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Parties outline their concerns

Aon Consulting recently sent a questionnaire to the major political parties in New Zealand asking for their policy stance on a number of typical issues on superannuation.

Tuesday, July 9th 2002, 9:45PM
The political parties questioned included Act, the Alliance, the Green Party, Labour, National, New Zealand First, and the Progressive Coalition. The Progressive Coalition did not submit a response. ACT provided direct answers to some parts of the questionnaire and their other replies are taken from the detailed material provided. The Alliance indicated that their response reflected current party thinking rather than formalised policy. The Green Party’s reply is taken partly from a policy document and partly from dialogue with a party spokesperson.

1. New Zealand Superannuation

1.1 The parties were asked for their opinion as to the priority of reform for New Zealand (state-provided) Superannuation, possible changes to the age of eligibility for New Zealand Superannuation as costs rise with an ageing population, whether or not it should be means-tested and whether or not budget surpluses should be used to help fund it in the future. Responses are summarised below:

 

PARTY

Importance of Need for Reform*

Age of Eligibility for NZ Super

Means-Test NZ Super?

Budget surpluses put aside to help meet cost of NZ Super?

ACT

10

Increase to 68 over 30 years

Not ruled out

No

Alliance

2

Remain at 65

No

Yes

Greens

1

Remain at 65

No

No

Labour

1

Remain at 65

No

Yes

National

1

Remain at 65

No

No

NZ First

10

Remain at 65

No

Yes

*Rated on a scale of 1 to 10 where 1 = no reform needed, 10 = in need of urgent reform.

1.2 The parties were asked to comment on what measures they would propose to help meet the growing cost of New Zealand Superannuation if they did not believe that budget surpluses should be used to do so. ACT is opposed to the high cost of New Zealand Superannuation and promotes self-reliance. The Greens believe that the current arrangements are affordable well into the future and that any budget surpluses should be applied more widely and thus will indirectly help to solve funding problems. National stated that the standard of living for retirees is ultimately dependent on the performance of the economy, and that their economic growth policies were therefore of vital importance.

1.3 The parties were asked to comment on the major advantages and disadvantages of the current regime and how they would address any disadvantages identified.

Act promotes personal responsibility, opposes the cost of New Zealand Superannuation, and opposes partial pre-funding of New Zealand Superannuation because its funding relies on borrowed money, it does not change the costs or affordability, it funds a small portion of the benefit, and is only an equalisation account. Act is committed to a universal superannuation scheme, in individual accounts, and will link the state benefit to inflation, not wage growth.

The Alliance supports current or higher levels of universal superannuation and would like to see as much money from the New Zealand Superannuation Fund invested onshore in accordance with an ethical investment policy.

The Greens are happy with the current New Zealand Superannuation regime and believe that ‘there is no need for urgent or radical changes to fund super.’ If the New Zealand Superannuation Fund goes ahead, the Greens would want the funds invested onshore in an ethical and socially responsible manner, and they oppose the creation of individual accounts that they see as discriminating against women and Maori.

Labour maintains that the New Zealand Superannuation Fund is ‘designed to secure current entitlements for the foreseeable future’, and has ‘substantial built-in flexibility’. Labour acknowledges, however, that this may discourage personal savings.

National states that the roles of the state and the individual are not clear in the provision of retirement income, that individuals are uncertain about what they should be doing, and expressed a concern that ‘too many [individuals] are doing nothing’ about their future retirement income needs. National believes the New Zealand Superannuation Fund has increased peoples belief ‘that [their] retirement income is more secure than it was before, which is clearly not true.’ It supports existing arrangements for New Zealand Superannuation while acknowledging that the entitlement can do no more than provide ‘a basic lifestyle in retirement’.

New Zealand First criticises the New Zealand Superannuation Fund for being only a cost–smoothing device, for not having individual accounts, its vulnerability to ‘raids’, that the benefits are too low, it disadvantages certain groups and has limited lifespan. The ‘present scheme is [seen] merely [as] better than doing nothing but it can be converted into Individual Accounts.’ New Zealand First proposes to ‘provide a stand-alone fund that is free from political interference and that provides a secure savings and investment plan.’

 

2. Private sector superannuation

2.1 The parties were asked to similarly rate the priority of reform for the private sector superannuation regime and to generally rate the importance their party places on employer-sponsored superannuation schemes in New Zealand. The responses were as follows:

PARTY

Importance of Need for Reform*

The Importance of Employer-Sponsored Superannuation Schemes

ACT

3

‘We support individuals making private provision’

Alliance

3

More required to compliment Government provision

Greens

8

Needs to be encouraged to compliment state provision

Labour

7

Rated ‘Highly’ – Support encouraging saving for retirement

National

8

‘Important part of savings landscape’

NZ First

10

‘Important part of "second tier" savings strategy’

*Rated on a scale of 1 to 10 where 1 = no reform needed, 10= in need of urgent reform.

2.2 As with state-provided superannuation, the parties were asked to comment on the major advantages and disadvantages of the current regime and how they would correct any disadvantages mentioned.

The Alliance would like to see more employer provision and acknowledges the complexity of associated tax issues. It proposes to review these and to encourage employer provision.

The Greens believe that real wages need to be increased so that more discretionary income can be saved for retirement. They believe that tax disincentives for employers offering superannuation to lower paid workers should be removed.

