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
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
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.