1. |
The Task Force was set up by the New Zealand National Party at its 2000 Annual Conference with the following terms of reference:
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2. | Task Force members met in September 2000 to consider various submissions and papers received (including papers prepared by members of the Task Force). In October, members met by telephone conference call with the Hon Bill English. The members met again in November 2000 to review progress to date, to hear from the Rt Hon Wyatt Creech, and to discuss a paper prepared by the Chairman of the Task Force posing a number of issues for consideration arising from the terms of reference. A final meeting of the Task Force was held in February 2001. Representatives from the Office of the Leader of the National Party, the Rt Hon Jenny Shipley, attended both the September and November meetings. |
3. | As a result of the November meeting, a questionnaire was distributed to the regional policy committees of the National Party by late November for response by 18 December 2000. The responses to the questionnaire and submissions from the National Party's regional policy committees, party members and groups interested in policy formation have been of considerable assistance in the preparation of this Task Force Report. |
4. | Although the terms of reference refer to shortcomings in current policies and improving availability and delivery of services to existing generations of Seniors, there is little doubt that the real concern prompting the setting up of the Task Force is the economic and social implications arising from an ageing population. |
5. |
The problem of an ageing population does not start to arise until ten years from now, peaking in some 30 years time. The problem arises because of the baby boom following World War II, particularly during the decades of the 1950's and 1960's. These baby boomers will significantly change New Zealand's demographic makeup, with an increasing percentage of Senior citizens looking to be supported by a reduced percentage of citizens of a working age. We quote from a Treasury paper dated 15 June 2000 entitled Pre-funding New Zealand Superannuation, which gives specific details of these future changes:
Later in the same Treasury paper are these figures:
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6. | While discussion to date on the problem of rapidly increasing numbers of retired members of the community after 2011 has centred on the Government's ability to maintain superannuation payments at present levels, the rising proportion of Senior citizens has serious implications for all Government services funded by the taxpayer. |
7. |
Issues impacting on Seniors directly, apart from their retirement income, are the provision of suitable housing in retirement and the provision of health services. This Task Force Report raises those issues under three headings:
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8. |
The Task Force notes that in making its recommendations under these three headings, the full impact of the ageing population is still many years away and therefore needs to be prepared for in a careful, cautious and considered manner. This Task Force Report makes its recommendations as a result of the demographic changes occurring in the future having regard to the National Party's principles, and in particular, encouragement for individual enterprise and initiative together with support for those in need of help in the community. The Report also has regard to the fact that New Zealand in the future could be much different to the one we know today. To put planning for that time ahead in its proper perspective, 30 years ago the home computer, the Internet, and mobile phones did not exist. Who can predict with complete confidence what the New Zealand of 30 years time will really be like? Having said that, the Task Force recognises that individual citizens must make decisions about their retirement income, health and housing needs decades in advance. Any policies adopted need therefore to be sustainable, as far as tomorrow's taxpayers are concerned, over the coming 30 or more years. |
9. |
The National Party Research Unit have advised the Task Force that, based on the latest available figures, 89% of those over the age of 65 remain in the family home or a smaller home bought on retirement, with 11% going to a retirement village, rest home or geriatric hospital. In detail, the figures are:
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10. |
Many New Zealanders will, either before or during retirement, move to a rest home or retirement village. Retirement villages are relatively new for New Zealand and are a useful alternative for those looking to leave the family home for accommodation more suited to their needs. Because of the rapid increase in retirement villages, the question arises as to whether there is appropriate legislation to protect the investor (in retirement villages, the buyer is often also an investor), as the legal arrangements can be quite complex. Older New Zealanders face many choices and challenges when considering purchasing a unit in a retirement village, the most important of which is what are the financial obligations if a person decides to leave. The Task Force considers that the National Party should examine whether there is adequate protection for those using retirement villages as an alternative to the family home. |
11. |
There has been much debate over recent years regarding asset and income testing for the funding of elderly in full time care at rest homes. Asset limits for a Residential Care Subsidy are set out in Section 69F of the Social Security Act 1964 and were changed in 1996 to: 1. For an unmarried person -
$15,000 The questionnaire distributed to the National Party's regional policy committees and party members and groups interested in policy formation asked the question:
As was to be expected from a broadly based political party, widely divergent views were expressed. A number of respondents were opposed to any form of asset and income testing, a number of respondents supported asset and income testing, although most support was with qualifications. An observation from the Southern Regional policy committee seemed to reflect the middle view:
