Reform of Superannuation and Pensions

 

The 9th Annual Colloquium of Superannuation Researchers

Universtity of New South Wales
Sydney

9th and 10th July 2001

 

 

New Zealand goes it alone in superannuation policy [1]

by Susan St. John

 

Susan St John
Senior lecturer
Economics Department
Auckland University
Private Bag 92019
Auckland
New Zealand
s.stjohn@auckland.ac.nz

 

 

Abstract

New Zealand has persisted with its unique superannuation policies into the 21^st century. This implies traveling in a different direction to the course taken in Australia, and that favoured by the World Bank. New Zealand has two pillars only: a state pension and voluntary unsubsidised saving. There is no compulsory pillar of pre-funded privately provided pensions. This paper reviews the policy debates of the 1990s and examines recent initiatives under the Labour Alliance government. These include the proposal to partially fund the state pension and the endorsement of universal pensions of at least 65% of the net average wage for a married couple. While compared to many other countries the NZ system has advantages of simplicity, and cost effectiveness, there are some significant issues still to be debated as the demographic bulge heads towards its retirement. One intergenerational concern is that universal pensions are paid to all over 65 in an otherwise residual welfare state. Another is that many middle income retirees of the baby boom generation will fail to provide themselves with an adequate supplement to their state pension.  Furthermore, whether or not the legislation for partially funding NZ Superannuation is adopted, there is a real prospect of further instability in superannuation policy in the years ahead.

 

Introduction

The New Zealand model for retirement income provision is unique in the world, and significantly different to that of its closest neighbor, Australia.   Without compulsory private saving, it has only two legs of the three-legged approach favoured by the World Bank (Willmore L, 2000). Nevertheless, it can be argued that New Zealand’s model is a good one for developing countries to emulate (St John and Willmore, 2001).

In comparison with typical OECD arrangements, the New Zealand scheme is simple and fair. If the goal of retirement income policy is to ensure an adequate income for all in retirement regardless of the nature of past contributions to the paid or unpaid workforce, the New Zealand scheme is also highly cost effective. Few of the elderly are in serious poverty and while pockets of concern have emerged as the relative level of the state pension has fallen, the old are not the focus of the poverty debate (Stephens et al., 2000: St John et al., 2001). Women are treated equitably and the have been few of the complaints surrounding gender that have arisen in other countries (Ginn et al., 2001). Moreover fiscal costs are modest on OECD standards, currently a net 4 per cent of GDP, with no hidden costs for tax incentives.

While the arrangements have in practice been remarkable durable, the surrounding political debates have been bitter. This paper reviews some of the contemporary history of the superannuation saga in New Zealand, including the most recent attempt by government to secure a long lasting solution to what has been seen as the ‘superannuation problem’ by proposals to set up the New Zealand Superannuation Fund.

 

The New Zealand system for retirement income [2]

The New Zealand system for retirement income provision consists of a non-contributory, flat rate taxable pension called New Zealand Superannuation.  There are no compulsory saving schemes and no significant tax incentives for private saving for retirement. Part One of the New Zealand Superannuation Fund Bill[3] sets out the parameters of New Zealand Superannuation. 

These features include:

  A qualifying age of 65

  A simple residency requirement: ten years in New Zealand from age 20, of which at least five years are from age 50.

  The net rate of NZS for a married couple to be no less than 65% or more than 72.5% of the net average wage.

  The single rate is 60% of the married couple rate

  The living alone rate is 65% of the married couple rate

  The pension is taxed but not income or asset tested

    

New Zealand Superannuation is financed on a pay-as-you-go basis from general revenue, largely from a graduated income tax with marginal rates that go from 15% to 39% and from a broad sales tax (Goods and Services Tax or GST) set at 12.5%.

Between 1988 and 1990 government flattened the tax scale and abolished all tax subsidies for saving (St John and Ashton, 1993, pp21-45). The intent of removing privileges from certain classes of saving was to encourage a better allocation of resources. Life insurance companies and other tax favored institutions were not seen as dynamic investors, and it was argued their dominance in directing savings flows explained, at least in part, New Zealand’s poor returns to investment. At this time, various compulsory savings schemes, including social insurance were also investigated, debated and considered (St John, 1992, p31). However, as in the debates to come, the concept of compulsion did not find favour with the public. The simple and traditional basic public pension has continued throughout, to be well supported.

