Compulsory super savings welcome but…

Written By: - Date published: 10:07 am, August 16th, 2010 - 18 comments
Categories: kiwisaver, superannuation - Tags:

Odd to see in the Sunday-Star Times that the Government is looking at introducing compulsory superannuation savings, probably by making Kiwisaver compulsory. After all, this is the same government that gutted Kiwisaver and the Cullen Fund just a year ago, saying that super-annuitants were plenty well off and that saving for the future was a poor use of money. This is the same party whose leader, John Key, just two years ago was saying “New Zealand does not have a debt problem” yet here they are proposing to boost savings.

Hmm, have they seen the light? Somehow I doubt it. The Nats see compulsory super savings as a replacement for the universal superannuation we have now, not as an addition.

Compulsory super saving in addition to the government pension makes sense. As a country, we have failed to save enough, and the fault lies with individuals. The government has paid down its debt to the point where it had net assets for the first time ever until the recession came along and, even now, government debt is low and projected to peak soon. Individuals, on the other hand, used the good times under Labour to borrow, expecting that things would stay good forever. Now, we have one of the worst national debt levels in the world. Not only does that place us at risk in a future financial crisis, it means that every year we have to sell off more of our assets to make the interest payments on all that debt. We are becoming a country that lives to pay off its debtors – that’s the financial profile of a third world country, not a first world nation.

Various people have proposed a kind of national wealth fund that would combine money saved by compulsory super savings with the Cullen Fund, the SOEs, and individuals voluntary savings. This fund would be tasked with buying assets of strategic importance to the New Zealand economy, both here and abroad. Rather than putting short term returns first, it would be mandated to secure New Zealand’s economic sovereignty as the only real pathway to a wealthier future.

But I don’t think that’s the kind of vision the Nats have. If they have any vision of all, it is of replacing universal and equal government superannuation with compulsory super savings, which would mean that the rich retire with huge savings and the poor with a pittance.

Compulsory super savings are an answer but this government is asking the wrong question.

18 comments on “Compulsory super savings welcome but… ”

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  1. r0b 1
    16 August 2010 at 10:22 am

    And I can’t believe I’m saying this, but (1st one here) for a second time in a week a Paul Holmes piece makes some good points. Lays it on the line about exactly how profoundly stupid it was of Muldoon to cancel the previous Labour government’s compulsory super scheme.

    This week, a friend gave me a copy of a brilliant piece written by Brian Gaynor and published in the New Zealand Herald almost exactly three years ago. Gaynor regards Muldoon’s abandonment of Labour’s far-sighted and ahead-of-its-time superannuation scheme, set up in 1974, as the worst decision taken by any New Zealand government in the past 40 years.

    Muldoon campaigned on abolishing the scheme in the 1975 election. He said it would turn us into a Soviet clone. Hence the Cossacks on television. The Yacht Squadrons reeled in horror.

    It worked a treat. Rowling was gone and, true to his word, Muldoon abolished the scheme some weeks later. But what stupidity.

    Gaynor works out that if we had stuck with the scheme, New Zealand would now be “an Antipodean Tiger”.

    The superannuation scheme would conservatively be worth $240 billion. In other words, we would have savings enough to swim in. We would be flooded with money.

    It was a good scheme. Employees and bosses between them put 8 per cent of your gross income into it. Everybody owned their own individual accounts. The scheme had nice flexibility. When you retired you could cash in a sum to reward yourself, take a trip, whatever, but you kept the rest as a pension. Sounds quite modern when you look back.

    And that conservative figure of $240 billion, writes Gaynor, would represent 150 per cent of our GDP, whereas Australia’s super scheme represents only 82 per cent of GDP. (Only? We should be so unlucky!) We would have led the world in savings.

    Oh, by the way, this year the Government will have to cover a national superannuation bill of about $9 billion and we’ll have to find it out of cash. Hopeless, isn’t it? Not flash at all. Digging in the cash tin to pay the super. That is the way this country now lives.

    Pathetic, aren’t we? Had it all and spent it all. Up in smoke. Not that governments didn’t try. Kirk and Rowling obviously did and got smashed by a charismatic thug, Muldoon, the oaf and megalomanic fool.

    • prism 1.1
      16 August 2010 at 10:47 am

      The 1975 debacle of Muldoon playing wish fulfilment to the masses had to be cut back as he had set it at such a high level. Roger Douglas produced the Labour scheme that was sunk. Would he and his band of gnomes have been so exercised, resulting in their cabal pushing neo-liberal policy if the scheme had remained I wonder?

