Superannuation is an issue that people tend to shuffle off into the background in the hope someone else will fix the vexed issue of providing an adequate income for those in retirement.
Governments around the world continue to grapple with the issue of taking care of ageing populations, where people live longer in retirement but often need extra services such as health, housing and income.
New Zealand has gone some way along the lines of prefunding superannuation through the New Zealand Superannuation Fund and KiwiSaver. A suggestion from Labour that the retirement age be lifted from 65 to 67 should be heeded but is merely tinkering around the edges of what will become a major economic problem of the future.
The KiwiSaver scheme has proved popular with New Zealanders. About two million people are currently enrolled in it. The scheme itself is worth about $13 billion. Assets have increased each year, more than doubling on each previous year until 2010. This reflects both the increasing number of members and the accumulation of their contributions. Between 2010 and 2012 the growth in value of assets slowed, reflecting the downturn in the global economy in recent years.
KiwiSaver continues to be a growing part of the overall managed funds market, at an estimated 17% of the total market. In terms of investment into New Zealand, KiwiSaver schemes continue to have a higher proportion invested locally compared with other forms of superannuation, according to Reserve Bank figures.
The architect of both KiwiSaver and New Zealand Superannuation, Sir Michael Cullen, lent his name to the super fund which is popularly known as the ''Cullen Fund''. Now, Sir Michael is proposing a rethink of the KiwiSaver scheme to help cut the long-term costs of superannuation to the Government. Sir Michael has long been an advocate of ring-fencing superannuation so the burden becomes less on future governments. As far back as the late 1980s, Sir Michael was advocating the establishment of what has now become the Cullen Fund.
Under his latest plan, KiwiSaver would be made compulsory in 2016 and contributions would rise to 4% for employees and 4% for employers, followed by further increases to 6% or 8% for employers. But half of the saver's total contribution would have to be used to buy an annuity. If that provided an income lower than the current superannuation formula, the State would top it up to the guaranteed retirement income.
His proposal to a Treasury-Victoria University conference looking at ways to pay for the Government's rising costs could also act as an alternative monetary policy tool. Adjusting contributions rates could boost or cool the economy, but not take money from an individual's account. The increases would close the gap with Australia, which has a compulsory scheme with 9% contributions, rising soon to 12%.
It seems only a matter of time before KiwiSaver becomes compulsory. The scheme has been widely accepted across all age groups as the predominant workplace savings vehicle. And with contribution rates rising to 3% in April next year, it is important that non-KiwiSavers do not get left behind as savings rates and fund balances continue to increase.
However, even if KiwiSaver membership was to be made compulsory, there should be some flexibility by members to make choices - including which percentage of their income was contributed, which provider looked after the money and the various investment options ranging from low-risk cash funds to higher risk growth funds. Taxing of superannuation continues to be a major area to be worked upon. Both employee and employer contributions are already made after income tax and any taxable component of KiwiSaver investments are currently taxed at individual rates of 10.5%, 17.5% or 28%. There seems no reason to further tax Kiwisaver members when they withdraw their funds without taking the tax off some other part of the scheme. In fact there is some argument to go the other way and give more tax incentives for savers.
It is long past time that such proposals were considered - and having a debate on superannuation in a non-election year would remove much of the political emotion from an already emotionally charged issue.
