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Speech: Peters - New Zealand Super


Rt Hon Winston Peters
New Zealand First Leader
7 August 2012

PLEASE CHECK AGAINST DELIVERY

Speech: Auckland Grey Power
Tuesday 7 August, 1.30pm
Grey Lynn Community Centre, 510 Richmond Road, Grey Lynn

“New Zealand Super And Its Sustainability”

Thank you for the opportunity to talk to you today on a matter of great importance, superannuation, and in particular where New Zealand First stands on the issue of its sustainability.

New Zealand First welcomes a debate on pensions – as long as it’s a real and genuine debate.

New Zealand First takes superannuation very seriously and with good reason.
Currently almost 600,000 New Zealanders receive superannuation.

For hundreds of thousands of New Zealanders, superannuation is a fundamental part of their retirement income - essential to being able to live in comfort and dignity if not lavishly.

It is a vital element in our social framework.

In fact it is no exaggeration to see superannuation as a foundation stone for a fair and equitable society – it is that important.

But superannuation is not immutable – ultimately it reflects what sort of society we want to have.

It is within the scope of Governments to change the rules for superannuation – on crucial matters such as the age of entitlement and the method of calculating the level of benefits.

And right now there is a concerted campaign to soften up the New Zealand public to fundamental changes in the New Zealand superannuation scheme.

This campaign has a number of fronts and protagonists but the overall intent is clear

It is to smash and destroy the wide consensus that has developed among New Zealanders on the broad parameters for superannuation.

The tactics are obvious – spread alarmist misinformation, fear and doubt by implying that superannuation is simply unaffordable and unsustainable.
The media have already bought the story that superannuation in its current form is unsustainable – they have swallowed the bait, hook, line and sinker.

So we are now seeing a concerted media campaign designed to undermine the current scheme and lead the public to believe that all the experts are in agreement that paying superannuation at the current age of entitlement is unaffordable.

Unaffordability has now become an article of faith – an absolute truth for many commentators.

The latest manifestation of this orchestrated campaign is the recent report by the Financial Services Council.

The fact that this lobby group for the financial services and pension funds industry is chaired by former National Party Prime Minister Jenny Shipley should be warning enough.

This is a group with a vested interest in promoting private superannuation schemes rather than the public provision of pensions and it is set on lifting the age of entitlement.

The constant refrain that superannuation is unaffordable and, by implication, that the elderly and the ‘baby boomers’ are greedy, then thereby engineering a climate where changes to superannuation can be eventually be sold to the public as unavoidable.

We must not put the trailer before the truck. Before we jump to finding a solution we need to be very clear what the problem is, if indeed there is one.

Just adding to the pension age sounds simple and relatively painless – but it is based on projections, forecasts and assumptions that need to be treated with great caution and scepticism and until they are objectively analysed they cannot be taken at face value.

For example, the Financial Services Council report states that 52% of females born in 2011 will live to 100 and that 44% of males born in 2011 will live to 100.

Really? Do you believe those forecasts – they seem utterly farfetched.

They seem to assume that past improvement in life expectancy will just go on happening.

The sort of thinking behind many who advocate raising the age of entitlement from 65 to 67 is actually presenting a false choice – either we raise the age of eligibility or
taxes must go up massively.

This is just playing with assumptions and forecasts, all of which are open to question.

For example:

1. What will the onset of obesity and diabetes do to the lifespan of New Zealanders?
2. Selling state assets will make us worse off? – how is that included in the analysis of future tax revenue?
3. What do the Greek or Spanish welfare systems have in common with ours?
4. What happens to transaction costs when our superannuation is privatised? Or when money goes from the workers to the financial firms managing their funds?
5. Why do these critics ignore the efficiency of superannuation under our social security system and remain silent about the inefficiency of their transaction costs and consequent loss to the worker?
6. What will the Financial Services Market transaction costs be i.e. what will their percentage of the take on revenues be?
7. How many market busts do we have to live through to realise how dangerous to New Zealanders the idea is of leaving individual retirement security to improperly informed or ill informed investors, investing in financial markets which work imperfectly?
8. What happens when the market goes down at the very time the individual retires (which is exactly what happened in Australia recently)?
Those who advocate raising the retirement age and adopting their policies tout this as a simple painless solution but there are many issues that need to be considered before we abandon something that we know works.

Not all people who reach retirement age are facing the same situation. Those who have had arduous physical work may no longer be able to work longer.

Not all population groups have the same demographic pattern – typically Polynesians have a much shorter life expectancy than other groups. They will be heavily penalised by raising the age of entitlement.

The fact is that there are no easy painless solutions when it comes to pensions policy despite those who tout increasing the age of entitlement from 65 to 67 as the panacea.

