An Enduring Solution To Funding New Zealand Super'
"The proposed New Zealand Superannuation Fund offers an important opportunity to introduce stability and security into retirement income," Finance Minister Michael Cullen said today.
"Our history on this issue does no-one any credit. It is time we put the backbiting and politicking behind us for the good of the country.
"We are facing a major change in our demographic structure, the social, economic and fiscal consequences of which will dominate the next 50 years. Doing nothing is not an option."
The objectives behind the Government's pre-funding approach were twofold: to maintain a universal pension at an adequate rate into the future and to smooth the costs of supporting the baby boomers as they retired, Dr Cullen said.
"We recognise the public's desire for political consensus and will provide a vehicle for this in the legislation.
"The bill will fall into two main parts. Part One will enshrine existing entitlements in a single statute, including the newly-restored 65 percent wage floor and eligibility from age 65 free of any income or assets test. Part Two will deal with the financing arrangements for the Fund.
"Other parties will have the ability to sign up to either or both parts as they see fit."
The scheme would be funded from budget surpluses, with disciplines to ensure that appropriate provision was made.
"The contribution rate will be worked out on a 40-year rolling horizon. The rate will be calculated each year as part of the budget process by the Treasury."
The Government would normally be expected to follow the Treasury advice. Where there was a variance, it would be required to specify the size of the deviation, what it implied for future contribution rates, and when it would get back on track, Dr Cullen said.
"Current NZS payments absorb about $4.25 billion a
year. The 2000 Budget provided for additional contributions
of around $600 million, $1.2 billion and $1.8 billion over
the next three years.
"These were working assumptions only and will have to be reviewed carefully in preparation for next year's budget but I do not expect that we would contribute less than these amounts.
"The investments will be managed on a prudent commercial basis by an independent board that is not subject to political direction.
"The Fund, which the Government wants to bring into operation by 1 July, is projected to accumulate through the next 30 or 40 years reaching roughly 50 percent of GDP at its peak.
"After 2004, the additional contribution required each year will begin declining to reach zero in about 25 years, after which the Fund would start to be drawn down as more and more of the large baby boom generation enter retirement. Eventually it will run down entirely.
"It is not intended to become a permanent part of the landscape but to smooth New Zealand society and the New Zealand economy through the coming demographic transition," Dr Cullen said.