Q+A’s Paul Holmes Interviews Retirement Commissioner, Diana Crossan.

Points of interest:

- Doesn't favour making Kiwisaver compulsory, says some low income can't afford it, others have better investment alternatives.

- Kiwisaver uptake of 40% in 3 years is "amazing" and has exceeded expectations.

- People who get to retirement without owning their own house will face difficulties.

- NZ Super is "one of the best systems in the world" but NZ needs to have discussion about raising retirement age.

- Global financial crisis is a "teachable moment" for people to learn about saving and reducing debt.

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can also be seen on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

Q+A is repeated on TVNZ 7 at 9.10pm on Sunday nights and 10.10am and 2.10pm on Mondays.

DIANA CROSSAN interviewed by PAUL HOLMES

PAUL HOLMES How significant is this turnaround that Bill English is so pleased about? We’re saving for our retirement, or we’re paying down debt or whatever we’re doing. We’ve stopped buying cars, we’ve stopped buying silly houses, we’ve stopped buying the boats and the flat-screen TVs. Do you see this as significant?

DIANA CROSSAN – Retirement Commissioner Well, it’s certainly a good sign, isn’t it? Um, we’re not sure, of course, because it’s just one-off, uh, the first time we’ve seen this. But it’s a good sign at this stage, and what we’re hopeful of is that people are paying off their high-interest debt, um, paying off their mortgage, and I think it’s a good sign at this stage.

PAUL Do Kiwis really know what to do with their money? And we’ve all got a little bit more money recently, of course. Do we really know what to do with it? How financially literate are we?

DIANA Well, quite a lot of Kiwis do know what to do. All of the research is that a goodly group of New Zealanders are doing well with their money. However, we know there’s some that have discretionary income and aren’t saving it. There’s some that, for example, who could save but aren’t. There’s a group of people also who are in quite a lot of debt, and our hope is that with this small amount of money that people got in the changes in the tax, that some of them will quickly pay down their high-interest debt. The concern, of course, Paul, is if you take that money into your regular income, you think it’s part of what you need to spend, what you’ve got to spend. So getting it into an automatic payment off your high-interest debt quickly is the best thing to do, I think.

PAUL But, I suppose, one of the good things that’s happened, really, is everyone’s had the fear of God put up them, you know, with the world financial meltdown, so it’s made people a bit more cautious when it comes to debt.

DIANA The global crisis is a teachable moment. That’s the way we put it. It’s an opportunity for us to teach. It’s also an opportunity for people to learn, and that seems to be what’s happened. Of course, there are people who’ve been made redundant, uh, had economic shocks through this. They’ve lost savings. There are others, of course, who have just seen it happening and have decided that they should put their house in order. It’s a good opportunity to do that.

PAUL You’re very big on teaching. I know that you want that you want New Zealanders to become financially literate from the age of 5 to 95, which is a very laudable aim. The Retirement Commission has got a website: sorted.org.nz, and you want to see everyone sorted and more literate about money and what to do with money. But the extraordinary thing about this website is that, I understand, 30% of New Zealanders have gone on to it.

DIANA Yes, Paul, it’s the best free, independent financial website in the world. I skite about it at OECD meetings, and we know now that several other countries are trying to emulate it. In fact, the new prime minister of Australia had in her manifesto that if she became prime minister of Australia, Australia would get a website like the Sorted one. It’s very comprehensive. It’s for New Zealanders, and we’re really pleased they’re using it.

PAUL Mind you, people have lost a lot of confidence, haven’t they, in terms of investment channels, I suppose, with the hucksters. You know, they’ve given a terrible reputation to finance companies and the investment markets as well.

DIANA Yes. With the fall over of the finance companies, one of the things that happened is there wasn’t a huge number of people investing there in finance companies, and some people might say that there was a group of New Zealanders who were financially literate and who chose not go into finance companies, and put their money in other places. And while we all lost a little bit of money, NZ held up very well because of the way our banking system is and some of those other investments. However, the finance companies falling over affected the whole nation. It’s a bit like as what I would say is the ‘Erebus factor’. We all know somebody who knew somebody, and that’s given us a scare. And we’re hoping that out of that, people will understand how to look at investments and be cautious and get advice when they need it.

