Politics remains unknown in super mix

Friday 2nd June 2000

PETER V O'BRIEN talks to industry experts about the implications

PUBLIC POLICY

While it is desirable to have stability in policies regarding the provision of state-funded retirement income, changes due to different governments are inevitable, Retirement Commissioner Colin Blair says.

His view is shared by Investment Savings and Insurance Association (ISI) chief executive Vance Arkinstall.

"As a community we must recognise governments will also make alterations to policy in superannuation," Mr Arkinstall said.

"No government can guarantee the future so we need to have a situation where individuals can and do provide savings for the standard of living they want as a buffer for changes to what governments will do."

The government increased New Zealand superannuation from 60% of the average weekly wage to 65% but removed the indexing of payments to movements in the consumer price index.

Payments are now indexed to changes in the average weekly wage, which means, for example, superannuitants' state-provided income would be unchanged if there were no change to the average wage, although there might be, say, a 2% increase in the CPI in any given year.

The government also wound up the Super 2000 Taskforce, set up after the earlier accord between the political parties broke down.

Mr Blair emphasised any government should get a range of ideas from different sections of the community in forming policy, rather than confining the inputs.

"I don't think, politically, any single party could or would want to take action to be seen as adverse to those in retirement or close to retirement," he said.

"If there are issues to be addressed regarding the cost of New Zealand superannuation, then the only way they can be properly addressed is through the parties getting together. The issues have become politically too difficult for any single party to deal with them."

Mr Blair, who is consistently apolitical in these matters, takes an approach similar to those of people such as Mr Arkinstall - whose organisation's members represent the bulk of the private retirement saving fund managers - and advisers to corporate superannuation funds. That should be a warning to politicians that the community is becoming increasingly frustrated at the political parties' use of state-funded superannuation and the overall question of retirement income as a vote-catching tool, irrespective of underlying philosophical differences between the groupings.

The substantial publicity about the necessity for people to make their own provision for retirement income seems to have had an effect. Mr Blair said the ad hoc feedback his office had been getting from people in the industry - promoters of superannuation schemes and so on - suggested there was a continuing improvement.

"More and more people are looking at ways in which they can provide for their retirement."

But Mr Blair said it was hard to disaggregate the statistics. "Household statistics that deal with the whole community have some suggestions that savings rates have actually gone down over 10 years. More people are saving but total savings are less. Certainly, the available information is that people have borrowed at a high rate over the past 10 years."

NBR Personal Investor put a particular proposition to Mr Blair, Mr Arkinstall and actuaries and consultants at Aon Consulting (specialists in corporate, employer-contributing superannuation schemes) that individuals' abilities to make private retirement savings fell into three broad periods:

up to marriage age - say, around 30 these days - and the arrival of children;
the period when children were raised through infancy and then at the expensive teenage years of clothing, education, leisure and even feeding; and
the 50-55-plus years when capacity to save reasserted itself.

Mr Blair agreed the first and last periods were the best savings periods but noted payment of mortgages in the middle period increased people's net worth. He said recent US research showed while income was a key factor in savings there were significant differences in savings patterns among people in the same income brackets.

"Some save, some don't, so we can't generalise in terms of income alone. It says a lot about the standard of living people want. Savings is as much a part of your household expenditure as buying a new car."

Aon Consultant Cheryl Styles made a similar point in relation to people in corporate superannuation schemes. She was involved in winding up two schemes last year, accounting in total for about $30 million. The majority of members elected to join another scheme but in relation to funds 35% was transferred and 65% paid out to members.

On the basis of various inquiries dealt with, it seemed most of the payouts did not go to other managed funds but were used for general purposes.

The ISI has promoted a fundamental reappraisal of retirement income, particularly New Zealand superannuation, set out in A Wake-up Call, the ISI report on retirement savings based on research by Infometrics.

ISI said several policy areas should be addressed without delay if we want to reduce the effects of an ageing population. In particular, there was a need to:

raise economic growth;
avoid distortions in the conditions that influenced private savings and improve private savings rates;
enhance the efficiency of private sector investment;
limit government spending;
pursue a consistent approach to immigration; and
enhance access to an adequate retirement income for those in greatest need.

Further research was needed to establish society's welfare preferences; find factors that influenced the quality of saving and investment decisions; monitor the role of housing as a vehicle for retirement saving; and compose universal entitlement against targeting.

The overall debate about state-funded retirement income and various governments' approaches to it may come down to a problem of putting the financial cart (benefit payments) before the economic horse (improving the country's real wealth).

More people are saving but total savings are less ... People have borrowed at a high rate over the past 10 years

- Colin Blair

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