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Superannuation not a sleeper issue this election

Wednesday, August 3rd 2005, 9:26PM 5 Comments

by Philip Macalister

I don't know if any of you guys and gals out there watch Willie Jackson's Eye to Eye programme late on Tuesday nights on TV One - but I recommend you do.

It's billed as looking at current affairs through Maori eyes.

The reason I mention it is -not just because it can be good entertainment, but because he debated, last night the idea of lowering the age of entitlement to NZ Super for Maori.

(This was good entertainment with the two Pakeha blokes stirring up the two Maori women. Act's Stephen Franks described their arguments as unreasonable and the response was: "I'm the most reasonable person I know").

There's two points which came out of the programme for me. It showed that superannuation is potentially an election topic this year.

I didn't agree with the ASFONZ argument that there is little difference between the political parties in this area.

During the show the Maori Party argued that the age of entitlement for Maori should be lowered. Host Jackson, a former Alliance MP, argued that the age of eligibility should be lowered across the board and that NZ Super should be means tested.

Meanwhile Act's Stephen Franks argued NZ Super is unsustainable and that it should be individualised savings accounts.

The Maori party argument is based on the fact that Maori die earlier so miss out on some of their entitlement, and traditionally many Maori miss out on their pension for a number of reasons.

Frankly their arguments are daft. They are separatist and they are seeking favoritism. If you give the pension to Maori earlier, then smokers should have a lower age of entitlement and women (who live longer than men) should have a higher age of entitlement.

The second point is one I have been interested in for some time, and one I understand Labour may make some noises on. That is people can select their age of entitlement. The pensions paid will be actuarially adjusted so that each person gets the same amount (sort of). People who start early would get a lower annual entitlement while those who start at a later age would be paid more.

It's an idea which has merit and one I would like to see debated further.


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Comments from our readers

On 4 August 2005 at 10:44 am Jens Meder said:

You are right, Phil!

Already before missing Willie Jackson's show, I also disagreed with "not much political difference on super", despite National's admission of approving with the NZSF only to get it off the political agenda (Don Brash, February 2005).


How can anyone miss the socio-economically fundamental innovation of the NZSF allocation to Personal Accounts (PAs) which, together with a political mandate to have more of it invested in NZ (infrastructure construction) - as on the political agenda through the Centre Parties?


How can anyone not see this as an effective step into the "Ownership Society", the most advanced stage of economic democracy, eliminating social division into "haves" and "have-nots", and acting as a more effective engine of economic growth acceleration than what is foreseeable under the status quo, or even possible under freely consumable tax reductions?


Already, the Greens seem to shift towards supporting more NZSF investment in NZ, and ACT towards PAs in principle (but too smallminded to applaud the Centre for it).


If you have genuine doubts and disagreements on that, then please come forward with questions and/or substantiated refutations.


I can see it emerging as the most constructively important election issue, urgently needed to make all the other "goodies" and benefits really sustainable without consuming the economy back towards poverty. Jens


On 5 August 2005 at 8:54 am Ian said:

NZ Universal Super is to provide a basic income for those who are over a certain age - 65.

It is not for the benefit of the families of superannuitants. Nor should those who have been able to save additional funds be penalised by some form of means test. They have already paid higher taxes on their income and will also pay higher taxes on their retirement income. Quite apart from the GST they pay on their expenditure.

The need at the present is to build up the Super Fund to assist in bridging the gap between the increasing numbers of superannuitants.

If anything there is an argument for delaying the payment of superannuation to 67 as in USA or 70 as in parts of Europe.

The major incentive for Those whose health has deteriorated before 65 is not Super. How do we view Mr Lange's situation at age 63.

I reiterate that Universal Super is a means of helping to provide a basic income fro those who are living after 65. Due to the extended life expectancy of the current generations we have to provide more funds even to just stay in the same place.

The fact that the fund has earned 14% gross this year makes me wish I could put some of my funds with them.

This argument has been played over many times in these columns. If equity is a problem you then need to consider how much is received by many whose health is afflicted by what used to be called 'Self inflicted wounds' The Universal superannuation is low enough as it is without putting further demands on the funds available.

Be thankful that in 1898 we had sufficient foresight to start old age pension and gradually improve the situation as the years went by. The Maori Health situation will not be cured by pirating the Superannuation Fund. It needs to be dealt with directly as a separate issue. Perhaps making Te Reo a compulsory subject for all students through to tertiary level might help to raise the mana and self-image of the people.

Ian H Douglas


On 6 August 2005 at 9:54 am Jens Meder said:

We agree, that our Universal Super- US - is a basic, non-means-tested income for those over 65, and that it has nothing to do with health and other benefits before or after 65, which are to be dealt with as separate issues.

