A Government announcement today that it won't be making any moves this year to improve the private retirement savings rate is disappointing, says AMP's head of superannuation strategy, Linda McCulloch.
"It is reassuring that the Government is still actively exploring ways to make it easier for employers to set up staff superannuation schemes. However, some sort of Government action is needed to kick-start private savings and the sooner the better.
"AMP's SuperWatch research shows that 9 out of 10 people have got the message they ought to be saving, but less than half are doing anything about it.
"Government super has only ever been intended to provide a basic level of retirement income. Unless something is done to encourage private retirement savings, the Government could end up shouldering a much greater burden with regards to providing people with an adequate income in retirement," she says.
"AMP has always supported a three pillar approach to retirement income — a Government safety-net pension, employer schemes, and voluntary private savings. The first component is in place with agreement about the age and level of entitlement to New Zealand Super, but we really need some material action on the other two areas.
"It is interesting that the advice the minister received from Treasury looked at tax incentive options only. Our preferred approach has always been a tax deferral scheme. Tax deferral is not a simple tax incentive, but a trade-off, because tax will be paid, only later. From a tax policy perspective tax deferral extends the tax base long term and provides equity for all retirement savers.
"Tax deferral may reduce the tax take now, but the pay-off is that it will extend the tax paying years of baby boomers into their retirement years, when public health and superannuation costs are projected to impact substantially on Government expenditure. The equity that tax deferral delivers to savers is that it taxes income at the appropriate rate when it is received as retirement income, not at the marginal tax rate that applies at the time it is saved.
"The Government wants to encourage middle and low income people to save. Ironically low income earners with money in superannuation schemes are currently paying penal tax rates and the Government has again not addressed this.
"However, we do agree that employment based schemes are good ways to encourage people, including those on middle and low incomes, to save and are pleased that Business New Zealand also supports these as a vehicle to encourage savings.
"New Zealand still lags behind other countries in not having an integrated policy for public and private provision of retirement income. Making the sort of changes required to implement such an integrated policy won't be easy, but the longer we wait, the harder it gets," says Ms McCulloch.
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