And the Young Nationals policy committee commented as follows:
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12. |
The Young Nationals policy committee raises an important long-term issue regarding the use of family trusts. Anecdotal evidence suggests that the use of family trusts is increasing and will increase further as the baby boomers plan for their retirement. This has the potential to create enormous pressures on government funding as a greater percentage of those requiring rest home care will be able to gain access free of any contribution to the state. The Task Force accepts that this is a difficult philosophical issue for the National Party, as the protection of one's assets could be argued to be a matter for the individual and not the state. Never-the-less, the long term implication of the growth of family trusts as part of retirement planning at least warrants consideration as New Zealand faces major demographic changes in the years to come. Recommendation 2
Recommendation 4
Recommendation 5
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13. |
It seems likely that the rapidly increased pace of technology as it applies to the delivery of medical services will ensure New Zealanders reaching 65 in (say) 30 years time will retire later and live longer than at present. This will inevitably increase the pressure on the public health system as increasing numbers of an ageing population require medical attention. The issue the National Party needs to address is the role of the private provision of health as the need for health services starts to increase the demand on the public sector in the foreseeable future. The Task Force believes that the private health sector has a vital part to play in the delivery of services to existing and future generations of Senior Citizens. |
14. |
Voluntary and charitable services like meals on wheels, home nursing and other similar services to older New Zealanders (sometimes referred to as the "Third Sector"), already under pressure, will be in danger of collapsing as a result of the increase in the ageing population. The questionnaire asked the following question:
As in other questions, widely divergent views were expressed. The middle view seemed to be that the current level of support was about right. However, it should be borne in mind that, if Seniors are to be encouraged to stay in their own home during their retirement years (paragraph 9), provision must be made for the availability of adequate health support, either at home or at Health Centres. A similar concern relates to those who chose a retirement village as their retirement housing option (paragraph10). Many retirement villages offer full service, including full medical services. In the cases where medical services are not available, investors should be warned to consider what options will be available in the event of ill health. |
15. |
A major concern for all New Zealanders in retirement is the ability, when in pain, to access medical surgery at short notice. Many Seniors have chosen to pay premiums to health insurers to be assured of early medical attention and the return to a normal lifestyle. The Task Force supports the availability of private sector hospitals to complement the public health system, and takes the view that health insurance cover should be encouraged for Senior Citizens. The questionnaire asked the following question:
The responses to this question were many and varied but on the central issue of providing a tax deduction, this comment from the Tauranga Electorate Executive summed up the majority view:
The view of the Task Force is that providing a tax deduction for payment to private health insurers by Seniors is both a short and long term answer to the many pressures on the public health system, although it should be noted that it was not the role of the Task Force to review the public health services as a whole. The new claim form IR 527 for Personal Tax Rebate for donations, childcare and housekeeper payments used by Inland Revenue could be extended to include payments to private health insurers with relative ease. |
16. |
With the exception of tax deductions for payment to private health insurers by Seniors, it must be emphasised that the issues raised under the heading "Health in Retirement" are essentially long term. As we have said under the heading "An Ageing Population", the problem does not arise until ten years from now, peaking in some 30 years time. The Treasury paper we have quoted in paragraph 5 goes even further, talking in terms of the next fifty years and beyond. This puts into its proper perspective the long term planning needed on health issues as New Zealand prepares for the major demographic changes confronting our country. Recommendation 6
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17. |
Debate on income in retirement during the latter half of the year 2000 as a result of the Labour/Alliance government's scheme to partly pre-fund New Zealand Superannuation has concentrated on the ability of taxpayers to maintain the present levels of superannuation when the baby boomers start retiring after 2011. The Task Force takes the view that the issue of income in retirement is much more than simply the level of New Zealand Superannuation and includes consideration of savings for a better standard of living than the basic superannuation can provide in retirement. As well as income in retirement, housing in retirement and health in retirement should also be seen as integral parts of the standard of living which will be available to Senior citizens on their retirement. |
18. |
