The Government is committed to maintaining New Zealand
Superannuation entitlements at their current level but will
need to explain how it intends funding them.
Finance Minister Bill English said in his Budget yesterday
that entitlements for superannuation were "absolute" at 66%
of the average wage after tax, paid from age 65.
He avoided the political minefield entered by the Australian
Government of moving the age of entitlement up to 67 over
several years.
He also avoided the 1991 National government's folly of
cutting super payments and raising the age.
However, contributions to the super fund will be suspended
for 11 years.
"When it was set up, the idea of the super fund was to invest
budget surpluses.
"The Government was then in surplus and expected to remain so
for the foreseeable future.
"Those budget surpluses have disappeared."
Had contributions continued at the previous rate, the
Government would have had to borrow an additional $1.5
billion a year, rising to more than $2 billion a year during
the next decade, he said.
It made little economic sense to burden future generations
with debt incurred financing investments intended to reduce
their need to borrow.
The Government would make a contribution of $250 million to
the super fund next year to assist it find suitable
investment opportunities in New Zealand and support local
capital markets during the downturn, Mr English said.
Superannuation will be funded out of future tax take, but
that was forecast by Treasury to fall from $41 million last
year to $37.8 million this year and $36 million next year.
WHK Taylors taxation principal Scott Mason said deferral of
contributions to the superannuation fund was logical and an
easy political hit.
Borrowing money at 6% to put it on deposit at 3% did not make
sense.
Higher returns were possible but that involved higher risk
with borrowed money.
"It would be a brave person who would borrow funds to invest
in existing fluctuating international capital markets."
What the Government could do was to borrow to pay for an
immediate outlay for health, education and social welfare,
but not borrow money to put away for a rainy day, he said.
Consulting and investments firm Mercer New Zealand said plans
to suspend contributions to the super fund could bring
long-term pain.
Reducing funding now without any other significant reform
around retirement saving policy, such as increasing the
entitlement age or providing alternative retirement savings
mechanisms, would only add to the financial pressure on the
fund in the future, Mercer business leader Martin Lewington
said.
"We agree with the Government that the current recession will
pass. But our population and our workforce will continue to
age, and the long-term risks of this cannot be ignored.
"The potential consequences of reduced funding to the super
fund could be significant at a national and individual
level," he said.
Labour Party leader Phil Goff said the "decade of deferrals"
of payments to the fund was the death knell for
superannuation for generations of New Zealanders.
"The net result of today's decade of deferrals will be that
future entitlements to super are put at risk no matter what
pious pledges Bill English makes.
Future governments will struggle to cope with the [Prime
Minister] John Key-Bill English superannuation legacy.
National has dug a $20 billion hole at least for our kids to
dig themselves out of," he said.
At a glance
Super entitlements absolute at 66% of the average wage after
tax, paid from age 65.
Super fund contributions suspended for 11 years.
Extra $250 million to be invested in local capital markets.
Labour says death knell for super payments.
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