AMP today supported the Government’s commitment to create a savings-friendly environment to get more people saving for their retirement. However, the window of opportunity was steadily narrowing.
New Zealanders recognise the need to save for retirement. In a recent survey by AMP 74% acknowledged they had the greatest responsibility to fund their own retirement.
"We need a framework in place within the next few years which enables people to turn recognition into action. People need certainty. They need to know that income they forego now and put aside as retirement savings will make a difference," says Linda McCulloch, AMP’s Head of Superannuation Strategy.
In a speech to the Association of Superannuation Funds of NZ (ASFONZ), Finance Minister Michael Cullen emphasised the responsibility of individuals to save for their retirement.
"AMP’s own research shows that 83% surveyed don’t think the current level of NZ Super is adequate for their retirement. We welcome the Treasurer looking beyond the New Zealand Superannuation Fund and debating how to encourage people to save voluntarily," says Ms McCulloch.
Dr Cullen is right in saying that New Zealanders need a savings-friendly environment and his proposal for a TET (taxed-exempt-taxed) regime is definitely a step in the right direction.
"However, we believe to be really effective New Zealand needs an EET (exempt-exempt-taxed) scheme; that is, both contributions and earnings will not be taxed until they are drawn down as retirement income. New Zealanders need a clear differentiator between saving for retirement and other savings. EET will provide this.
"In his speech Dr Cullen highlighted workplace education as one of three key elements for a savings-friendly environment. AMP agrees with him over the need for this. However we can’t agree with his claim that the industry is reducing its involvement, at least as far as AMP is concerned.
"For the past four years AMP has provided employers with a comprehensive modular education programme suitable for workplaces. This has been utilised all around New Zealand to assist employees increase their financial knowledge. We have also been strong supporters of the Office of the Retirement Commissioner.
"We believe that the workplace is not just an ideal place for education about the benefits of saving for the future. It is also the logical and convenient point for savings decisions and action through employer-based savings schemes," Ms McCulloch says.
As Treasurer, Dr Cullen is understandably concerned about possible revenue impacts from any changes to superannuation taxation.
"However the reality is that provision has to be made for the future. If this is to be the responsibility of individuals beyond the very basic New Zealand Super, then it is imperative that a regime is established to encourage retirement saving.
"The more encouragement provided, the more likely people are to ‘lock-in’ savings and ensure these are converted into an income stream at retirement.
"The longer people have to save, the less they need to put aside each year. Projections are that tax would have to increase by as much as 50 percent as the number of people over 65 grows. We have a choice now; sensible schemes to encourage savings and a reasonable income in retirement, or more tax in the future," Ms McCulloch says.
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