Public pension policy options
These population prospects have major implications for the cost and feasibility of retirement income systems.
Public debate over the best way to adapt retirement income policy to meet these changes has included proposals to modify the existing New Zealand Superannuation system over time, and to replace it with entirely different arrangements.
This section summarises the major options raised so far. More information can be found in the 1992 reports of the Taskforce on Private Provision for Retirement, and the 1997 reports of the Periodic Report Group. A number of options are also explored in the 1988 report of the Royal Commission on Social Policy.
The 1997 Interim Report of the Periodic Report Group explored three major proposals:
The Group also proposed some smaller-scale changes for medium-term policy, notably gradually phasing down the single person rate of New Zealand Superannuation to parity with the married person rate.
For longer-term policy, each of these three major proposals can be implemented in different ways.
This is the same pension age as set in 1898, although life expectancy was shorter then and more jobs involved hard, physical labour. In 1898 people also entered the labour force several years earlier than today, spending less time in the education system.
An issue related to higher life expectancy is how much years of healthy life have increased, compared with an extended period of frailer old age. Perhaps a further rise in pension age could be contemplated. There are several options:
This approach has been part of the adjustment policy for New Zealand Superannuation over the past decade. Current policy allows the married couple rate of New Zealand Superannuation to phase down to 65 percent of net wages by adjusting superannuation only to compensate for price increases. After that the rate is scheduled to move in line with real wages after tax.
It would be possible to allow the pension-wage ratio for any universal superannuation payment to decline below this level. The Periodic Report Group examined the financial implications of longer-term floors of 55 and 50 percent, but made no recommendations for any immediate change to the pension floor of 65 percent of net wages. The Group also explored a universal payment adjusted by prices only, with some form of additional supplementary assistance to those who had only New Zealand Superannuation as a retirement income.
Even before the surcharge era, the special income tax treatment applied to Universal Superannuation under the Social Security Act 1938 meant tax was partially recouped through higher tax payments. Strictly speaking, tax can still be partially recouped with New Zealand Superannuation, when receiving the pension payment pushes part of the recipient's other income into a higher tax bracket. However, this tax bracket effect is now much smaller than in the past, as top income tax rates have been reduced from 67.5 percent, with the current top tax rate being 39 percent.
The Periodic Report Group advocated the eventual reintroduction of an element of income testing in the public pension system, and suggested a debate on an appropriate targeting mechanism.
The Periodic Report Group's options for applying targeting included:
The Periodic Report Group noted that this option's long-term fiscal implications were "quite uncomfortable, involving historically high tax revenue requirements and close attention to non-NZS expenditure reduction and control". However, higher future tax rates may be part of the adjustment process to an ageing society.
The option was noted by the Periodic Report Group in 1997 and would require a sustained policy of budgeting for large fiscal surpluses by successive governments.
This is the option which has been adopted by the Labour-Alliance Coalition Government. The proposals are described in more detail on page 22-23.
As noted earlier, a proposal for a Compulsory Retirement Savings Scheme was put to New Zealand voters in 1997 and rejected.
The Taskforce on Private Provision for Retirement noted that:
this option would have significant up-front costs which would cause a deterioration in the Government's budgetary position
the option would mean abandoning the "level playing field" towards different types of investment or use of savings, and this could affect the average return on investment in New Zealand
a high proportion of the tax concessions would probably be claimed by people who would have saved extra for their retirement irrespective of the tax concessions.
The Taskforce doubted that tax concessions would actually increase net national saving.
For increased private provision to save future government costs, it would be necessary to reintroduce targeting. New Zealand Superannuation payments to individuals would need to be reduced to complement the income from their voluntary superannuation investments. Given people's ability to switch money into investments offering the most favourable impact on the net amount of New Zealand Superannuation they receive, this would imply the application of targeting to other sources of income also. However, introducing targeting does not require tax concessions as a prior condition.
The Taskforce's 1992 report advised against the tax concessions option, a view reiterated by the 1997 Periodic Report Group.
Even with recent developments, the future form of New Zealand Superannuation is far from certain. In December 2000 all parliamentary parties, with the exception of the Greens supported the referral of the New Zealand Superannuation Bill to select committee. However there is no guarantee that the Government will be able to secure a majority to pass the Bill in its current form - or even in an amended form. New Zealanders would be well advised to inform themselves on the issues to enable a constructive debate on the proposals.
« English airs concerns over pre-funding | AMP & Good Returns launch superannuation website » |
Special Offers
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved