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Act's low key super policy

Act is going into this election with a policy which could be described as Super Lite. It's mainly focussed on changes to the state pension, such as it into a benefit and decreasing its value.

Monday, June 24th 2002, 7:03AM

Executive Summary
New Zealand’s spending on superannuation is twice that of Australia’s. Our scheme is less well targeted and more generous. Over 50 years the cost will rise to 10% of GDP - the same as the first Labour Government’s total spending on everything.

 

Too many political parties make irresponsible promises to buy votes. They see the future as someone else's problem and believe they can make promises on behalf of politicians 40 years from now.

Labour’s superannuation scheme does just this. It is smoke and mirrors. It doesn’t change the fact that we have the most costly superannuation regime in the world, nor improve our chances of funding it. It will be paid for by the hard work and sweat of this generation of workers who will be in for a nasty surprise when they come to retire.

  • There should be a welfare safety net for young and old alike who are unable to work.
  • When governments promise a generous universal pension they undermine thrift and prosperity. Instead they breed dependency, conflict and distrust.
  • Economic growth is the most important factor in ensuring generous superannuation payments.
  • New Zealand's current arrangements are not sustainable long term. Adjustments should be made progressively to eligibility rules and pension levels without disadvantaging those too old to adjust.
  • People anticipate and plan for their retirement as they do for other calls on their savings.
  • There should be a welfare safety net for working age and older people who cannot work.
  • When governments promise a generous universal pension they undermine thrift, self-reliance and prosperity; instead they breed dependency, sectional selfishness, conflict and distrust.
  • New Zealand's arrangements are basically consistent with the safety net concept, but they are overly lavish and inadequately targeted.
  • Other eligibility criterion, such as citizenship, should be reviewed.
  • Economic growth is the most important policy for achieving security in retirement. Tomorrow's workers will not accept our voting ourselves a comfortable state pension at their expense.

Act's goals

  • To progressively convert the scheme to a safety net.
  • To protect from hardship those who have retired or are about to retire.

Act’s proposals
 

  • Allow individuals to generate economic growth and promote prosperity.
  • Reduce income taxes and promote full employment to facilitate retirement savings.
  • Pursue a 'no surprises' policy on superannuation. There has never been a reasoned public debate about the proper role of the state, the conditions of eligibility and the relationship between the level of the benefit for invalids and for the elderly.
  • The long-term solution to superannuation is funded super. Everyone with their own account in the superannuation scheme of their choice. ACT as a party of choice and freedom and recognises that the state should not compel those who have made adequate arrangements to save twice.
  • There has been too much party politics on super, causing great or unnecessary worry. Act would seek a genuine multi-party accord and the parties are not as far apart as they pretend.
  • All parties agree the present retired – who are on fixed incomes should be ring fenced.
  • All parties agree that those who cannot provide for themselves – the invalids, those with no income, should have an adequate state pension.
  • All parties agree that demographic change will impact on superannuation.
  • Act says we should attempt to agree on as much as possible.

Discussion

Retirement is a predictable expense. In a liberal society, adults would take responsibility for providing for their own retirement. Lower tax burdens and greater prosperity would make it easier for them to do so. The state could provide a safety net as a last resort for the minority who would otherwise be in poverty.

Too many political parties are making irresponsible promises about superannuation in order to buy votes. They see the future financing of those promises as someone else's problem. However, broken promises reduce confidence in our political system, undermine our democracy, and unsettle the aged.

The New Zealand government is spending around 6% of gross domestic product on cash benefits for the aged compared to around 3% in Australia. New Zealand's scheme is less well targeted and more generous.

In 1995, a New Zealander aged 55 on an average or modestly below-average income might expect a gross retirement benefit that replaced around 61% of gross existing earnings. This is up from 32% in 1961. For Australia the comparable figures are 41% and 19% respectively.

With unchanged benefits, costs are expected to mount rapidly as the population ages. Since every tax dollar spent is estimated to cost the community $1.50, this implies growing economic waste. Concerns about intergenerational equity and the emigration of our youth would increase.

Unless there are dramatic changes to our living standards and savings habits there is a strong possibility that the age of eligibility for pensions would need to rise, but in a manner that protects those close to retirement giving everyone time to adjust. Pensions (and benefits) would need to be indexed to the consumers price index rather than to wages, as befits a safety net, with periodic (10-year) reviews and pensions would need to be progressively aligned to the invalids benefit, with due allowance for age related costs.

In light of this a clear and precise transition path from where we are today to a situation where 95% of people are able to provide for themselves, while protecting the elderly, must become a priority.

Finally, the real way to make retirement affordable is to grow the economy at 4% plus sustainably. A rich country can afford to be more generous.

« CHP offers saving incentiveAMP & Good Returns launch superannuation website »

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