The issue of reintroduction of tax incentives for private saving is another issue often raised in public discussions. To date there has been little appetite to restore the traditional tax approach for retirement saving to that followed in other countries[4]. One of the problems is that it becomes transparent that the beneficiaries of the reintroduction of tax breaks would be largely those who need it least.   New Zealanders have also been well schooled to believe that such tax subsidisation has to be paid for by higher taxes elsewhere, and thus with some recent exceptions, (see later) tax incentives have not been a burning issue of political debate.

 

The rise and fall of the Accord

In 1991, the National government appointed the Task Force on Private Provision for Retirement “to report on policy options to encourage greater self-reliance of retired people”. The Task Force (1992) recommended an improved voluntary regime for private provision for retirement and the continued integration of public and private retirement income through the surcharge. Once again the case for compulsory contributions was carefully examined and rejected along with any idea that tax subsidies be reintroduced.

An Accord was signed in 1993 by the three parliamentary parties: National Party, the Labor Party, and the Alliance Party, cementing in the voluntary tax neutral arrangements for private saving[5]. The public pension was to continue as a flat, taxable pension of between 65 to 72.5 percent of the net average wage for couples, linked to private saving by a surcharge or by progressive taxation with similar effects.

The security and stability offered by the Accord was challenged in 1996 by the formation of a coalition government. In principle, both National and Labour could have refused to negotiate on matters of superannuation in the coalition talks of 1996 with Winston Peters, leader of New Zealand First, and could have pointed to the Accord as the agreed way to make such decisions.  They faced the classic prisoner's dilemma however, as negotiations were kept secret and any party that had failed to compromise on this issue faced a possible disadvantage.  The emerging coalition document agreed to the abolition of the surcharge and a referendum on compulsory saving, from which point the Accord could be considered to be over.

Amid much acrimony, the public rejected the compulsory savings proposal by a vote of 92.8%. (St John, 1999). In the meantime, the framework set out in the Accord was endorsed by a comprehensive review conducted by the Periodic Report Group (PRG) as required by the Retirement Income Act 1993 (Periodic Report Group, 1997a).

 

The role of the surcharge

Understanding the political context of debate in New Zealand over superannuation requires an understanding of the history of means or income testing. In 1985, the universal pension became subject to a surcharge on retiree’s other income over an exempt amount. The surcharge was applied until the net amount of the state pension was clawed back in full.   When in 1986 the top tax rate was reduced from 66% to 48% and then to 33% in 1988, the surcharge could be rationalised as restoring some progressivity to  the tax system, at least for pensioners.  The surcharge was, nevertheless, very contentious and National promised to repeal it when they came to power in 1990. After the election, instead, they announced measures in 1991 that would transform the public pension into a tightly targeted welfare benefit.  Public outcry forced the government to back down and restore the original public pension, but one with a higher surcharge and a rise in the age of eligibility to 65 over 10 years (St John, 1992, pp.134-43).

The abolition of the surcharge in 1998 under the 1996 coalition document, even if the support of all the political parties was finally obtained, was a critical factor in the demise of the Accord. The surcharge had been the glue holding the left and right together. It represented a hard won compromise between universal pensions come what may on the one hand, and a safety net means-tested benefit on other. The abolition of the surcharge left the pension vulnerable to attack, as it left only lowering the level or raising the age as mechanisms to save costs .

That vulnerability was well demonstrated in late 1998. In a surprise move National announced the reduction of the wage band floor to 60%. The indexation provisions under the Accord had required that once the floor of 65% of the net average wage was reached then price indexation should be replaced by wage indexation to maintain the 65% relativity. The revenue formerly provided by the surcharge was about $300m a year and lowering the floor to allow the relativity to drop over time was a convenient way to claw back around the same amount of foregone revenue.  Of course the distributional implications of the change to the floor were quite different to that of the surcharge. 

The sudden unilateral announcement of the change to the floor was almost universally condemned.  Any vestiges of security that the public had that there was an Accord  process for agreed and measured change disappeared. The floor change lacked any underpinning of data about living standards and was made entirely without consultation. There was no longer any secure link to wages as there was nothing to prevent further reductions to the floor once the 60% level was reached. The Minister for Senior Citizens unconvincingly cited the Asian crisis as the justification, but overall a political mistake had been made, as National was later to admit.

