Securing The Future - Cullen To "Ladies In Labour"
Hon Dr Michael Cullen:
Securing the future - speech to "Ladies in Labour"
Tonight I would like to talk briefly about superannuation, but I want to put it in the context of a broader set of policies that the government is implementing that will assist ordinary working New Zealanders achieve greater financial security.
When I first entered parliament, the superannuation debate was around what the state should provide to older New Zealanders as they pass through the gate into retirement. There was a legitimate concern about guaranteeing a basic level of income that would enable retired people to continue to participate and belong in society.
Over the last twenty five years, that focus has broadened. One of the things we have learned is that you cannot treat issues of financial security and income adequacy in isolation. What happens in one stage of the life cycle depends upon what has happened before, and in turn sets the stage for what is to come.
Sadly, this is something that many New Zealanders have not thought much about. Surveys of attitudes towards retirement and financial security still show a small but significant proportion of New Zealanders who have only the most rudimentary plans in place (usually linked to paying off the mortgage) and prefer not to think too much about exactly how much they might need to save in order to fund the kind of retirement they would like.
This was reconfirmed as late as the last couple of weeks, when the Retirement Commissioner published the results of a survey into financial literacy. While the survey indicates New Zealanders have a good foundation of basic skills, it is clear there are areas where knowledge needs to be improved, such as around investment and home loans, and among the sections of the community struggling with financial skills.
Certainly we are making progress, but we cannot pat ourselves on the back yet. In addition, while the survey found a large number of New Zealanders felt reasonably confident in their understanding of financial issues, that does not mean they have the ability to make the kind of commitment to savings that they would wish.
Since we became the government, we have embarked upon a series of changes aimed at putting financial security within the reach of every New Zealander. Throughout we have maintained a focus on the particular issues that women have regarding savings, and that is illustrated in some of the policy details.
First, when we were elected in 1999 we took immediate steps to restore the level of New Zealand Superannuation and ensure that its value relative to the average wage would be preserved
Second, we moved to create the New Zealand Superannuation Fund, which provides long-term stability to the basic state pension by partially pre-funding the scheme.
Then, we showed some leadership as an employer in providing workplace savings options by introducing the State Sector Retirement Savings Scheme, a voluntary savings scheme aimed specifically at state sector employees.
Now, legislation is in parliament to enact the KiwiSaver scheme. The scheme provides easy access for all employees to a long term savings scheme. This is not a compulsory scheme like Australia's, but new employees will automatically be enrolled in the KiwiSaver scheme and will have to opt out if they do not wish to participate.
The government will support KiwiSavers in three ways:
· First, we will meet the costs of the administration through IRD;
· Second, a $1,000 upfront contribution will be provided to each new KiwiSaver, including members of an existing registered superannuation scheme that fully converts to a KiwiSaver product;
· And third, the government will provide a fee subsidy at a capped level to savers in approved KiwiSaver products. The details of this subsidy will be determined after consultation and negotiation with providers
The emphasis from the contributor's point of view is on choice, with competing providers and a capacity for contributors to specify their preference for risk. In return, there are clear expectations that savings will be locked in for retirement or, under certain circumstances, for the purchase of a first home.
That choice extends to provision for contributions holidays. These are designed to cater for those who have a break in employment, or perhaps a period of reduced earnings, due to childcare or other family responsibilities.
There has been some criticism of the KiwiSaver scheme recently, claiming that the savings regime is beyond the means of a large proportion of the New Zealand workforce. That suggestion is quite untrue, and was based upon some very shoddy figures.
The fact is that since the late 1990s New Zealanders have experienced nominal wage growth of some 31 percent and real wage growth of around 16 percent. KiwiSaver is designed to cater to the large proportion of working New Zealanders, and it undoubtedly hits that target.
Before I finish, though, I want to broaden out the picture and remind you of the connections between what we are doing to assist people save for retirement and other policies that promote financial security.
For example, there is the Working for Families package, which provides targeted support to some three hundred and fifty thousand low to middle income families. Once it is fully implemented, this package will put substantial additional money into the pockets of ordinary working families. That means that the options for saving for one's retirement will come within the reach of the large majority of New Zealanders.
Also part of that package are a range of increases to childcare subsidies and entitlements. These will provide women in particular with an increased set of choices in how they combine child rearing with paid work.
We should also remember the innovations this government brought in concerning paid parental leave, and most recently the changes to the student loans scheme which come into effect this Saturday. This means that graduates will be able to pay off their student loans much quicker and move on to other financial priorities.
What we are doing through all these mechanisms is providing a stronger platform upon which New Zealanders can build a secure financial base. We need to get people thinking and planning beyond making it through the week, or paying off the mortgage, or giving the kids an education. We are bringing all of these things, and retirement savings, within easier reach of New Zealanders.