However, before this Report canvasses matters relating to income in retirement appropriate to "Preparing for an Ageing Population", the Task Force has considered a suggestion for giving immediate benefit to current superannuitants. To test the idea of a Seniors Card similar to Australia, the purpose of which is to provide a Senior Citizen with direct financial benefits by way of discounts on products and services, the questionnaire asked whether members would support a "Seniors Card" which could attract private sector discounts. The result of the questionnaire showed overwhelming support for such an idea. The Australian model is well known in New Zealand and clearly influenced the responses to this question. More work needs to be done to suit this idea to New Zealand market conditions, but the suggestion of a "Seniors Card" seems a worthwhile proposal for the National Party to develop in preparation for the 2002 General Election. |
19. |
The 1997 Retirement Income Report from the Periodic Reporting Group, known as the Todd Task Force (which for convenience we will refer to as the Todd Report), includes the following statement on Page 3 of its concluding Report:
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20. |
Not surprisingly, the Todd Report's rejection of pre-funding of New Zealand Superannuation is in moderate terms compared with the submissions from National regional policy committees and party members, best summed up by this comment from the Otaki Electorate:
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21. |
An analysis of the official superannuation
model off the Treasury's Web Site by the Hon Bill English and
his advisors indicates that at its peak around 2040, the partly
pre-funded scheme as proposed by the Labour/Alliance government
based on the standard assumptions used by the Treasury, would
contribute only 14% of the then current cost of New Zealand Superannuation
in 2040 and 86% would still need to be funded from general taxation. It is also a fact that, over the last 25 years, only a National or a National led government has achieved a surplus in excess of $2 billion in any one year. A further concern if Labour's superannuation fund was ever established is the potential for government intervention into the way the fund is invested. One of the problems facing any government in the MMP environment is the ability of a minor party to force the government of the day to instruct the funds' managers as to the way the fund is invested. The Todd Report deals with this problem on page 40:
One final thought on pre-funding. If pre-funding is the answer to the affordability of New Zealand Superannuation, why not pre-fund health, or pre-fund education, or pre-fund the many other social welfare expenditures governments of the future will confront as New Zealand's demographic profile changes? All in all, it is hard to escape the conclusion that the Labour/Alliance Government is playing a confidence trick on voters by proposing a flawed long-term scheme for short- term political purposes. |
22. |
It has been suggested that the Task Force look overseas for a guide to assist the National Party in its policy approach to superannuation issues. The Hon Bill English advised the Task Force that most countries New Zealand tends to compare itself with follow a superannuation model endorsed by the World Bank, IMF and OECD. This model comprises three pillars or tiers:
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23. |
The Task Force agrees with the Young Nationals and does not see following Australia's complex superannuation policy as offering any solution to New Zealand's situation. New Zealand has a relatively simple structure for both public and private income in retirement. The Task Force would be reluctant to see the complexity of the kind faced by the citizens of other developed countries introduced into New Zealand. Fortunately for us, the Todd Report of 1997 points National in the right direction to assist in solving the superannuation dilemma. We have quoted in paragraph 19 the Todd Report conclusion on Retirement Income Policies, which is summarised on Page 3 of its Report in these words:
The Labour/Alliance Government, by pursuing a different course to that recommended by the Todd Report and deciding on a scheme to partly pre-fund superannuation, has made superannuation an election issue which seems certain to divide the country. To quote from Page 2 of the Todd Report:
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24. |
This Task Force Report uses the Todd Report as the basis for its recommendations. However, as the Todd Report will be five years old at the next General Election in 2002, the Task Force has taken the recommendations of the Todd Report into account in the preparation of this Report. A submission to the Task Force from the Lower North Island Region said:
The Task Force believes that the best way to address the issue is to follow the recommendation made by the Todd Report ie paying off government debt by the time baby boomers start retiring in large numbers. In our view, the commitment to reduce government debt to zero by 2015 should be a key plank in the National Party's policy of "Preparing for an Ageing Population" and the best way to give certainty to National's superannuation policy. |
25. |
The questionnaire asked two questions on superannuation:
That brings the Task Force to the question of certainty of the provision of New Zealand Superannuation in the future. For at least the next 10 years, the Task Force considers that the current level of New Zealand Superannuation is sustainable, but a strong economy is the key to meeting New Zealand Superannuation payments in the longer term. The Economist in its magazine of 2 December 2000 writing on the New Zealand economy had this to say:
These words of realism emphasise the need for the careful management of the economy as New Zealand prepares for an ageing population and underlines the importance of the choice of Government by voters over the next 20 years. As we have already said, the Task Force believes that at least for the next 10 years, the present level of New Zealand Superannuation appears sustainable. As to the years beyond 2011, the Todd Report quotes Labour's greatest Prime Minister, the Rt Hon Michael Savage, as saying on the introduction of the Social Security Bill 1938:
These words ring as true today, and will in 60 years time, as when they were spoken by Michael Savage over 60 years ago. |
26. |