      But as I remember, there was a flaw for women in the Labour scheme, in that it was based on earnings, ensuring that most women received a lower amount because of their lifetime of lower earnings. They were bound to be treated as discounted dependents if they had devoted themselves to the home or child-raising. I don’t know that Roger D had paid attention to this.

    • Blighty 1.2
      16 August 2010 at 11:18 am

      “Pathetic, aren’t we? Had it all and spent it all. Up in smoke. Not that governments didn’t try. Kirk and Rowling obviously did and got smashed by a charismatic thug, Muldoon, the oaf and megalomanic fool.”

      Always a mistake to tarnish things – Muldoon didn’t ‘smash’ Kirk because Kirk died in office. Rowling lost to Muldoon in 1975 but got more votes than him in 1978 and 1981. Just the FPP system handed Muldoon the victories.

  2. mickysavage 2
    16 August 2010 at 10:45 am

    I agree with Rob about compulsory super. It was the last good thing that Roger Douglas did.

    It is funny that with a florish of trumpets the current Government will stop a policy of the previous Government’s and then with a meek shuffle and a bit of a sidestep reinstitute something which is not as good.

    ETS, the Cullen Fund, Kiwisaver, the insulation scheme …

    They are all examples of watered down policies where the pale replacement is barely worth having.

    They are stuck between a psychological hatred of anything collective and a grudging acknowledgement that the problems are real and the last Government’s responses were actually very good.

    • prism 2.1
      16 August 2010 at 10:50 am

      They are all examples of watered down policies where the pale replacement is barely worth having

      Homeopathic government policy? Or homeopathetic?

    • Lanthanide 2.2
      16 August 2010 at 11:16 am

      Sorry, but National really haven’t gutted Kiwisaver as much as people around here seem to like to make out.

      They removed provisions for diverting savings to your mortgage (unless you already had it set up). They canned the $40/year fee subsidy that barely made a dent in fees anyway. They capped employer contributions at 2% rather than 4%. On the other hand, earners can now choose to allocate 2%, 4%, 6%, 8% or 10% of their income, not just 4% or 8% as Labour had set up.

      They really have not gutted it at all – the $1000 kickstart and $1042/year tax refund are still in place. Kiwisaver is very definitely still worth having.

      Now as for the post itself, I doubt that National will scrap superannuition yet. That won’t happen for another 10-15 years at least. They don’t want to introduce compulsory saving and get rid of state-funded things as that will be cutting very close to the line on Key’s promise. What I see happening, if this compulsory thing goes ahead, is they will turn around and cancel the $1042 annual tax credit that goes to kiwisaver, saying “because kiwisaver is now compulsory, there is no need for an incentive to use it – those who got in early still get to keep their money, but there will not be any more money put in via tax credits”. It’s questionable whether they would keep the $1000 kickstart as well – if it suddenly becomes compulsory, that’s quite a bit more $$ coming from the government, especially for every new child or every new immigrant also needing a kickstart.

  3. Psycho Milt 3
    16 August 2010 at 11:31 am

    The Nats see compulsory super savings as a replacement for the universal superannuation we have now, not as an addition.

    Is that a problem? I’m not that strongly wedded to having a proportion of my taxes going towards social welfare for retired multi-millionaires.

    • prism 3.1
      16 August 2010 at 12:25 pm

      Universal aged pension benefits are of greater value to those on low incomes than to retired millionaires who have stacks in their money bins, if all receive a standard benefit. If the government makes sure that the wealthy pay reasonable taxes and don’t whittle them down too much, then they are good contributors and they are more willing to support a system if they don’t see it as just giving a handout to poorer people.

      Otherwise it is a frequent reaction by the wealthy to despise or patronise lower deciles and wish to withdraw benefits from them, based on a prejudice towards their own worthiness and against the perceived lazy failures lower on the ladder.

      Then there is the matter as to who is wealthy – just having a good income, affording a reasonable house nicely furnished and heated or cooled, a car, money for holidays and electronic gear, nice clothes, children’s activities and clubs, entertainment etc. is taken for granted by many. I found a jury request for one such person lying on the road apparently having fallen out of her overflowing rubbish bag, and carefully picked up the various forms and placed them back in her letter box. To me that’s an example of the selfish disinterest in a good functioning social system by the materialistic ‘wealthy’ who would like not to contribute to the system.

