Gareth Morgan, Director of Gareth Morgan Investments
As the superannuation to and fro grinds on, many of us should be forgiven for thinking that a relatively simple issue is being addressed by an convoluted, complicated, high-risk, and expensive compulsory alternative. Why methinks, do Peters and Bolger persist when its clear their headed to total humiliation.
Last week's Todd update has acknowledged that in about 18 years there is "some chance" that the current New Zealand Superannuation scheme will require adjustment if its annual burden (expressed as a percentage of GDP) isn't to rise. The qualification is that it is a "chance", and is by no means a certainty. To address this chance by imposing a suffocating compulsory scheme with its enormous compliance costs and assault on freedom is a serious case of overkill and subjects the New Zealand economy to risks comparable to the Think Big plans of the Muldoon regime. While this may explain its attraction to centrist politicians like Peters and Bolger, it is hard to believe that many, apart from those two gents, will be voting for the impost.
So assuming the compulsory scheme gets trashed in the referendum, what happens next ? As is the issue simple, so is the solution. For those contemplating retirement at years beyond 2015, greater self-provision will be necessary than has been the case over recent years. Few New Zealanders will not have got that message yet.
That's it – that's all that is required. But how many are taking steps ? The Todd update provides some insights. According to research done for the Office of the Retirement Commissioner "the people in jobs, on higher incomes and with some years behind them to get established" are indeed saving for retirement. It would be silly then wouldn't it, to provide these people with taxpayer-funded retirement incomes as well? That leaves then only those that aren't self sufficient. So just like that we can reduce the cost to taxpayers by providing only for a proportion of retirees. That would be progress.
Clearly some are not going prepare adequately while others will be so well-endowed with riches that the idea of the State providing them any superannuation is obscene – not least to them. The concept of a State hand-out when need is not the criterion, reeks of mindless, economic efficiency-reducing, intervention.
So what should government policy on superannuation provision be ? Simplicity, minimal intervention, and addressing real need is the only rationale for state payouts. This means leave it to self-provision but then provide a superannuation annuity of last resort to those who fall short of the means to provide for themselves. Most importantly this safety net should be slung so low that nobody would aspire to such a measly income. If it's not set that low then the hazard of folks deliberately seeking to qualify for the state pension, will boost the burden on the rest of us taxpayers, unnecessarily. Further, to qualify the applicant must be both income and asset tested.
There remains the issue of transition. Clearly it cannot be imposed on the current generation of superannuitants or those near retirement, as their social contract has been quite different. So, as was to be the case with the compulsory alternative, a phase-in is required to enable people to prepare.
Once the compulsory alternative is buried and those politicians who championed it have crawled off, licked their wounds, apologised for the utter waste of money in pushing their crazy compulsion all the way to a referendum, and then crawled back, the need for clear, credible political leadership on the issue, persists. If they are able to promote with the same resources, the commitment to a phased-down state scheme as outlined above, then the political dysentery which has accompanied this issue may at last, coagulate. It is much to expect from the Prime Minister and his Deputy – but then they owe the country that much at least, given the cost and inconvenience to us all they've expended in promoting their compulsory folly.
Finally, if the solution to avoiding the risk of a greater burden to taxpayers arising from paying New Zealand Superannuation to greater numbers of retirees, is so simple, why has it eluded our politicians? In this respect Winston Peters does have to be congratulated – at least he is trying to put the issue to bed, albeit with a dumb alternative.
At the core of the lack of decisive, coherent action on sustainable state-provided superannuation, lies the absolute fear this generation of politicians has for targeting super payouts. The damage done to political careers from the surcharge is testimony to the risks they perceive. But the surcharge was imposed on the current generation of retirees, when the potential problem, as last week's Todd update confirms, lies with retirees beyond the year 2015.
So the post-referendum message to the politicians should be clear – get real, get focused, jettison entrenched positions, and provide some realistic leadership on this issue for all our sakes. Then maybe, we can get back to the real issue – how to lift the return on our invested savings so we don't have to save so much. Lifting the economy's sustainable growth rate should be your most important priority.
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