Gareth Morgan, Director of Gareth Morgan Investments
The publication earlier this week by the Presbyterian church of survey findings on retirement savings, suggests the Todd Task Force missed the point. The church research found that up to one third of New Zealanders are not saving for retirement because they believe government will provide sufficient. This behaviour is occurring irrespective of whether state provision is sufficient or not. None of the Todd alternatives front up to this paradox of state intervention.
Even after all the publicity given the unsustainability of National Superannuation, people are prepared to risk elderly poverty, because they simply have faith someone else will provide. The survey has confirmed that people have to believe nobody else is going to provide for them, in order for them to make provision for themselves.
Not one of the Todd proposals overcomes this essential aspect of self provision. The first proposal, to continue as we are, simply perpetuates the myth in the minds of that third of the population, that the state will provide. Apart from the inequity that it requires some citizens to pay others to save, the tax incentives scheme ignores the likelihood that it will spur a fall in non tax exempt private sector savings. After all the government will have specified the extent of tax exempt savings and presumably these correspond to what we’ll need for retirement. The compulsory scheme suffers from the same deficiency – voluntary savings will be trimmed back once the government has told us what we have to save – and presumably they’ll know what’s best.
It is this presumption (by the third of people affected) that the government knows what’s best for us, even in the face of a history which patently demonstrates they do not, which destroys the reliability of any state-specified scheme. All of Todd’s alternatives are state driven, therein lies their imprudence.
Removal of any suggestion of such provision by getting the state completely out of the superannuation game is the only means of communicating an unambiguous message, that all people have a need to save. It seems that those who find this aphorism most difficult are the ones charged with determining the state’s role, rather than the ultimate recipients of the state’s “generosity”. At least the latter recognise the free lunch the state is providing. One wonders whether before the advent of universal entitlement, how anyone survived in NZ- or indeed how they do today in Asian societies for example. Yet Asia is developing – the poverty rates for the elderly aren’t rising, family structures there don’t seem to fail, even as much as they do here.
By not considering the option of total self provision, with no state safety net apart from that available to other qualifying beneficiaries, the Task Force recommendations are deficient. It appeared to be more interested in the interface between its alternatives and the vested interests of insurance peddlers and other financial intermediaries, than it did in the genuine determinants of what makes or prevents citizens from providing adequate savings for themselves.