PAUL But in the meantime, as you say, people are starting to pay down debt, and this is a very good thing. Now let’s speak about specific superannuation – KiwiSaver. The uptake on KiwiSaver, which is our Super scheme. The uptake has only been 40%. Why do you think that is?

DIANA Well, it’s only three years in, Paul, and it’s interesting you say ONLY 40%. Most of the world would say, ‘Wow. 40% in three years. It’s amazing.’ All of the predictions were a lot, lot less than that. Of course, there are high incentives to join KiwiSaver, but there are groups of people who can’t afford the 2% or who are and maybe should be putting their money into paying off their debts or paying their mortgage. And, of course, in NZ, we think buying your house – and I believe this – buying a house is part of saving for your retirement, because we know that people who get to retirement without a house, unless they’ve got a lot of money to pay rent for the next 30 years, are in trouble. So, some people are paying off their mortgage. Some people are paying their everyday bills. Then there’s a group of people at the other end of the system who believe they can do better with their money than KiwiSaver, and maybe they can. So 40% is pretty good.

PAUL Yes, and, of course, it’s interesting you talk about owning a house when you retire. Sue Bradford says that. She says if you can get to retirement and own your house freehold, you’ve done pretty well, and your problems are going to be much fewer perhaps than others who do not have their own home.

DIANA Yes, absolutely.

PAUL Yeah, a good, basic way of looking at things. So, should it be compulsory? I take it from the way you’re speaking, you don’t think KiwiSaver should be enforced.

DIANA I’ve looked carefully at this. We’ve looked at all kinds of research. We’ve looked at the Australian system, and currently in NZ, KiwiSaver being compulsory would affect the two groups I’ve talked about particularly. The low income who can’t afford it and who therefore have their choices of how they spend that small amount of money they have, any discretionary money. For example, I may to choose to either send somebody to education in their family or get a better education themselves or pay down the mortgage, and that’s taken away from them.

PAUL Yeah, but, Diana, the other side of coin, I suppose, is even if you took a small percentage and made it compulsory, people start to see things adding up. They start to see the value of saving, the act of saving.

DIANA And that is the good thing about KiwiSaver. But if you can’t afford it or if you’ve seriously thought about this yourself, and you’ve got your own small business, and you’re putting your money into your small business, you’re putting your heart and soul and all your energy into it, and you build something to grow, then you’ll be better off than you would have been if you’d put your money into KiwiSaver. So compulsion is about the state telling people where to put their money. I’m concerned about the low income, and then there are the issues of constraining the higher paid people who can choose where to put their money. But there’s one other thing, Paul, I should talk about about compulsory saving. I have real concerns about it in the long term, because if we had compulsory saving for a long while, politicians might start to interfere with NZ Super, and NZ Super is one of the best systems in the world. We’ve got to hold on to NZ Super.

PAUL Just in the short time available, I want to talk a little bit about NZ Super. At the moment we’ve got a situation where 40% of New Zealanders live on Super, which takes up 14% of GDP. By

2050 – I think Standard & Poor’s were saying this – by 2050, that could go up to 20% of GDP if we continue at the entitlement age of Super at 65. Diana Crossan, are we – like they’ve done in Australia, like they’ve done in the UK – are we going to start having this debate about whether 65 is viable, or whether we’ll have to move to, say, 67? Are we going to have to have the debate?

DIANA Paul, we certainly have to talk about it, but we have completely different figures to the ones you’ve just put to me. Currently, we pay about 4% of GDP, and at the peak, we understand from the Treasury’s long-term fiscal forecast, it will be about 7.3% or

7% - 8% of GDP. No matter, we still have a problem. How do we find that money? It’s about double what we pay now. And one of the things that we’re doing, of course, is every three years, the Retirement Commission does an independent review of retirement income, and I table that report in Parliament, and I’m looking at all of the options of how we can afford that into the future. I’m 100% with you about having this discussion. I don’t want to be at the beach in 10 years’ time and hear that a government had to make a quick decision because people in 2010 didn’t make decisions.

PAUL I thank you very much indeed for your time, Diana Crossan.

ENDS

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