Media release 12 June 2001

Select committee report shows no real progress on superannuation issues

Today's report back from the Finance & Expenditure select committee shows how far we are from making progress on superannuation, says Business NZ.

Business NZ Chief Executive Simon Carlaw says it's clear the Government is focused on 'doing something' about super - but that's not enough to ensure a sound superannuation system that would be both 'politics-proofed' and sustainable into the future.

"The Government has got the message that the community wants some action on super, but has failed to ventilate the issues and impacts with either the community or other political parties," Mr Carlaw said.

"Once again, the debate has become very partisan, with most media reporting this in adversarial terms rather than the substantive issues."

Mr Carlaw said it would be a good idea to depoliticise the whole debate and take a fresh look at the issues involved.

"Given the proposed Fund will only take care of 10-15% of future super funding requirements - at a potential cost to the ability of business to grow jobs and income - there is a need for much more effective debate before pressing ahead."

Attached: Summary of superannuation issues requiring debate

Superannuation Bill – issues requiring further debate

Growth

Growth in the economy is expected to fund 85-90% of future superannuation, yet the prepaid Fund will hobble that growth, by reducing future policy flexibility and reducing the ability to invest in economic growth and transformation.

Incentives to save

The present Fund proposal reduces individuals’ incentives to save, for two reasons:

1. It does not provide for individual accounts (these give powerful incentives to save).
2. It gives a false sense of security (people are likely to forget that it only provides partial pre-funding).

Structure

The linkage of superannuation with average wage rates means that future wage rises (that would follow a successful transformation of the economy) would require tax increases to top up superannuation rates.

Assumptions

Given New Zealand’s economic performance over the last half century, there have to be questions over whether the Fund’s eligibility and access provisions will be sustainable in 50 years time.

Timing

The Fund is expected to run out before the 65+ demographic peaks during the second half of this century. It therefore only delays an increase in tax rates for future generations to fund superannuation payments.

ENDS

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