That brings this Task Force Report to the third issue, the crucial role of private savings, not only to ensure the continuance of economic status in retirement, but also to strengthen New Zealand's economy in the future. The Task Force agrees that savings for retirement should be voluntary and not compulsory, as with Australia's mainly compulsory scheme. The question considered by the Task Force was that, having regard to the importance of private savings to the economic future of New Zealand, should tax incentives be provided to boost private savings. The questionnaire asked the following question:
There was virtually unanimous support for tax relief on private savings for superannuation and a lower level of support for employer related superannuation savings, indicating a strong desire in the community for tax incentives when long term contractual savings are undertaken. In the words of the Northern Regional Chair, Richard Yates:
Richard Yates raises an important issue. The long-term contractual nature of the tax incentive is vital to ensure benefits to both the country and the individual. This confirms the view of the Task Force that long-term savings for superannuation should be in private hands and not in the control of Government, with all the risk entailed in leaving funds in the control of any Government. As the Task Force suggested in paragraph 15, the claim form IR527 could also be extended to include payments for long-term contractual savings, whether direct by individual taxpayers, or through an employer related fund. Just as donations have to be made to approved bodies to sustain a claim, so would it be necessary for approval to be granted to fund management organisations so that the taxpayer qualifies for the claim of payment to that fund. |
27. |
The Task Force views on superannuation in summary using the same headings as outlined in paragraph 22 are as follows:
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28. |
Tax on funds invested as long-term savings warrant close attention. The present tax system for superannuation savings is Tax (T) paid on contributions to schemes, Tax (T) on income earned from investments, Tax Exempt (E) at payout on retirement. In short, T.T.E. If the National Party accepts the recommendation of the Task Force, the tax regime would become Tax Exempt paid funds used for investments (E), Tax on income earned from investments (T), Tax Exempt (E) at payout on retirement. In short, E.T.E. This taxation approach would give a sharp boost to private savings, and make it easier for baby boomers to provide for their retirement income. |
29 |
The Task Force noted earlier in paragraph 13 that New Zealanders could retire later and live longer. One outcome is that, as the years go by, more and more New Zealanders could be working past age 65, the present age of eligibility for New Zealand Superannuation. In these circumstances, an improvement on the present system would be for a person still working at 65 to defer applying for the superannuation entitlement, but then be paid at a higher level on retirement. Although this proposal arises as part of this Report's comments on "Preparing for an Ageing Population", the Task Force considers that this proposal could be implemented on National's return to office in 2002 as a signal that National is fully committed to addressing the issue of demographic changes which New Zealand faces over the next 50 years. Recommendation 7 The Task Force recommends that the National Party, as part of its policy of "Preparing for an Ageing Population", consider taking the following steps regarding superannuation:
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30. |
The Task Force emphasises that this Report is not National Party policy, but a consideration of retirement issues as a starting point for policy preparation by the National Party for the 2002 General Election. The Task Force anticipates the matters raised and the recommendations made in the Report will promote and encourage robust debate within the National Party membership. It should be noted that Task Force members differed on some of the recommendations in this Report, particularly recommendation 6 on tax deductions of payments to health providers for retired New Zealanders and the section of recommendation 7 referring to a tax incentive for long-term contractual savings. (For those interested in the arguments for and against tax incentives for long-term superannuation savings, we attach the conclusions from pages 10 and 11 of the 1997 Todd Report for your information). The information and recommendations in this Report have yet to be considered by the National Party's Regional Conferences, the National Party's Caucus and the National Party's Policy Committee. This Report concludes the work of the Task Force. We thank all those who have made submissions, particularly the National Party's regional policy committees, the Young Nationals, party members and groups interested in policy formation, and the many members who responded to the Task Force questionnaire. We also wish to record our thanks for the assistance received from the Hon Bill English and from representatives from the office of the National Party Leader, the Rt Hon Jenny Shipley. |
Sir George Chapman
Task Force Chairman
March 2001
ATTACHMENT TO SENIORS & SUPERANNUATION
TASK FORCE REPORT
1997 Todd Report - Pages 10 and 11
There has been some call for tax incentives. The 1992 report of the PPR Task Force presented a detailed examination of the arguments for and against, which we summarise below. |
Since the referendum, calls for tax incentives to assist in increasing private savings have increased. In 1992, the PPR Task Force made a detailed consideration of tax incentives. We do not see merit in trying to traverse all of that ground again, as the PPR Task Force found support for tax incentives to be even lower than that for the compulsory option. It is helpful to reiterate the main conclusions. The main arguments for tax incentives are that they:
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We think the reasons for rejecting tax incentives are still valid |
Despite these possible benefits, we consider that the reasons for rejecting tax incentives still hold:
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