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Taxpayer Top up Guarantee Would Help Ensure Gender Fairness

Monday 11 February, 2013

Taxpayer Top up Guarantee Would Help Ensure Gender Fairness

The proposed FSC KiwiSaver Plus scheme would see almost all women participants receiving a much higher pension in retirement than the NZ Super currently pays, says Financial Services Council chief executive Peter Neilson.

“Our proposals for an enhanced KiwiSaver scheme provide a KiwiSaver pension that is additional to NZ Superannuation,” he said. “Suggestions which assume the FSC sees KiwiSaver as a substitute for NZ Super are wrong and misleading.”

Tax-based retirement schemes have been more popular with women compared to savings-based retirement schemes because:

• women live longer than males, so when their savings are converted into an annuity they would get paid less per year to live on, compared to a standard universal tax paid NZ Super

• women are more likely to have taken time out of the workforce to have a family or care for a relation and therefore would save less, resulting in a smaller savings-based retirement pension

The FSC Report recommends that with KiwiSaver Plus the Government uses taxpayer funding to top up any retirement account where there is insufficient savings to buy a pension that pays the equivalent income to the NZ Super from age 65.

This would give women participating in KiwiSaver Plus, who have taken time out of the paid workforce to raise a family or care for a relative, the same benefits as though they had been eligible for NZ Super at 65. For those under 40 it would enable them to retire sometime after 65 on close to double the income they would presently receive from NZ Superannuation alone.

“This not only helps women who may have spent time outside of the workforce, it will also help anyone who has had very low earnings over their adult lives,” the FSC chief executive Peter Neilson says. “It will also help anyone who has had poor returns on their investments close to retirement, which would have taken their retirement pot below the level needed to fund a fixed-term pension equivalent to NZ Super at 65.”

Mr Neilson says the cost of providing a top up guarantee is relatively modest as few people suffer a very low income for most of their working lives or spend a lot of time outside of the workforce.

“Even with the proposed 10-year phase-in fewer than 10 percent of the population could expect to need the top up,” he said.

After buying a fixed-term pension equivalent to NZ Super, any savings that remain are available as a lump sum to invest, buy a higher pension, or spend any way they wished any anywhere in the World, the report says.

Where a couple separate or divorce, the combined value of the KiwiSaver Plus balances would be split down the middle. And if a person dies prematurely the family or estate gets the balance in the KiwiSaver Plus account or the fortnightly payments from any fixed term pension for those who have retired but are not yet eligible for the NZ Super.

The FSC also proposes a group insurance cover for life, sickness and income protection, so that if someone gets seriously sick and use up their sick leave, they would receive 75 percent of their earnings for up to two years. This would require contributions to increase by 1 percent to 11 percent of earnings split between the employer and the employee.

“This will help ensure that women do not suffer a lower retirement pension if they are struck by a major illness while working.”

With the KiwiSaver Plus as a second tier and NZ Super remaining, women who live longer on average than men, can expect to receive NZ Super for more years than men do.

Mr Neilson said in some countries taxpayers fund or provide credit for the retirement savings contributions of women or men who take parental leave. The FSC economic modelling had been conservatively based on no relative improvement in the earnings of women, compared to men over the next 40 years.

“I would be very surprised if women’s incomes from paid employment do not go closer to men’s over that period,” he said.

About the Financial Services Council

The Financial Services Council has 22 member companies and 17 associate members. Members are managing nearly $80 billion in savings and provide financial services to more than 2 million New Zealand investors and policyholders.

If you have a life insurance policy or a KiwiSaver account then there is a more than 80 percent chance it is managed by a Financial Services Council member.


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