The superannuation package outlined by the Government on Tuesday is designed to answer the electorate's desire for some stability and certainty in public pension levels.
Research has consistently shown that New Zealanders want an end to continual changes in superannuation policy.
By prefunding future New Zealand Superannuation costs out of operating surpluses, the Government says it can:
- Maintain NZ Super as a universal entitlement
- Pay NZ Super at 65% of the annual average weekly wage
This delivers what the electorate has been asking for and it makes it very hard for other political parties to oppose the policy.
The pre-funding money will come out of surpluses and a board will contract private sector fund managers to look after the money.
The Government needs to get legislation passed by Christmas to establish the board as a crown entity so the fund can start on July 1 2001.
However, Cullen says if the Government fails to get a majority it will proceed with the proposal and seek a mandate from the public for the scheme at the next election.
In the 2000 budget it has allowed for $600 million to be invested into the fund, and there are provisions for $1.2 billion and $1.8 billion to be invested in the two subsequent years.
Cullen says the Government would not borrow money to put into the fund if there were no surpluses available in a given year.
The board would be a crown entity and would act independently from the minister. It would be required to report to Parliament in the same fashion as other crown entities do.
Cullen estimated the fund could grow to about $100 million, or 50% of nominal GDP by around 2025.
Cullen says the Government plans to establish two Accords to go with the fund. One will relate to financing arrangements and the other will be about keeping the level of entitlement at 65%.
Part Two - Encouraging Private Provision
More importantly Cullen told audiences yesterday that the prefunding proposals are only one part of the superannuation package.
Prefunding addresses issues relating to the provision of a public pension (tier one), but have nothing to do with the so-called second tier of private provision for retirement.
That is the public pension provides a minimum income. If superannuitants want a better lifestyle in retirement they will have to do some of their own saving to supplement the pension.
Cullen says work is progressing on the private provision issue.
While theory suggests that uncertainty and reducing the size of the public pension should be a catalyst for private provision, that hasn't happened in New Zealand.
"New Zealanders don't save if they have their pension cut," he says.
On that basis there is a need for the Government to find ways of making people save.
Warm greeting
The proposals have been warmly greeted by the funds management industry.
AXA New Zealand chief executive Ross McEwan says prefunding is "tremendously positive" as it provides certainty to NZ Super. It is also positive as the Government is taking a long term view of the issue.
He says the decision to contract out management to the private sector is good for the industry but it is also a sensible thing to do from a goverence point of view.
Also, the Government of the day can decide what level of contributions to make and, by having the money in one big fund, it has some public policy flexibility.
"I commend the Government for taking steps to secure NZ Super and provide a greater level of security for New Zealanders."
"(The policy) gets a big plus from me," he says.
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