In New Zealand First’s view the best way to meet future pension liabilities is to get growth back into our economy.
Or put more simply why do the elderly have to pay for each failed economic plan of the type we have had to live through over the last three decades ad nauseum?
Unless we get growth back in to our economy all Government programmes including health and education, are put at risk.
So what we should really be debating is how to radically improve New Zealand’s economic performance – then everyone will be assured of a fair go.
Given the campaign to undermine superannuation, New Zealand First has good reason to be vigilant.
Unlike others, we remember our history.
And the basic fact is that Governments, both National and Labour, have played with superannuation.
In 1979 the National Government made the first cutback in what was then known as the National Superannuation scheme
Next a Labour Government slammed on the surtax.
Then in the early 1990s the new National Government introduced three new measures to cut the pension, using the deceitful excuse of the BNZ bailout:
First, pension adjustments for 1991 and 1992 were cancelled, and from 1993 onwards rates were to be adjusted by prices alone. At this time wages were rising faster than prices, so this meant a downward trend in the relativity of the pension to wages.
Second, the age of entitlement was lifted from 60 to 61, to take effect from 1992, with an on-going phasing up to age 65 over the period 1993 to 2001.
Third, the taxation surcharge rate was increased from 20 to 25 per cent and the income exemption lowered so that more superannuitants were affected.
Then it was the turn of Shipley’s Government to cut the rate of superannuation in October 1998 from 65% to 60% of the net average wage, using another excuse this time – the Asian Currency Crisis.
Remember that Bill English was the Minister of Finance at the time too.
National was the party that increased the age of eligibility and lowered the level of entitlement.
More recently when National returned to government in 2008, its first budget suspended payments into the Cullen Fund - one of the mechanisms we supported as a means to strengthen our national pension capacity.
In contrast to National, New Zealand First’s track record on superannuation is impeccable.
In 1996 we axed the surcharge in our Coalition Agreement – abolished 1 April 1998.
We encouraged and supported all the measures Labour introduced to strengthen our national pension capacity.
So we supported the Cullen Fund as a way to build long term pension security.
Let us clarify the reality of superannuation.

Despite the attempts to exaggerate the so-called ‘burden’ of superannuation it is affordable now and for the foreseeable future.

It is not overly generous.

And many developed countries are envious of our scheme with good reason.

The cost of New Zealand Superannuation is relatively low by international standards at 4.7% of GDP.

This compares very well with an OECD average of around 7%.

And because New Zealand Superannuation is taxable, its cost net of tax is around 3.7% of GDP.

That is not now or in the foreseeable future ‘unaffordable’.

So all the talk about a pensions crisis is unprincipled, egregious, self-serving scaremongering.

The system we have has other advantages.

For example it is a relatively simple structure and is easy to administer.

Overall it is a good and effective scheme –and is working for New Zealanders.
And it important to see superannuation for the implicit social contract that it is.
Those collecting superannuation now have, in the main, paid taxes in the past – they paid taxes in New Zealand in the expectation that the contract covering their pension would be honoured.

Similarly, the people who are at work now are paying taxes on the same basis.

For a Government to break that contract – outright or more covertly through a stealthy eating away of eligibility and entitlement would be a gross betrayal of trust.
The message has to be - do not be complacent.
Some comment on the mechanics of New Zealand Superannuation is warranted to show why we in New Zealand First maintain a close scrutiny of what is happening.
Sometimes the devil really is in the detail.
On 1st April each year, superannuation is adjusted to account for changes in the cost of living.
Clearly, it is absolutely critical that when calculating the regular adjustments the right yardsticks are applied and applied with integrity.

Because what can look like quite minor ‘technical’ changes can over time have a profound impact on the level of superannuation over the longer term.

For this reason we advocate that the periodic adjustments to superannuation be independently verified and confirmed by the Retirement Commissioner and any changes in the indexing methodology be explicitly identified.

In that way the New Zealand public can have assurance that no corners are being cut and there is no covert biasing of the calculations to trim benefit increases.

There is another specific area that shows why vigilance is so important in the area of pensions.

People who receive a pension through the Government Superannuation Fund, basically retired public servants, receive it net of tax deducted at 30%. This anomaly, of applying the old tax rate set over 20 years ago penalises a significant group of retired people and it is long since time that it was fixed.

Conclusion

In closing this talk today, let us make four fundamental points:

First – never forget that New Zealand Superannuation is vulnerable to a Government changing the rules at any time. Governments have shifted the goalposts in the past – and are entirely capable of doing that again.

Second - New Zealand Superannuation represents a contract between the State and New Zealanders. There is an implicit social contract in New Zealand Superannuation that New Zealanders expect to be honoured. The people who are at work now are paying taxes on that basis.

Third - Do not buy the propaganda that New Zealand Superannuation is unaffordable. It is affordable well into the future. There is no pension crisis and New Zealand should not be deceived or provoked into a premature and unnecessary change by those with a vested interest in raising fears around the pension age.

Fourth – those arguing for privatisation schemes are doing so in the middle of a global financial crisis that has exposed so much market imperfection and deceit, duplicitously attacking our proven aged care system. What gall, what amnesia?

Finally remember that one Party – New Zealand First, has an "unequivocal" position for the age of entitlement for New Zealand Superannuation to remain at 65.

And we will not stand aside and let others destroy one of the greatest policies any modern democracy has ever had, responsible policy towards the elderly.

NZ First will go on being a defence, indeed a fortress, against any attempts to break that contract with New Zealanders.

ENDS


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