The Labor government, elected in 1999, immediately reversed the change to the wage band floor, which had seen the pension for a married couple fall to 62.8% of the net average wage. From April 2000 the net pension of a married couple was returned to 65%, restoring confidence that the public pension would once again move in tandem with the average wage (figure1).   While the Labor government also raised the top marginal rate of tax on income from 33% to 39%, there was no suggestion of a return to any kind of income-testing such as that provided indirectly by the surcharge.

 

Developments under the Labour/Alliance government

The Labour party campaigned on their own superannuation policy issues in 1999, essentially dismissing any prospects for a resuscitation of the Accord. After the election, their plans for introducing an element of prefunding into the state scheme were fleshed out culminating the introduction of the New Zealand Superannuation Fund Bill.

The nature of the fund was described by the Minister of Finance, Dr Michael Cullen, as “smoothed pay as you go”.  The fund is expected to ease the transition from pensions costing a net 4% of GDP to 9% of GDP by the year 2050 as the demographic profile changes [6].  Funds build up for around the next 25 years when they will be run down and along with fund earnings to meet part of the costs of NZS from that time. In the meantime the fund is to be managed at arms length by a board of appointed trustees called “Guardians of the Fund” who will use professional fund managers to invest the money both domestically and abroad.

Dr Cullen argued that the counterfactual to setting aside some of the projected surpluses is tax cuts. These, he claimed would be bad for the economy. The fund would therefore enable higher national saving compared to the counterfactual of tax cuts, and by augmenting national saving take the pressure of the Current Account deficit (Cullen, 2000). Even with the fund, net debt levels were projected to fall[7]. It was also argued that by allowing the fund to invest in a diversified way including overseas financial assets, the government would improve the financial position of the Crown as a whole[8]. But while it could be argued that the government could diversify its assets without the fund, the fund was claimed to have the additional benefit that it would  ‘give people confidence that NZS could be paid in the future’ (Cullen, 2000).

The bill was referred to Parliament’s Finance and Expenditure’s committee which heard submissions in early 2001 and reported back to the House on 12^th June 2001. In the meantime the 2001 budget made provision for annual contributions to the fund[9]. Already, political support is fading. The Green Party has decided to vote against it (Donald, 2001). National are undecided and the Act party has said it will abstain. The sole Parliamentary member of the United Party will support it. The Minister of Finance has promised that if political support for the bill is not forthcoming, money will be set aside anyway, maybe as far into the future as 2005.

Ironically the New Zealand First leader Winston Peters may once again play a crucial role in the weeks to come. He has indicated his support for the bill, which will now be pivotal for its passage though the House.  In return he requires suitable rewording of clause 73 part 3 which currently reads:

If the House of Representatives resolves that consideration should be given to converting the balance in the Fund into retirement accounts for eligible individuals, the Guardians must report to the Minister and the Minister of Social Services and Employment, within 24 months of the date of the resolution, on options for doing so.

Winston Peters wants it to be clearer that the fund can be transformed into individualised accounts at some time in the future[10].  Most commentators are bemused by what appears to be his confusion of single tier New Zealand Superannuation with second tier supplementation. Few commentators understand how the fund could be divided among the population and what doing that would mean when NZS is a universal basic flat rate provision.

 

Criticisms of the New Zealand superannuation fund

Since the announcement of the NZ Superannuation Fund Bill opposition from all shades of the political spectrum has been vociferous. There is fundamental skepticism as to the purpose of the fund and whether it can deliver on the promises claimed for it[11]. The objectives of the bill are not found in the legislation itself, but are reflected in numerous speeches from the Minister of Finance, eg:

The basic intention of the scheme is to provide a sensible and secure basis for the long term provision of the first tier of retirement income’. Cullen 8/2/01

The Fund will allow us to maintain a universal pension that guarantees a basic minimum standard of living for superannuitants.  It will finally give superannuitants some certainty about what the government will be able to provide for them. And they will know that they have to provide for themselves if they want a higher standard of living than NZS offers. Cullen 14/12/00.

Critics have wondered how a scheme that is expected to provide at most 14% of the cost of the scheme could ever provide such certainty or security. The intent has been clearly, to implement the fund and entrench it so that it would be difficult to dislodge:

My view is that the great and enduring consensuses on superannuation policy, like those in the USA and in Australia, have followed rather than led new schemes. They have followed by the law of political gravity. As the funds have grown, and as they have been seen by the population as a whole to be a clear indication of where their pensions are going to come from, they have become too strong a force to try and deny. (Cullen, 2001a)

Other critics point to the opportunity costs of the fund. Money invested in the fund may be at the expense of many other worthwhile fiscal goals (Donald, 2001; English, 2001). There  still a further concern that projected surpluses are based on a too optimistic growth outlook and that the fund implies a fiscal straight jacket.

