Let well alone
The Listener in its March 10-16 issue 2007
(Warning: This is an example of a not so very well informed piece of journalism; false claims in Italic; therefore a Letter to the Editor followed, setting the facts straight.)
By Joanne Black
In the recent fuss over what Foreign Affairs Minister Winston Peters said about Iraq – which amounted to very little and nothing that most people would disagree with – little attention was paid to his other musings, this time on compulsory superannuation.
Peters is a believer in compulsion when it comes to superannuation savings. Ten years ago his proposals for a compulsory scheme were, in anyone’s language, resoundingly defeated. But plainly, Peters believes 93 percent of people can be wrong, and he has not given up. “We are now in a position where we have no choice – we must have compulsory savings,” he said last week.
Some things do not change and he is as wrong now as he was in 1997. New Zealand does not need compulsory superannuation and it would be a retrograde step if it were imposed. For a start, there is the problem that Finance Minister Michael Cullen alluded to recently. If the government requires people to invest their money in a certain way, then people will certainly look to the government for reimbursement and recompense should their funds be lost.
Another potential outcome is even more worrying. Compulsory superannuation would almost certainly spell the end of New Zealand Superannuation. For generations, New Zealanders have relied on this universal entitlement. Those who admire Australia’s compulsory superannuation as a model workplace-based system tend to forget that there is no universal entitlement to superannuation in Australia. There, superannuation is means-tested.
The attraction of Australia’s scheme is partly the building of individual accounts. But a woman can expect her nest egg at retirement to be less than a man’s because, during their working lives, women usually earn less than men.
There is nothing to stop anyone making private provision for retirement savings in New Zealand now and, arguably, doing so will be made easier from July 1, when KiwiSaver begins. But that is just one of the vehicles available – other managed funds, bank deposits, property, shares and stuffing money under the mattress are also options.
People are entitled to choose the savings method they prefer, if any. Under a compulsory scheme, however, savers would no longer have a choice. Their money would go into the managed funds industry – whose members will surely be voting for New Zealand First at the next election. The introduction of compulsory superannuation would be an overnight bonanza for them. KiwiSaver will be a gift.
It is alarming, though not surprising, that many people see KiwiSaver as a forerunner to compulsory superannuation. But such a step is not inevit-able – neither Labour nor National supports it.
Peters has made sweeping criticism of the economy, saying that the policy mix of a high dollar, high interest rates and a massive current account deficit is unsustainable while the country also wants economic growth. Many households already struggle on low wages and with a high cost of living. To suggest that they have some greater responsibility to the economy than to manage the costs they already face every week is ridiculous.
Some households are in debt because they cannot find another way to pay the bills. Many others have high debt because they have borrowed to finance investment properties, to take advantage of tax breaks. One politician’s description of “household debt” may be another person’s perfectly rational superannuation policy, tied up in a property investment.
And there is the nub of the aversion to compulsion. People should be entitled to spend or save their money how they see fit. Compulsion is a tool that should be used sparingly, and only as a last resort. Most New Zealanders reach retirement with a paid-off house – a very good start for a secure retirement.
They rely on New Zealand Superannuation, to which every generation of New Zealanders contributes through taxes, either for their entire income post-retirement or as the basis of an income that they top up from their savings. It works. Only one percent of New Zealanders over the age of 65 are considered to be in severe hardship. Better, of course, that there was no severe hardship, but one percent is hardly a statistic that indicates a crisis in superannuation savings. If it ain’t broke, don’t fix it.
Letter to the Editor in response to this article:
Not So Super
Joanne Black (Editorial, March 10) expounds on the virtues of our universal superannuation and feels it should not be tampered with as it is working so well.
I am a 69-year-old New Zealander who has been paying taxes in this country since 1955. I am being denied my full superannuation, only because I am married to an American.
In the US, taxpayers are required to pay a portion of their salary into a compulsory savings fund. Thus, everyone receives a different amount in retirement.
My New Zealand government feels that from my husband’s compulsory savings in the US, we are getting enough for the two of us to live on, so why should they pay me my full superannuation?
Incidentally, he has lived and paid income tax in this country for 20 years and receives no NZ Superannuation. If we divorced tomorrow, I would receive my full superannuation.
New Zealand Superannuation is not universal, even if one is a New Zealander, works until the age of 65 and pays taxes for 47-plus years.
I think Black might agree that the myth of universal superannuation could be viewed as what it is – a myth.
Ruth Humphrey (Kohimarama, Auckland)