Muriel Newman MP
The Column 21st May
No Gold Left For Golden Years
This week the Column looks at the problems with New Zealand’s current super scheme, and considers alternatives to allow
Kiwis to retire comfortably without struggle.
In Western countries people have historically looked to the government to deliver national prosperity and security in
old age. Of course, if a nation is prosperous, then more people can afford to save for their retirement – sadly, that is
not the case in New Zealand today.
The problem we face is that, for decades, successive governments have failed to deliver on both of these
responsibilities: our prosperity has been waning since the 1950s and ’60s, when we enjoyed one of the world’s highest
standards of living, and pensions – presently set at 65 percent of the average wage for a couple, and 40 percent for a
single person – can hardly be called generous.
New Zealand is, essentially, now a poor country because of governments’ increasing greed. Fifty years, ago the
government collected only 20 percent of the nation’s wealth in taxes. Today it has doubled. In that low tax environment,
families with children paid almost no tax and, by working hard, were able to get ahead.
Today, Government policies of ‘tax and spend’ – to be epitomised in Labour’s welfare Budget next week – are crippling
working families, strangling the economy, and driving down living standards. All of these factors make it increasingly
difficult for families to save for their own retirement.
The problem is bad now but, without a real commitment to improving our economic growth and fundamentally changing the
way we fund pensions, our situation will approach a crisis within the next two decades.
As a result of longer life expectancies, better healthcare and a falling birth rate, the number of retirees is expected
to more than double from 450,000 today to 1.1 million people – or 25 percent of the population – by the year 2040. That
would mean that the government of the day, with only two people in the workforce to tax to fund each retired person,
would be forced to cut the pension rate and lift the age of entitlement … that is, unless we look at alternative ways to
fund superannuation.
The hardest hit by our chronically low living standards and unsustainable pension scheme are the disadvantaged. When
such families find the daily struggle to feed the kids and pay the bills so difficult, it is impossible to expect them
to be able to save for retirement. That means that large numbers of people, who have spent most of their working lives
in a battle for existence, can look forward to nothing better in retirement. With no assets or savings, and few choices,
they are extremely vulnerable – and, if adversity strikes, will be forced to rely on the State and its waiting lists for
their very survival.
Surely, in a civilised nation, an essential social responsibility should be to provide dignity in old age. Is it too
much to ask that we establish a system that would create a level of well being, and a quality of life that would enable
comfort and enjoyment in retirement? I believe it is not. Other countries, like Singapore, have made some bold moves –
as a result, what was a Third World nation is now among the richest in the world. Meanwhile, we have slid the other way!
That is why it is essential that we seriously consider the introduction of personalised superannuation savings accounts
– based on the experiences of the Singaporean scheme, of that introduced in Chile, Hong Kong and a growing number of
other countries – to avert the future funding crisis that our present pension scheme faces.
New Zealand governments have looked at alternative funding arrangements in the past. In the mid-70s, a work-based super
scheme was introduced. The scheme required workers to initially contribute one percent of their total taxable income
into the scheme, growing to four percent over time. That was to be matched by an employer's contribution. While the
scheme had only a short life – being abolished by the Muldoon Government 22 months later – calculations by Ord Minnett
Securities in 1991 examined what the benefits could have been:
On the basis that savings were invested in 40 percent government stock, 30 percent domestic shares, and 30 percent of
world shares, the fund would have had a capital base of just below $40 billion at the end of 1991. That is almost two
times the size of the government's overseas debt, more than two times its domestic debt, or more than two times the
current sharemarket capitalisation. New Zealand would have no current account deficit, would have had much lower
inflation throughout the eighties, and a significantly better performance. That would have given the fund a much better
performance. It is not unlikely that the current size of the fund would have been large enough to finance the current
pension out of its income stream.
Individualised superannuation schemes – in which everyone 18 years and over contributes a portion of their taxes into a
personal account, which earns compound interest for 47 years, and converts to a generous annuity in retirement – would
provide a level of savings unprecedented in this country. In changing over to such a scheme, transitional provisions
would be needed to protect the present rate of pension for those who are already retired, and those close to retirement,
as well as to provide opt-out arrangements for those who have no need of a State pension system.
Such a scheme would be of particular benefit to women, who live so much longer than men, and Maori. Because of their low
life expectancies, Maori can contribute taxes all their working life but, if they die early, gain no benefit at all from
retirement. Personalised retirement schemes, however, can at least be passed on as an inheritance to the family in the
event of untimely death.
The prospect of turning New Zealand into a stakeholder society to truly help the disadvantaged to get ahead, and to
ensure that our elderly are financially secure and able to enjoy their retirement years – instead of being forced to
struggle – is, in my mind, a goal worth fighting for.
ENDS