by Rob Hosking
Sole suggests giving people the option of retiring later, and actuarially increasing the amount those people get.
This could be called flexible National superannuation or FNS.
The entitlement would implicitly formalise the idea that New Zealand Superannuation is “a right, not a benefit” Sole says in his submission.
“FNS would encourage people to work longer, it would give people of retirement age and approaching retirement age a more definite target date for managing their savings, and because they will have used their savings to increase their NZ Superannuation for their twilight years.
It spares the very old from having to manage large personal investments.”
He also advocates ditching the current taxation regime, where savings are taxed when they are first earned, then on the returns from their investments, and then exempt when drawn on (the TTE model) to allowing a tax break when the money is first put aside, and again on earnings from savings.
Sole argues that the current ‘pay-as-you-go’ method of funding superannuation means people fund their parent’s retirement in the hope that their children will do likewise – “pray as you pay”, he calls this.
“Cullen’s new super fund goes some way, but only some way, to moving us away from ‘pray-as-you-pay’.”
However he says that TTE undermines the benefits of the Cullen scheme, by firstly inflating today’s tax revenues However, because the TTE tax system used in New Zealand brings forward the income tax on deferred income (retirement savings) to the present, this undoes in two ways the benefits of Cullen’s super scheme.
Firstly, it inflates today’s tax revenues in the same way that the big fund does; secondly, by leaving the ‘E’ part until savers retire, it deprives future governments of much needed income.
He suggests capping EET fund charges to 1.5% per annum, and grossing up deposits using the previous year’s tax rate “Where last year’s marginal tax rate is the wrong figure, this will be corrected through the tax system.
(Unfortunately, it seems a good environment for superannuation savings cannot co-exist with a simple tax system!)”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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