Do not file New Zealand Superannuation just yet

If last year's superannuation referendum was a political disaster for Winston Peters, it was also the seal of fate for the concept of compulsory superannuation. The result of the referendum virtually guarantees that New Zealanders will never experience a Government-sponsored compulsory scheme.
So, where to from here? Surely New Zealanders deserve clearer directions for the road ahead. The current contractual savings environment is clouded with numerous disincentives that impede positive growth.
Undoubtedly, the scheme proposed by Peters was ill-founded, the wrong design, and the referendum was painfully premature. The public expressed its opinion in resounding fashion, possibly reflecting the fact that very few voters either understood or wanted to understand the topic.
So if last year’s referendum was the Government’s solution to the thorny superannuation problem what other solutions represent the fallback plan? The final report from the Jeff Todd chaired Periodic Review Group (PRG) in December reiterated previous views and provided no more light to lead the way forward. For market observers who research and endeavour to remain abreast of the 'direction' in New Zealand savings, is it time to call for a ‘brand new’ consultative approach?
A risk is developing that the very important file on superannuation may be shelved, yet again. It is just not satisfactory for our political leaders to believe the PRG's views that New Zealanders will review their spending habits and start to save voluntarily as a result of passive education.

Improve the environment
The key to a more vigorous and healthy savings industry is where Government creates an environment that is more attractive for ordinary New Zealanders to save because they want to, not because they have to. This is achievable and our political leaders should not need public approval for subtle changes to make it happen.
Yes, Government has already sponsored some research. The reports produced by the PRG have set the scene at least, albeit without a proper conclusion for positive future action. It is pleasing to note that the Reserve Bank now collects and monitors managed retail and wholesale investment funds figures. This data was previously a minefield of inaccurate information. Also pleasing are WestpacTrust and FPG Research undertaking a periodic survey of local savings trends.
Accurate and published research is important as it provides both the public and private sectors with concrete facts to contemplate. Currently, the facts are that New Zealand may be falling behind in building a solid base of recognisable long-term private savings.

New action required
Did Government and the people of New Zealand recently take a wrong turn in the planning process? The Office of the Retirement Commissioner has done its best on minimal funding, to provide a basis for educating the public, but surely this process is the soft and cheaper option for our politicians. Recently, our community watchdog, the Consumer's Institute published a report on publicly offered superannuation that did very little for building public confidence. The process of ‘one step forward and one step back’ will get nowhere. Last year all media forms seized the ‘news’ opportunity and turned the normally dry subject of superannuation into a hot topic. Now, regrettably it has been put back on the shelf and may stay there for some time unless someone actively promotes further discussion.
Most industry observers understand the need for and support some Government intervention in ‘forward planning’ for the superannuation industry. Debate should not grind to a halt because the recent referendum squashed the compulsory scheme. We heard many valid arguments last year both for and against the Peters‘ proposed scheme.
The problem lay not with the compulsory superannuation concept, but with the actual scheme that was proposed. In addition some negative feeling may have been revealed for the person who promoted it. This may be harsh in hindsight, but there was virtually no chance that the referendum would succeed from the time the referendum was announced in February. Who did the market research, and who were the panel of experts that designed the scheme?

Government does intervene
The subject of Government intervention in superannuation in New Zealand is not new. There have been three major rulings since 1973.
1975 - Labour introduced a compulsory scheme without a referendum that caught all income earners for a percentage of their earnings. Collected taxpayer contributions were channelled into investment portfolios managed by a Government agency. The scenario of New Zealand Inc. emerged, and the public did not appreciate the potential scenario.
1976 - The Labour scheme was dismantled after only six months in operation by the new National Government. It was replaced with National Superannuation for all New Zealanders from age 60, funded on a ‘pay as you go’ basis. This scheme still exists, but the retirement age is being pushed out to 65.
It should be recognised that tax has always been used as an incentive or disincentive to saving. The dreaded ‘surtax’ came in under Labour in 1989 and is only now being removed, and for those who can remember the years prior to 1988 all private approved superannuation schemes were exempt from tax on investment earnings.
1987 - Labour did not change the superannuation regime, but it did introduce a new tax policy concerning a 'level playing field' for all income earners. Superannuation was caught in the net, and caused definable grief within the savings industry. Even though the value of funds had substantially dwindled in size as a result of the ‘1987 crash’ the change in tax treatment provided an effective catalyst for two out of three of registered private schemes to be voluntarily liquidated.
It is no wonder that the New Zealand economy and investment markets suffered in the late 1980’s. The New Zealand share market has never recovered. It is notable that a multitude of unit trusts and other assorted ‘shorter-term savings’ vehicles have emerged since 1988. In terms of funds growth the new vehicles have reaped considerable market share, and may now represent a mistaken surrogate for superannuation to many investors.