retirement is an important issue, especially for the young people that I represent. You see, compulsory superannuation is about the future, and making sure that we have an affordable and sustainable superannuation scheme.

I represent the future - young people - let's make sure that they will be able to live a prosperous retirement, not as impoverished pensioners. I intend to fight for them.

The current superannuation scheme is unsustainable.

Even opponents of the compulsory superannuation savings scheme suggest that changes need to be made to the current scheme.

In fact, just last night, the Hon Jenny Shipley confirmed that the sustainability of the current scheme, for those aged 45 and under, was an issue.

Opponents of the scheme suggest that one way of tackling the retirement dilemma is to increase the age at which you become entitled to claim superannuation.

To increase the age of entitlement is merely a band-aid approach, stopping the initial flow. We can't continue to do this. It's irresponsible.

Some have suggested that we could extend the entitlement age to 70. We could, but where do we stop? The situation will continue to be untenable.

We need to stop tinkering and produce a scheme that will last.

The age of entitlement has slowly been increased since the current scheme was introduced. Age 60 in 1979, 63 now, 65 by 2001. How much higher will it have to go to cover up politician's incompetence?

This method of keeping the scheme alive is a con. If we carry on this track, without planning for the future, then most people will probably be dead before they're entitled to claim.

That's not good enough.

Let's not sit back and watch politicians play yo-yo with YOUR retirement funds. Labour and ACT agree.

Labour's Trevor Mallard asked in his most recent electorate newsletter, "Do you believe... superannuation should stop being a political football?"

Patricia Schnauer, from ACT, says, "Ever since the mid-1970's ... superannuation has been a political football"

National's Simon Upton says, "...we can't have it all ways. Lower taxes, more generous tax-payer funded super and an ageing population don't add up."

Is it not remarkable that politicians like those I've just quoted, who are normally totally divided, are agreeing that the current scheme is just not viable? They are all saying that we should stop politicians meddling with superannuation for their own short term gains.

Perhaps this is MMP in action, because I agree with them too.

I'm here to make MMP work. Let's stop playing with superannuation - it's a serious business.

We need to set the rules allowing flexibility of choice, but ensuring that EVERYONE is saving for THEIR future.

Voting NO at the referendum means that we will be stuck with the same problems of sustainability and interference. No one has yet found a solution to this. We need to vote YES. The Retirement Savings Scheme does find a solution, removing politicians from the formula.

The debate on superannuation is important. But, I ask that if you are going to criticise, please give a credible alternative. No one has yet.

We need an alternative approach to providing for retirement. The infamous 'baby boom' generation will start to reach retirement age from around 2010, "greying" the population. People in general are living longer. There will be fewer workers supporting each retired person than ever before.

By the year 2040, there is expected to be about two working age people for every superannuitant compared with the five working age people we have today.

If we do nothing, we will end up needing to spend a lot more on health and New Zealand superannuation at a time when there are fewer people of working age to pay for it.

If most New Zealanders were to rely solely on the present pay-as-you-go funded New Zealand Superannuation for their retirement incomes, there would be a significant disparity of tax burden between generations.

Future tax revenues are in danger of only being able to afford inadequate retirement incomes.

Opponents of the compulsory scheme need to state what the realities of the current scheme are:

the current scheme is compulsory ... you have to pay taxes
it is expensive, absorbing 20% of the government's tax take from GST and income tax
it will continue to become more expensive
The Treasurer has recently been talking about some of his ideas, and the possible direction of the scheme. His initial thoughts are promising, and look as though they can deliver a sustainable future for our retirement.

The Government will guarantee a top-up to buy an annuity for the superannuitant.

To ensure that the scheme is affordable, there will also be tax cuts.

It will be a scheme which covers all people and all types of income.

The scheme will take into account the effects on beneficiaries and low income earners ... for example, ability to pay, work incentives and equity all need to be considered.
In introducing the proposed scheme we need to be careful not to sacrifice the competitive features of our financial markets. It is vital:

That existing savings should potentially be able to comply with the Retirement Savings Scheme;

That there will be no restrictions on investment patterns, for example New Zealand versus overseas;

That investment should be broadly defined to include, at a minimum, most securities;

That there will be no government guarantee - the market needs to stand on its own performance;

That it is equitable for all, especially women.
The current national superannuation funds could be plundered by irresponsible governments in the future.

No doubt Helen Clark will promise the world to electors at the next election. But if she were to get in to Government, and found she couldn't deliver her promises, she might be tempted to dip into national superannuation funds.

This is unacceptable.

The new process of superannuation will ensure that this can't happen. The savings will belong to you, and you only.

Helen believes that individuals can't be responsible for themselves and wants the State to manage their affairs.

The funds should belong to the contributor and no one else.

Ultimately, each of us is responsible for our own welfare and the welfare of our family. Seeking work opportunities plays an important part in that, but taking a more active interest in planning for retirement is also important.

It is unfortunate that we need to compel people to save. If there were another option, I would like to see it. However, we need to be realistic and responsible and ensure that everyone is provided with at least a basic safety-net on retirement. This needs to be done while continuing to balance social spending and tax revenue.

The alternative to the Retirement Savings Scheme is the current compulsory scheme that faces an uncertain future in the face of mounting costs. Lets not forget - the current scheme is compulsory, we all have to pay tax.

The proposed scheme seeks to achieve a fair transition between the generations.

When today's young people retire, there will be a much smaller working age population to pay for their retirement. This creates a risk of insufficient funds for retirement.

Some have said that the Retirement Savings Scheme will leave women exposed to the whims of future governments. Not so. That's the record of the present scheme. The Retirement Savings Scheme will help ensure superannuation is no longer subject to the whims of government intervention.

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 scheme, if a partner dies before retirement, all of the partner's contributions go to the estate. If they die within 10 years of retirement, the remainder will go to the estate.

To say that this is bad for women is certainly not true.

Under the proposed scheme a partner gets support on death, under the national super they get nothing.

Our policy to introduce compulsory super was based on four principles - fairness, sustainability, a comfortable retirement income, and the national interest. And we were voted in on this policy.

I want individuals and families to support themselves and save for their futures. We need to continue to provide an affordable safety-net and assistance for those in genuine need.

I want to enable more people to look forward to a properly funded pension. A pension that grows with the economy and is free from dependence on taxes paid by future generations.

The Superannuation Accord bought politicians some time. It may have appeared to have cross party support, but in reality it was an attempt to cover up cross-party incompetence. The time that was bought is now quickly running out.

In 20 years or so, do you want our children to look back at us and say:

"Thanks a bunch, why did you do nothing when you had the opportunity?"

I ask you to grasp the future yourself - don't leave it to the politicians to meddle in your finances.

Please, keep in-touch with this debate and study the design of the scheme once it is released in June.

I look forward to a YES vote in September.

ENDS