But Ian does not comment on the Ownership Society, a vision of poverty elimination through a deliberate policy effort towards at least a minimally meaningful level of personal wealth ownership by all citizens eventually, which is most effectively achievable - even if only at a modest rate for a start - through the allocation of the NZSF to PAs(Personal Accounts).

If he thinks it is nonsense or undesirable, he should say so, and why.

Apart from what we agreed on, I think his vision is improvable, as somewhat defeatist in doubting that our "low enough" US might not be sustainable from age 65 even with the help of the NZSF, and "it is not for the benefit of superannuitants' families"!

A direct question: As we all contribute to the NZSF, why isn't it more fair to have your contributions returned to your family in case you die before it is consumed? The taxpayer does not lose a cent, and gains by not having to return any of the PAYGO you paid!

Also - if possible, isn't it more fair and economically and morally desirable to benefit from a new enterprise immediately in the function it is designed for (such as when living in your own home long before having paid for it all) - which in the case of the NZSF means it starting to pay out US in a very simple, fair and transparent way from its first year of allocation to PAs, releasing annually increasing amounts of taxation revenue for spending in other areas?

We would get experience and a better predictable understanding of what will be sustainable when, and in the case of foreseeable deficiencies we can decide - do we prefer to postpone the entitlement, or step up our accumulation rate in the knowledge, that it will produce immediately measurable and tangible benefits and economic growth, apart from guaranteeing the desired US entitlement age sustainability for younger voters at that particular time, something probably all of us cherish.

Yes, let us rejoice in the NZSF performance so far, and for the security of diversification, it will be wise always to have some of the NZSF invested abroad. For efficiency, it will also be desirable to have all initially small KiwiSavers accounts collected and invested in bulk through Inland Revenue and the NZSF.

But - and this is something for Ian's expertise to agree or refute: While it is clear that for an individual investor it is more profitable to invest at a 20% return from abroad than for a 5% return at home (although most of us still prefer even a quite low return investment in our own home, based more on a need felt than profit expectation) - for the national economy a 5% interest NZSF investment in needed infrastructure construction is more profitable than a 20% return from the same capital from abroad, because say a 50% labour cost in the infrastructure delivers more than twice the taxab le income than the 20% return from abroad. There are other profits in this, which I leave for Ian to discover, unless he refutes it all.

Jens.


On 9 August 2005 at 9:05 pm ian H Douglas said:

Hi Jens

the wonership society for the majority of NZ is met by the home ownership - with the mortgage paid by the time your retire. The proportion of NZ owning shares is small - particularly so after the 1987 market downturn - crash!, but also after the miserable overseas investment performance over the past 5 years until relatively recently. The NZ share market in the same period did well - and FONZ investment is a way for the small investor to have a share of this. It should not be part of the Universal Super - that is for retirement income - LEAVE IT BE Ian


On 10 August 2005 at 12:05 pm Jens Meder said:

Hi, Ian.

We could agree to disagree, but the economically mediocre realities you mention are not good enough for the accelerated economic growth I believe the majority desires to overcome apparently relatively diminishing home ownership and increasing child poverty,all of which could be reversed though a systematic effort towards the Ownership Society FOR ALL.

1. There is no doubt, that saving and useful

investment is wealth creative inividually and nationally - so the NZ Super Fund is OF PERSONAL ACCOUNTS is a universal wealth creator by and for all. Fact or not?

2. Share market crashes are usually the results of speculative overinvestment on credit - even the Japanese recession was a result of that without any sharemarket crash(?), because big business invested (ON CREDIT) in more productivity than what could be sold profitably.

If you (the NZSF) own assets free of debt, you are petty immune to share market price fluctuations, especially in the case of a huge fund with wide diversification. So - NZSF Personal Accounts would be more safe than the average individual's small investments on their own. Fact, or not?

3.Normally, the rate of saving and investment is the crucial factor of wealth creation, with marginally different earning rates normally only a fraction of the investment - which means in a continuing investment effort, marginally differing yearly earning rates are not of the crucial importance you seem to believe.Fact, or not?

4. You are right - anyones private investments resulting from efforts not available to all - like the proposed workplace savings - should not be part of universal super. But NZSF personal accounts are only your share of a universal effort to make better universal super more securely sustainable than what would be possible by the taxpayer alone without the marketable assets of the fund to help him, and in this it makes little difference to the taxpayer whether the NZSF consists of personal accounts or not, but considerable difference to the account owner, if it helps him to accelerated home ownership, or a legacy to family in the case of death before the account is consumed. It still has helped economic growth and universal super sustainability - so we agree?

(If you are not satisfied with this, draw my attention to which of your sentence(s) I haven't answered at least implicitly).

Yours in appreciation, Jens.


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