The Minister of Finance states in the 2001 Budget:

‘Stripping out the impact of revaluations over the current year and the previous year shows a strong upward trend in the OBERAC, which may be regarded as the measure of the underlying surplus.  This trend will, as I have already indicated, continue over the next three to four years.

This will provide ample room for the assumed transfers into the New Zealand Superannuation Fund of $600 million in 2001/02, $1.2 billion in 2002/03, $1.8 billion in 2003/04 and $2.5 billion in 2004/05.

The level of the operating balance will fluctuate over the course of the business cycle, rising in good years and falling when economic activity tapers off.  The structural balance is the trend that underlies these cyclical movements.  Because revenues are trending above spending, the structural surplus is rising.’

A rising structural surplus  indicates that the government’s fiscal stance is set to become more contractionary. The export sector is expected to become the engine of growth[12]. Should the optimistic growth scenario not be sustained however it may not be sensible macropolicy to set aside the budgeted amounts for the fund. If so, the expectation that the shortfall would be made up in subsequent years may also prove impractical. The danger then is that the Fund is called into question and its promise of certainty and security for the next 100 years evaporates.

The bill envisages that the fund will eventually run down to zero. It is difficult to understand the reasoning. Capital withdrawals will require sale of assets. Asset sales, as opposed to only using the income from the assets, to fund current expenditure could be dubious macropolicy at the time. Once the assets are sold, the higher contribution of GDP required for the permanently older population will all have to come from tax.  If it is possible to manage the higher tax burden once the fund is gone, the need to tax smooth in the next decades may also be unnecessary.

While it might appear that the fund and its earnings, by being used to supplement tax revenue, can reduce the burden on taxpayers, the effect is illusory.  Regardless of where funding comes from the cost of the pension is the same, as is the implied sacrifice of the working age population.

 

Intergenerational issues

Part one of the NZ Superannuation Fund bill locks into place the entitlement of each person, whether working or not, whether wealthy or not, to a generous universal pension. The Periodic Report Group 1997 reported on the skewed nature of the distribution for today’s retired. The baby boom retirement is likely to see the very affluent minority increase and the gap between the top and bottom of the distribution continue to widen.   The difference between the percentage amounts clawed back in tax for the pensioner with no other income and those in the top 5% of the distribution is only 24%.  It should be noted that for many wealthy older people the top rate of 39% rate is easy to avoid[13]. The maximum rate many in this group pay is only 33%. The wealthiest of those over 65 get as much as three-quarters of the pension of the least wealthy (as compared to 0% with the surcharge). Thus the progressvity of the current system is very low if it is to support a universal pension of the magnitude of NZS into the 21^st century.

Part One  may attract political support in the short term, but it is difficult to see how it can be the basis of long term agreement in light of the obvious social inequities. In the context of a welfare state that is tightly targeted and a system in which children have lost the right to universal healthcare and a universal family benefit and students no longer have universal tertiary education, universal pensions are likely to become increasingly questioned as the strong criticisms of the Green party have demonstrated:

Equity between and within generations is at stake as well. The Superannuation Bill provides certainty for present and future retirees yet as a society we do not offer the same certainty of state support for our young, our unemployed, our parents, our low income families or our sick.

Indeed Child Poverty Action has commented this year that:

“Increasingly, the obligation to pay into the superannuation fund will constrain the ability of government to increase either social welfare benefits or family payments. While there may be good arguments to support fiscal prudence, and the fund may prevent the further damage done by tax cuts, intergenerational conflicts have not been discussed. One outcome of the superfund may be a neglect of children’s increased levels of poverty.”

The proposal feels uncomfortable for those of us over 40. We enjoyed free tertiary education and we are now looking forward to a guaranteed retirement income, whereas those people newly entering the workforce are burdened with student loans and at the same time will be required to contribute to the Superannuation Fund (Donald, 2001).

 

Private provision

Private pensions now cover a relatively small fraction of the working age population, with access to generous employer-subsidised schemes remaining highly biased towards men. Only about 15 per cent of New Zealanders over 65 have any private pension income (21.4 per cent men and 9.7per cent women) and as Table 1 shows, of those who do have this income source women have much less than men.