    • Ron 3.2
      16 August 2010 at 12:31 pm

      Yeah it’s a problem, Milt.

      Most would agree that “the rich” don’t need a Govt. pension. The problem is defining “the rich”.
      The moment we start means testing pensions we will see deserving people missing out.

      Scrapping the pension in favour of compulsory super savings leads to a different sort of inequality. Person A who decides to devote their working career to serving their community and earning a relatively low income earns less in retirement than person B who devotes their life to making money.

      Yes, it’s a choice. And a fine world we’d live in if everyone chose to be stock brokers instead of say community workers or youth workers.

      Me? I’d rather see a universal super entitlement and put up with that fact that some people who don’t “need” it, get it.

  4. tc 4
    16 August 2010 at 11:45 am

    Nice to see the MSM actually doing some form of research into the past and discovering the Nat’s wrecking ball tactics under previous regimes have sown the seeds for long term pain…..oh duh !

    Oz is way ahead because they don’t have such an ideologically blinkered right wing ….. FBT/Compulsory Super/CGT all brought in by Hawke/Keating and left alone by all that have followed.

    Guess it’s too much to ask this lot to put down the ideological blinkers and achieve some across the board long term outcomes……watch sideshow John form another useless focus group just like the Brash led recycling of failed ideas fest again.

  5. odysseus 5
    16 August 2010 at 2:48 pm

    You do wonder though, whether in going down this track, the Nats are going to steal the one “big idea ” that the Labour Party may be campaigning on in the next election.

  6. Carol 6
    16 August 2010 at 6:03 pm

    Well, at least TV3 news is headlining this issue tonight, and attributing the main initiative to Labour & Goff, with National following along behind. And Garner says Labour’s policy is likely to be bigger and better than Nat’s version. Of course Key says Labour’s version will be too expensive.

  7. jbanks 7
    16 August 2010 at 6:04 pm

    Me being part of kiwisaver would be a waste of my money. But if every idiot who can’t save is in it also then less of my taxes would be needed to support those losers. So if it came with guaranteed tax cuts I’d support it.

  8. KJT 8
    16 August 2010 at 7:11 pm

    The worry is that Kiwi saver in private finance company hands may become like company super schemes in the 70’s and 80’s.
    The fact that most of them performed miserably, except for enriching fund managers, was hidden by the tax rebates and employer contributions.
    The fund management industry will be fizzing at the idea of this windfall.
    A sovereign fund investing in NZ infrastructure would help make our kids able to support pensions.
    And allow the money to extend Kiwibank to remove the overseas sources of finance from the equation.
    Hell we may even get back control of our country from the banks.

    • prism 8.1
      17 August 2010 at 9:07 am

      Item Tuesday am on Radnz about Northland businesses finding it difficult to obtain credit from banks, and struggling after recession and drought. Manager of Kia cars only sold 1 new car in month which normally sees 25. A fund available from country’s support bank with small loans, similar to Grameen and other small business business assistance trusts in NZ would be OK.

  9. millsy 9
    17 August 2010 at 10:54 am

    Might I chime in here, that the Kirk-Rowling-Douglas (young tackers would be shocked to learn that it was he as Broadcasting Minister who took the second TV channel off its private owners and gave it to a state owned entity) super scheme was run by a SOE type outfit called the New Zealand Superannuation Corporation. Arnold Nordmeyer, a minister in the 1935-49 Labour Governement had been chosen to run it. (Kinda like the NZSF)

    Unfortunately, our 2 major parties idea of cumpolosory super would be to effectively force us to hand over 2-10% of our earnings to some Gordon Gekko-type who would go and gamble it away on the stock market. Something I am not really keen on, but I pick will happen given the PC mantra of ‘choice’ and ‘competition’. New Zealand super is more or less sound, and can be sustained by a mixture of higher taxes on the rich, economic growth, and more contributions to the NZ super funds (I actually think that if the government is hell bent on oil and mineral exploration, then all the revenue that the government earns should go straight into the super fund). The only reason why people want to scrap national super is because they resent people having some form of security in retirement.

    As for the numbers such as $240 billion, I doubt that it would have gotten anywhere near that amount, highly likely if it wasant Muldoon, someone else would scrapped it, used it for tax cuts, or privatised it.

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