Labour, in recognising the danger that New Zealand Superannuation might convince people there is no need to save, points to ‘the need for staged reforms to encourage private provision’.

National emphasises the need for a ‘high degree of emphasis on self-reliance and the need for individuals to provide for their own retirement’.

New Zealand First believes that there is a ‘lack of incentive to save’ privately and proposes to ‘explore a range of incentives to increase private savings’.

  • The questionnaire also asked how the parties responded to the continuing decrease in the number of employer-subsidised schemes in New Zealand and how it would encourage these, if at all.
  • PARTY

    Response to Continued Decrease

    Suggestions for Encouragement

    ACT

    Concerned

    ‘Lower taxes to assist individuals to afford higher savings’

    Alliance

    Concerned about lack of provision

    Will discuss how to increase provision and remove barriers with employers

    Greens

    Concerned

    ‘Remove tax disincentives for employers offering super to lower paid workers.’ Facilitate the portability of scheme interests, the establishment of schemes for small and medium companies, e.g. via pooled plans and remove barriers such as prospectus requirements.

    PARTY

    Response to Continued Decrease

    Suggestions for Encouragement

    National

    Has occurred for a ‘number of reasons … from amalgamations to compliance’

    ‘Will investigate reductions in compliance costs’

    NZ First

    ‘To be considered as part of overall strategy of growing savings’

    Labour referred to its other answers in response to this question.

     

    3. General regime and industry

    3.1 More general questions relating to the superannuation framework and taxation issues were posed with regard to:-

    • the party’s opinion on the current tax regime as it affects 1. contributions, 2. investment income and 3. benefits, and whether those taxes are considered punitive, suitable or advantageous;
    • the changes proposed to taxation as it impacts on retirement savings;
    • whether the party feels that retirement savings deserve incentives compared to other forms of saving; and
    • whether the party has a preference for the method of payment of benefits from superannuation schemes (lump sums versus annuities).

    The parties’ responses are summarised below:

    PARTY

    Current tax Régime

    Changes Proposed

    Incentives for Retirement Savings?

    Method of Payment Preferred

    ACT

    ‘Keep as is’

    None

    Lower taxes

    No preference

    Alliance

    Suitable in all cases.

    No specific changes but will review.

    Yes – but needs a balanced approach to this complex area of policy.

    Prefer pension payments.

    Greens

    1: tax on contributions is punitive

    2: tax on investment income is inequitable with regard to other forms of savings

    3: tax free benefits is suitable

    Address the inequities of SSCWT without complicating compliance

    Equality of tax treatment across all savings promoted

    No preference – individual choice preferred

    Labour

    1: tax on contributions is fair on individuals, but discriminating against employees in the lower tax bracket.

    2: tax on investment income is unbalanced with respect to income levels and equality across all savings.

    3: tax free benefits is fair.

    Reduce SSCWT to a maximum of the marginal rate on an employee’s income. Reviewing investment income tax.

    ‘Still an open question.’

    No preference

    National

    1: tax on contributions is suitable to the extent that they are taxed at marginal rates.

    2: tax on investment income is punitive - it pays no regard to the individual’s marginal rate; lower tax bracket individuals are discouraged, upper tax bracket individuals are encouraged.

    3: benefits should be taxed; ‘Any changes would only ever be traded off with changes elsewhere.’

    Reduce personal, company and related income tax.

    Tax rebate on capped level of contributions into locked-in long-term savings (TTE).

    Yes – supports modest savings incentives not because they might boost total quantum of savings but because they can boost long-term savings for retirement income.

    No preference

    NZ First

    Tax regime is, overall, punitive. Different effects for different people – regime should ‘bring about desired change in behaviour’ – prefer tax ‘on the way in’.

    ‘Must include incentives for saving’ alongside lower personal and corporate tax and incentives to grow the tax base.

    Yes – changing demographics make this essential.

    Options depending on the circumstances of people.

    3.2 Questions on industry involvement were asked with regard to:-

    • whether the party feels the industry sends conflicting messages on what it would like to see for retirement savings, and
    • what the party would like to see from the savings industry to assist government in retirement savings policy formulation.

    The responses were are follows:

    Act did not answer these questions directly, but stated that it ‘does not promote tax incentives for savings and promotes lower taxes as the key policy to enabling people to make their own provision for retirement. Act believes in individual responsibility and strongly promotes the importance of private provision.’

    The Alliance offered no comment on the first of these questions and would like ‘open and honest dialogue from an industry speaking with a united voice.’

    The Greens do not especially think that the industry is sending conflicting messages and feel that some commendable work, particularly with the Retirement Commissioner, has been done. They would generally like to see a good, ongoing contribution and, in particular, would like to see some innovative thinking regarding ethnic and gender disparities in superannuation. They would also like progress to be made on scheme-to-scheme portability.

    Labour is ‘disappointed at the withdrawal of private sector funding for promotional work by the Retirement Commissioner’, and would like to have ‘continued dialogue and input’ from the industry.

    National wants a consistent and united approach from the industry and believes that the silence on the New Zealand Superannuation Fund is disappointing.

    New Zealand First stated that ‘the industry often provides "targets" that are out of the reach of most savers and has not had a good record in providing sound schemes.’ It would like ‘greater agreement on the essential elements of retirement savings packages.’

    This report was prepared by Aon Consulting New Zealand Ltd

    « Editorial: Why National has little credibility on superAMP & Good Returns launch superannuation website »

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