 

Table 1
Proportion of people over 65 receiving occupational pension income, as a proportion of total income (excludes those with no regular occupational pension income)

Occupational pension provides	Men	Women
Less than 25% of income	11.3	7.4
25-50% of income	9.2	9.5
50-74% of income	10.2	1.8
Over 75% of income	*	*
* = sample size too small to give accurate estimate

Source: (Statistics New Zealand, 1997)

 

The Periodic Report Group PRG (1997a) noted that while many employers are likely to play some role in the provision of retirement planning ‘there has been some question about the extent to which they will continue to offer superannuation itself’ (p.183). Government Actuary figures on membership of occupational schemes shows that there has been a reduction in membership since 1990. Membership of private sector employer schemes has dropped from 21% of all employed people, to 13% in 2001 and, while total assets have increased from $9.5 billion to $10.6 billion, after adjusting for inflation, real assets have fallen 8%[14].

Including the Government Superannuation Fund (GSF), which closed to new members in June 1992, and its replacement, membership of employment-based schemes was 25% of all employed people in 1990, dropping to 15% in 2001[15].

The three major likely reasons for the fall off in membership and assets are: changes to taxation; the imposition of new regulations and requirements; and changes in the nature of the labour market. Changes to the taxation regime have ensured that, far from there being any concessions associated with employer superannuation, there are now tax disadvantages. These, coupled with reporting and disclosure obligations seen as onerous are changing the traditional view of the role of the employer in providing superannuation schemes directly[16]. The fluidity of the labour market, increased casual employment/self employment, higher part-time work of both men and women, and contract work also call into question the appropriateness of the design of the traditional employment based schemes with long vesting periods. More flexibility in the labour market has made the defined benefit final salary schemes less relevant. Moreover, the PRG noted that ‘among defined contribution schemes, which are increasing in importance, there appears to be a trend towards shorter vesting periods’

..defined benefit schemes tend to have longer vesting periods. In 1996, only 30% of members were fully vested after 10 years. In fact, in 46% of defined benefit schemes it took 20 years or longer for members to become fully vested (compared with just 1.3% of defined contribution schemes). There has been no clear trend towards shorter or longer vesting in defined benefit schemes. (Periodic Report Group, 1997a p.184)

However, although there has been a move towards defined contribution plans within the sector, overall the trend has been a decline in occupational schemes generally. “Total remuneration” packages have become more common. In these the employee chooses the nature of the savings instrument and how much to save in it, while the employer’s role may be minimal or advisory only. The Office of the Retirement Commissioner is mounting a campaign to encourage employers to take a role in assisting their employees to have security in their retirement but the precise nature of that assistance will no doubt become quite varied in the future.

As occupational schemes have fallen in coverage and importance, retail schemes have grown 46% in members and 80% in assets. Excluding the GSF, they hold 7.7B of total assets or 41% of total funds in registered superannuation schemes. Many of the members of these schemes will be retired or may belong as well to employer based schemes (Government Actuary, 2001).

 

Tax issues

The tax regime adopted by New Zealand in 1990 (TTE) for retirement saving works best for  superannuation schemes if the tax rate system is fairly flat. That way, the contributions  tax applied to employer contributions, the tax on fund earnings and tax paid by contributors will be similar. Once the middle tax band was lowered in 1996 and 1998 as shown in Table  1, there were big disparities between taxes paid in superannuation funds and the marginal rates actually faced by middle income earners. Employer fund contributions (under a withholding tax SSCWT) and earnings in the fund are taxed at 33% and thus the regime is tax penal for anyone on only 21% tax rate[17].

Despite the best endeavors of a working party (TOLIS) to resolve this issue there were no easy answers and the problem remained, doubtless contributing to the fall off in membership of employer sponsored superannuation schemes. When in 2000, the top rate was raised to 39%, superannuation schemes actually became tax advantaged to those earning over $60,000. The Taxation (FBT, SSCWT and Remedial matters) bill introduced a fund withdrawals tax (FWT) from 1 April 2000 to reduce the ability of high income people to use superannuation vehicles as a short term way of avoiding the 39% rate.

