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Comment: ISI supports voluntary savings regime

ISI acting chief executive reponds to an earlier feature Why has the PRG Report been ignored?

Wednesday, December 23rd 1998, 12:00AM

by Philip Macalister

I read with interest your article on Good Returns (November 19) entitled Superannuation: why has the PRG report been ignored?

I do not believe that the PRG reports have been ignored, certainly not by Investment Savings and Insurance Association (ISI).

The ISI Report on Retirement Savings: A Wake-up Call in many areas supports the research and findings of the Periodic Report Group; it also contains numerous references to the PRG work. The area where we differ relates to the urgency that needs to be directed towards achieving a long term sustainable policy.

The PRG stated:

We need to find a means of getting community involvement in designing a policy change mix that could be agreed at the time of the next periodic review in 2003.

We believe that this statement could mislead politicians and lull readers into believing that ample time exists to find a solution.

The ISI research on demographics indicates that we have a "window of opportunity" before we begin to increasingly feel the effects of an ageing population, but that we must use this window constructively. We believe that there is a need for a greater sense of urgency.

The ISI is urging politicians and the public to develop the necessary policy changes sooner rather than later. Our research suggests that current policies are not sufficient to avoid future problems, "the longer we wait to address them the more drastic the action which would be required".

In response to the five specific points resulting from the PRG report that you have listed our comments are:

(i) We agree that having a public pension scheme supplemented by private provision is the right approach.

Our research identified the six policy areas that need to be addressed to reduce the fiscal and economic problems arising from an ageing population:

  • raise economic growth;
    • avoid distortions which influence private savings and improve private savings rates;
  • enhance the efficiency of private sector investment;
  • limit Government spending;
  • pursue a consistent approach to immigration; and
  • enhance access to an adequate retirement income for those in greatest need.

(ii) We agree that private provision should be made in a voluntary, tax neutral, environment.

We are actively pressing Government and bureaucrats to develop an environment that is conducive to voluntary savings - the current environment which is subject to sudden change only fosters uncertainty and makes it difficult for the public to commit with certainty to a long term savings plan. We totally support the need for tax neutrality and continue to work towards this objective.

(iii) Our report does not specifically address the issue linking public and voluntary savings and therefore does not consider surcharge issues. Our research is more directed at encouraging Government to introduce policies that will reduce the fiscal and economic problems of an ageing population and to encourage higher levels of voluntary savings. The net effect would be a significant increase in the population who have generated voluntary savings, reducing the reliance on NZS or public pension provision. The public pension would over a period move to become a supportive provision for those who cannot save and those who outlive the benefits provided by their savings. The ISI does identify universal entitlement versus targeting as an area requiring further research and work is already underway on a number of the points we raised (see below).

(iv) We fully support the need for political consensus. Our report was written in a style that identified the issues and problems and provides a discussion paper for a range of areas that could be addressed. To date we have deliberately steered away from promoting any answers which force political prejudices to appear. We prefer to see the resolutions fall out of a vigorous and healthy debate.

It may not be widely known but the ISI report has already generated a positive reaction in Government, Treasury and the Office of the Retirement Commissioner circles, and particularly on the need to conduct further research. The Minister of Finance has established a Treasury/IRD/ISI project to look at some of the areas of research identified in the report. In addition, the ISI was involved in the Steering Group on Net Worth and Savings Statistics which has just reported to the Minister.

All in all, we could not agree that the PRG report has been all but ignored. We would strongly argue that the ISI report supports and builds upon the PRG report. We are however pressing for increased urgency. Regrettably we are all getting older and closer to the danger zones that come from an ageing population. For the ISI retirement savings is a key issue.

Vance Arkinstall is the acting chief executive of the Investment Savings and Insurance Association.

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