In ASFONZ's presentation to the Periodic Reporting Group today, chairman Mike Woodbury said "Employment-related superannuation is at crisis point, and to grow it requires a meaningful circuit breaker".
According to the Government Actuary's latest annual report (prepared as at 30 June 2002) employer-sponsored schemes covered just 14.6% of the workforce at the end of December 2001. Wind-ups are continuing.
"Contrast that number with information presented at the Retirement Commissioner's saving symposium last Friday, which suggests at least 50% of New Zealanders will need to save privately if they want their pre-retirement level of consumption to be matched when they retire" says Woodbury.
"Workplace savings arrangements are not just about deferring current spending for use in the future", says Woodbury. ASFONZ points out that employment-related superannuation schemes offer savers significant economies of scale when compared to retail products. "Employers, unions and employees must be encouraged to understand not just the intrinsic benefits of adequate retirement savings, but also the significant group discounting benefits open to participants in employment-related schemes (of particular significance in a lower earnings rate environment). These group discounting benefits include areas of administration and investment fees, and can also extend to the purchase of insured benefits such as death, disablement and even heath coverage" says Woodbury.
"Government should lead other employers by example in this area, actively promoting employment-related superannuation in the wider public sector. The Teachers' Scheme is an excellent recent example of what can be achieved among the employer, union and employees", he says. He adds that overseas experience strongly suggests workers are only too willing to surrender some or all of a potential pay increase in return for an employer superannuation contribution.
ASFONZ has told the PRG that in order to breathe life back into workplace retirement savings, the Government needs to do more than simply acknowledge that deduction at source is the simplest means of growing employment related retirement savings. "Employment-related superannuation may merit differing policy treatment to retail super".
While he is quick to point out that he is not talking "incentives" Woodbury suggests, that among a range of options, this differing treatment could include either full or partial deferral of taxation on employer contributions and/or investment earnings. "As a corollary to any policy-level advantage given to employment-related retirement savings, a preservation or lock-in framework may limit the current opportunity that exists for retirement savings leakage".
He believes that deferral could complement future state funding of NZ Super from a timing perspective, and may therefore have much to commend it by analogy with the Cullen Fund. "It could see an increase in the Government's revenue stream at around the same time as the baby boomer generation is putting pressure on the cost of the universal pension. It may therefore be a way of reducing the current intergenerational cost of state funded and universal NZ Super".
Woodbury concludes by says, "Government's current hands-off approach to employment related retirement savings has not worked. New initiatives are necessary to create a "tipping point" whereby employers will return to providing superannuation in significant numbers. ASFONZ is of the view that the savings industry needs to offer potential solutions for the policy maker's consideration, and has embraced the recent established Saving New Zealand industry forum which aims to generate both a consensus approach and positive solutions".
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