Table 2
New Zealand Tax Schedule for personal income tax

Bracket	Effective marginal tax rate* 1988-1996	Effective marginal tax rate* 1/7/98-1/4/00	Effective marginal tax rate* from1/4/00
$0 - 9500	15	15	15
$9501 - 30895	28	21	21
$30,896 - 38,000	33	21	21
$38,001-60,000	33	33	33
$60,000+	33	33	39

          * Includes the low income earner's rebate

 

Nevertheless, for a high income superannuation fund member, significant tax advantages may arise from saving in employer-sponsored schemes. These are: saving of 6% on employer contributions, 6% on fund earnings tax, and the further advantages that accrue in passive schemes exempt from capital gains tax.  It is likely that there will be increased use of ‘salary sacrifice ’ among high-income earners to exploit these advantages (Hair, 2001). It is a source of irony that a left leaning government has managed to help only the highest paid with significant tax advantages, while leaving unresolved the highly tax penal treatment of those who pay tax at a marginal rate 21%.

No easy answer to this dilemma exists. Attribution of imputation of employer contributions and fund earnings to individual members to be taxed at their own MTR would be complex and perhaps infeasible for defined benefit schemes. There is another problem; abatement of family assistance measures already may push members with children on to effective marginal tax rates over 50%[18]

Introducing a flat 27% tax, say, for all super schemes would help the middle income groups, but benefit the top earners even more. Almost certainly such a tax rate would require a raft of stiff regulations to be imposed to make sure that superannuation schemes genuinely met the objective of improving income in retirement.

The Minister of Finance has acknowledged that there are very few incentives available currently for individuals to save through retirement-focused vehicles such as superannuation schemes. He claims the net result is that savings are low, and the form that savings take is economically inefficient. This has led the Government to review the basis on which private savings are taxed or otherwise encouraged within the parameters that  ‘any incentives would have to meet the requirements that they were fiscally affordable, did not crowd out other Government spending and added to overall savings levels, rather than merely shifting the form of savings’ (Cullen, 2001b).

Dr Cullen proposes a "parallel option" to the current taxation regime for superannuation, under which contributions continue to be paid from taxed income, investment earnings are tax free, and benefits are partially taxed. This is referred to as Tet (for Taxed, Exempt, and partially taxed) compared to the current TTE[19].

The Minister has suggested that there be a limit on the annual contributions that can be made and a limit on the amount that can accumulate within the scheme. The scheme would be required to lock in the benefits for a period or until a specified age is attained and to provide a portion as a pension.

There are concerns in the industry that compliance will be difficult and will require new schemes that are distinct from existing schemes. Sharp controversy over this proposal can be expected and it may yet add another element of instability to superannuation policy[20].

 

Discussion

The New Zealand Superannuation Fund is shaping up to be the contentious issue for the 2000s. Treasury’s bald advice to Dr Cullen has been to expect no macroeconomic effects, such as improved national saving, from the fund, but the Minister of Finance has taken a more optimistic view (Cullen 2001). If there are genuine surpluses in boom conditions it may be prudent that the government buys assets and puts them on the balance sheet. Prefunding may then enhance national saving by preventing inappropriate tax cuts.  The pressure might therefore be lifted from monetary policy with lower interest rates than otherwise would be the case. By some tenuous connections, the current account deficit might be lower and the economy might improve. Business confidence may also be enhanced if the fund acts to underpin the ailing sharemarket. Overall there may be improved quality of investment.

It would be useful, as it was in the past, to have the income from Crown assets to supplement taxation.  But normal fiscal prudence should not require placing a ring placed around NZSF assets and reserving their use for NZS specifically in a kind of rigid fiscal straightjacket.   The rhetoric surrounding the bill unhelpfully gives the impression that the fund itself guarantees the pension. That expectation will be now hard to reverse, although the Finance and Expenditure committee in their commentary on the bill have sought to moderate claims surrounding the fund.

Even if the idea of the state accumulating some assets before the baby boom retirement may have some merit, debates about the division of future output between the old and the young, about the size of shares and the shape of NZS have not been resolved. The loss of the surcharge was regrettable[21]. At very least, it clawed back the pension from those still in the workforce in an equitable manner. Might New Zealanders now expect there to be an expansion of universal provisions for the rest of the population too, along with a tax base broadening and a more progressive tax structure? These and other issues are likely to be more prominent in the debate over the next few years.

 While many welcome the commitment to the 65% floor for NZS, even that, and certainly other parameters of NZS may need to change over time. There must be a suitable process to allow for measured change and adaptability as the pressures of ageing, some of which are unknown unfold.

