These are testing times. Like a curious rerun of the 1991 'mother of all budgets' superannuation fiasco and the 1997 referendum disaster, politicians have again ventured into the superannuation minefield. In 1997, the Accord so painstakingly crafted in 1993 was seriously fractured by the coalition decisions, especially on the removal of the surcharge. This week, the Accord's fragile eggshell received a further shattering blow.

But, unlike the fate of Humpty Dumpty, the pieces simply must be put back together again. There is no other way but to seek broad party agreement if the unique New Zealand system is to deliver any semblance of security for an increasing retired population next century.

Between 1993-1996 the Accord gave retired people protection against ill- considered changes, and those coming up to retirement could plan with certainty. This framework was endorsed by the Periodic Report Group's year-long comprehensive review in 1997. The PRG found the current pension, with the rise in the age to 65 by 2001 and the wage band formula to be adequate, efficient and sustainable. The after-tax cost of the pension as a fraction of GDP is not expected to reach the level of the early 1990s until 2020 so there is no crisis and no need to panic. From 2015, some well-signalled, moderate modifications could reduce the cost, but the detail of these requires no urgent decisions. Nevertheless, the PRG noted that the abolition of the surcharge was a mistake. It fundamentally weakened the glue that kept multiparty agreement on track.

Admittedly the surcharge was always contentious. But agreement had been reached on adjustments to it for 1997/8. In that year only 16% of the top income recipients were affected, and only the richest 5% lost all their super payment. The PRG said for reasons of intergenerational acceptability, and because the revenue loss was significant, some way of reducing the net pension as other income rises must be reintroduced. They set out five options for discussion. Critically, change should only occur after multiparty participation and wide public discussion to promote understanding for its need.

The next major review was to be in 2003. If the report of the PRG had not been sidelined, we might have expected by now to have an open process for the conduct of multiparty talks, serviced by a well-resourced secretariat and chaired by the Retirement Commissioner. A number of issues needed urgent discussion such as; funding for new surveys of wealth and saving; tax and disclosure issues for superannuation schemes; the collection of information on living standards of older people; the appropriateness of the 55+ benefit for people unable to work but not yet eligible for NZ Superannuation; the appropriateness of the wage band formula in light of the proposed changes to the Quarterly Employment Survey's calibration of average wages and, the design of a link between private and public provision.

The PRG had recommended a new process for multi party talks in which political parties would agree on a set of common principles but could have some differentiation on matters of detail. Any new legislation that did not have significant multiparty approval might only proceed after a period of time had passed, including an election. Setting up such processes was never going to be easy, but did the politicians really try?

Just ten months after the PRG report, another large well-funded task force is announced. Its purpose is to make recommendations to be passed into law by late 2000 for a system which is 'adequate, equitable, efficient and sustainable'. It is hard not to conclude that this cuts across the work of the Office of the Retirement Commissioner and involves duplication of the work of the PRG. But the most damage has been done by the sudden, unilateral change to the indexation of NZS. There is now no certainty or security that comes from an agreed process of decision-making. It is therefore of no surprise that the major opposition parties will have nothing to do with the new task force. If the change to the wage band floor can be pushed through under urgency, with no discussion, consultation, evaluation or even a rational philosophical basis, the precedent is set for other unilateral changes. Thus the floor could be lowered again, the age raised or mean tests introduced as the government sees fit. Stability for the long term has been seriously compromised.

The projected saving of $2.4B over the next ten years from the reduction to the wage-band floor comes at the expense of the living standards of the 50-60% of superannuitants who get almost all of their income from NZS. Over the same period at least $3B from the surcharge removal flows to the wealthiest 16%. Sacrifices have been endured by low-income superannuitants over the last decade, but they will now be denied participation in any recovery in the economy's fortunes.

There is a critical need for pensions to be linked with average living standards in a meaningful way. Lessons can be learned from the UK where the basic pension has been indexed to prices alone since 1981. The single rate used to be 19.6% of the male average wage. It has since fallen to 15% today and it is expected to be only 6.7% by mid next century. We do not have the information about living standards to know the impact of lowering the wage floor here, but a low floor is likely to spawn a raft of complex means-tested add-ons. Today one in three UK pensioners, mainly older women, relies on top ups of various kinds to survive, while a further number miss out on what they are entitled to and endure hardship.

The politicians may not feel so inclined, but it is time for them to accept the responsibility they have to work together and with the full scrutiny of the public in an open process of conciliation and compromise.

Ó 1998 Susan St John

[ Susan St. John ]  | |  [ Women's Policy Forum ]