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How the Govt cut the Retirement Commissioner's funding

Official papers show how the Government wanted to reduce the ORC's funding, although officials argued a different case.

Tuesday, June 19th 2001, 10:40PM

by Philip Macalister

Although officials consider adequate funding the Office of the Retirement Commissioner (ORC) is important for the government in terms of its savings policies it has had its income reduced.

Officials argue, in papers released to Good Returns, that one of the risks of reduced funding to the ORC is that the public may perceive that NZ Superannuation will provide the only retirement income necessary.

As Finance Minister Michael Cullen has repeatedly pointed out NZ Super will only provide a very basic income.

In the lead up to this year's Budget round several funding options were considered, however it is clear the Minister of Social Services Steve Maharey had no intention of increasing funding, or replacing previous private sector funding.

At one point earlier this year the Government sought to shift much of the ORC's funding to the private sector.

The current situation is that in the last financial year the ORC received a total of $4.78 million. Of this $2.8 million is time-limited funding for its education and information campaign. This $2.8 million contribution ceases on June 30.

Over recent years the private sector has provided additional funding for the campaign. Originally 10 companies provided $100,000 annually each, however none of them now contribute funds.

Officials suggested three options for future funding of the education campaign, namely $1.7 mill, $2.8 mill and $3.9 mill.

  • Option 1: $1.7 million funding would result in a significantly reduced education programme compared to present levels.
  • Option 2: $2.8 million would have allowed the continuation of the office's programmes, albeit at a level less than recent levels owing to the decline in private sector funding.
  • Option 3: $3.9 mill would allow for a higher impact programme compared to options 1 and 2.

Officials, late last year, went for option 2 as it would allow the ORC to keep up its presence, plus it would provide some incentive for the ORC to seek private sector funding.

Social Services minister Steve Maharey, in November, agreed with option 2 then asked his officials to do more work on options for private sector funding.

These ranged from voluntary contributions through to the introduction of a compulsory levy.

The voluntary option was essentially a continuation of the original private sector funding model. However, a variation on this approach was to suggest that the Investment Savings and Insurance Association develop a levy for its members, in the same way organisations fund the Insurance and Savings Ombudsman.

The whole scheme was sold to the industry as a "partnership" between Government and industry.

As reported earlier the industry did not want a bar of this partnership approach.

The idea of a compulsory level threw up far more problems for the Government.

First up it would take up to 10 months to make the necessary changes to the law, therefore funding wouldn't be available immediately.

Secondly, there were difficulties working out how to calculate the levy, and who should be levied.

For instance it was argued real estate agents and the forestry industry form part of the savings industry.

Likewise should all oragnisations pay an equal amount or should it be based on some other criteria such as funds under management?

Later that month officials prepared papers on further options which included, disestablishment of the ORC, Baseline funding only and Require Private Sector Contributions.

By January officials suggested that the minister should try and get sufficient funding from industry to pay all of the ORC's education campaign. They noted that the level of contributions might be greater than what the industry used to pay.

The only positive benefit, from the Government's point of view, regarding disestablishing the ORC, was that it would then have "increased funds available for reprioritisation."

Going against the idea was the fact that the ORC had been successful, that it carried out statutory functions, such as the six-yearly periodic reporting, there would be a policy gap and that some of its work would have to be done by other organisations.

On top of that such a move would send the wrong message to the public.

Similar arguments were made about providing the ORC with baseline funding only.

"In general, reduced awareness will result in less voluntary savings, with related flow on economic, social and governmental costs."

Officials pointed out to the minister that there were significant risks with getting the private sector to pay for the ORC's education campaign.

These included the Government losing credibility, the industry hi-jacking the campaign, and the industry and the ORC not having the same precise aim.

The best way for many people to save is to reduce debt, yet many lenders are also involved in the long-term savings industry and may not want to promote such a message.

Also, private sector funding could taint the message and the ORC could lose its independence.

At the end of the process the Government has disenfranchised the industry, plus in the attempt to save less than $2 million has seriously muted the important messages which the ORC has consistently delivered to the public.

This is despite the fact that it was provided with plenty of evidence from officials that the ORC has, on a meagre budget, been successful in promoting the need to save for retirement.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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