Meanwhile the Government is attempting to entrench prefunding, without first seeking consensus, arguing that consensus should be expected to follow. New Zealand’s history suggests that is a risky path. The current suggestion that it will be only with the aid of Winston Peters of New Zealand First that the New Zealand Superannuation Fund Bill will pass through the House does not auger well for future stability.  The provision of consultation with the signatories to the bill (Part 3) before changes are made is an inadequate substitute for an accord process. Part 3 does not, for example, imply that consensus will be sought, nor that there is an independent chair for the process.  Yet a reasonable degree of consensus must be the firm basis for ongoing stability and certainty. The PRG report ‘Building Stability’ set out some clear guidelines for achieving political consensus, but these have been ignored to date (Periodic Report Group, 1997b).

Is New Zealand missing an opportunity to capitalise on the evident widespread political agreement over the fundamentals of New Zealand Superannuation?  It hard not to come to the conclusion that the Superannuation Fund Bill puts the cart before the horse.  A properly resourced and independently chaired Accord could be established within which issues like prefunding, progressivity, and the age of eligility would then be fully researched and debated.

As the saga of New Zealand superannuation unfolds in mid 2001, it is to be hoped that the demise of employment-based superannuation will be taken seriously. But, reintroduction of tax incentives with new parallel schemes may require complex regulations and impose high compliance costs on an already shaky industry. The tax penalties faced by lower paid members of superannuation schemes must, however, be addressed.  It is hard to see how any serious attempt to reintroduce tax incentives that have a significant fiscal cost can be achieved alongside a fully universal, generous non-means tested state pension.

Doubtless by the year 2010 we will see New Zealand Superannuation emerge relatively unscathed. It is certainly highly unlikely, short of political and economic union, that New Zealand will have adopted an approach that follows in the path of the Australian model.

 

References

Cullen, M. (2000). “Pre-funding New Zealand Superannuation: Funding Arrangements.” Office of the Minster of Finance. http://www.treasury.govt.nz/release/super/

Cullen, M. (2001a). "Speech to the super summit". Super Summit, Wellington.

Cullen, M. (2001b). "Superannuation Tax Regime". Grey Power, Timaru 30^th May 2001

Donald, R. (2001). "Invest now to secure our future" media release 2 June 2001.

English, B. (2001). “National shares Greens' concerns over super fund.” media release 3 June 2001

Ginn, J., Street, D. and Arber, S. (2001). Women, work and pensions  International issues and prospects. United Kingdom, Open University Press.

Hair, D. ( 2001) "Has fund withdrawal tax shut the door on salary sacrifice?" Super Benefits  The Journal of ASFONZ; Vol 32 ( No 1) April 2001

Periodic Report Group (1997a). 1997 Retirement Income Report: A Review of the Current Framework-Interim Report, Wellington.

Periodic Report Group (1997b). Building Stability, Wellington

St John, S. (1992). "National Superannuation: or how not to make policy". The Decent Society. Essays in response to National's economics and social policies. J. Boston and Dalziel, P.(eds)  Auckland, Oxford University Press.

St John,S and Ashton,T (1993)  Private Pensions in New Zealand.Can they avert the crisis? Wellington, Institute of Policy Studies

St John, S. (1999). "Superannuation in the 1990s: Where angels fear to tread?" Redesigning the welfare state in New Zealand, Boston, J. Dalziel, P and St John, S. (eds) Auckland, Oxford University Press,.

St John, S., Dale, C., O'Brien, M., Blaiklock, A. and Milne, S. (2001). Our children. the priority for policy. Auckland, Child Poverty Action Group Inc.

St John, S. and Willmore, L. (2001). “Two legs are better than three: New Zealand  as a model for old age pensions.”  World Development Vol. 29,( No. 8): 1-15.

Statistics New Zealand (1997). Ageing and Retirement in New Zealand. Wellington, Statistics NZ.

Stephens R, Frater P and Waldegrave, C. (2000). "Below the Line: An Analysis of Income Poverty in New Zealand, 1984-1998". Working paper 2/00 Graduate School of Business and Economic Management, Victoria University of Wellington

Tax review committee (2001) Interim report viewed at' www.taxreview2001.govt.nz/index.html

Willmore L (2000). "The Three Pillars of a Pension System". First Meeting of the OECD Forum on Private Pensions, Prague, Czech Republic.