Speech to the Association of Superannuation Funds
Hon David Carter
Minister for Senior Citizens
Speech to the Association of Superannuation Funds of New Zealand
The Northern Club, Auckland
Tuesday 24 August 1999
It gives me great pleasure, in this the International Year of Older Persons,
to be able to address you on retirement income matters. The
International Year is an opportunity to celebrate older people, and a
range of activities are being carried out around the country with this in
Today I want to briefly address issues your association has raised
including the defeated Tolis Bill, the Government's stance on compulsory
superannuation, the involvement of the private sector in superannuation
and funding for the Retirement Commissioner.
As well I would like to outline recent approaches to superannuation, the
political constraints of work in this area, the 1998 change in national
superannuation and the demographic pressures we face. I'd welcome any
questions at the end.
There is growing concern in most developed countries as to how to
adequately provide income security in retirement for an increasingly
New Zealand is not alone in its position of having to rethink its
retirement income strategy after a period of rather prolonged policy
turbulence but little resolution.
We've had some very generous, universal schemes set at unsustainable
rates such as the 1975 superannuation rate of 80 percent of the average
wage for a married couple.
But in many respects the difficulties New Zealand faces in its retirement
income strategy are political ones rather than ones of design or technical
Recognising this, the primary effort of the Government in recent years
has been towards depoliticising the issue and seeking to build a
constituency for change.
The demise of the Accord graphically illustrated just how great a
challenge this is.
While that failure may be seen, to a significant degree, to be a
consequence of MMP, it is important to consider some of the underlying
factors which have given rise to the difficulties experienced in obtaining
a political consensus for change.
Undoubtedly the very substantial voting public that might be influenced
by the attractiveness of rates of superannuation, is an appealing target
group when framing political manifestos.
Clearly the voting capacity of those at or approaching retirement,
challenges the development of an approach to retirement income which
crosses party political lines.
Another major complicating factor in planning for future retirement
provision is the sensitivity of older people themselves to the discussion.
One of the difficulties experienced in securing a robust public debate on
an appropriate future retirement scheme, has been the tendency for older
people to see the public airing of issues, as devaluing themselves as
We have not been very successful in isolating the debate from the
tendency for many older people to see those changes, which may impact,
on only a small percentage of their age group, as a negative reflection on
older people as a whole.
Nor have we been very successful at explaining the reasons behind the
changes which have been made and which impact on present
Consequently even the precise application of the legislation to the
adjustment of New Zealand Superannuation from 1 April 1999, which,
because of the July 1998 tax cuts, meant a nil increase for single
pensioners, is seen by many older people as part of a conspiracy against
It is useful at this point to look at the changes to New Zealand
Superannuation which have occurred over the last year and the factors
My reason for spelling this out fully is to illustrate the complexity and
sensitivity of the process of changing New Zealand Superannuation
In 1998, concerned about prevailing economic conditions, including the
downturn in trading, the Government reviewed the linkage between the
rates of New Zealand Superannuation and wages.
This mechanism ensures that, while the rates are indexed to consumer
prices, they are also fixed within a band of the average ordinary weekly
wage. They therefore will not become disproportionate to wages.
This mechanism fixed the married rate as between 65 percent and 72.5
percent of the average ordinary-time weekly wage.
Following that review, the Government took the decision to decrease
from 65 percent to 60 percent, the floor to which the married couple rate
can fall, relative to the average wage.
This decision was taken in light of the prevailing economic indicators
from which the Government considered it irresponsible to award
additional increases, over and above, the CPI based adjustment because
of the link to wages.
However in setting the new relationship to wages the Government did
not reduce the existing rates. It would impact on future adjustments only.
The Government review of the link between superannuation and wages
also improved the sustainability of the present system.
The country has to be able to afford its publicly provided superannuation
scheme and as increasing numbers of people retire this is going to be
even more important.
As your organisations will be well aware, the demographic pressure is
building. By about the year 2015, the number of working people
compared to retirees will decrease rapidly.
In 2030, there will be over twice as many people aged over 65 for every
person of working age as there are now.
By the middle of the next century an ageing population could require 22
percent of the country's yearly wealth to be spent on super and health.
That is nearly twice as much as we currently spend on health and
In essence future taxpayers will be forced to bear the financial burden of
a much older population as well as making financial provision for their
own old age.
Despite the widespread acceptance of the demographic facts, the
Government change to the link between superannuation and wages
received considerable negative publicity.
This was despite the fact that no retirees received a cut in their super
payments. As well the change meant the purchasing power of their super
payments was maintained whilst moving superannuation on to a more
The other advantage of the change is that it freed wage increases to more
closely reflect improved productivity.
This is especially relevant when the Government is applying sound
economic management to control inflation to negligible levels.
In this environment, the people who should most benefit from working
harder, smarter and more innovatively, to add value to their products and
services, reap the most rewards.
Meanwhile retirees are fairly treated with their super payments
maintaining their purchasing power.
You can be assured the Government is committed to the recent changes it
has made. It will not be considering any pre-election bribes on
superannuation as our competitors are doing.
A complicating factor in the changes was that the April 1999 adjustment
had to take account of the increases in the after-tax rates of pension
arising from the July 1998 tax cuts.
The tax cuts from July 1998 increased the after tax rate of New Zealand
Superannuation by $0.25 for a married person but by $2.17 for a single
person living alone and by $1.51 for a single person sharing
Under the Social Welfare (Transitional Provision) Act 1990, the
legislation which covers the conditions for New Zealand Superannuation,
the after-tax rates a re adjusted each year from 1 April based on the
movement in the Consumers Price Index over the previous year.
The base rate is the rate for a married couple and the rates for a single
person are set as a percentage of that.
During 1998 the increase in the CPI was 0.37 percent. This gave married
superannuitants an increase of 60 cents a week each.
As the single rate is 60%, 65% if living alone, of the married rate, taking
account of the tax cuts already received, the single rates were already
higher than those that would have resulted from the application of this
years CPI adjustment.
The legislation provides that in this situation the rates are not reduced but
are held at their existing levels until relativities are restored with the
married couple rate.
While I am aware your essential concern is with superannuation
opportunities for present members of the workforce, it is important that
that we manage the expectations of the current generation of older
In the 1997 report on retirement income. the Periodic Report Group
placed considerable emphasis on the need for inter-generational
consensus. I certainly agree with that emphasis.
As that report emphasises, people of different generations view
retirement income policy based on their own experiences of working life
and public policies. Different age groups respond differently.
While all generations are seeking stability and long-term assurance, the
recent history of change and the prospect of social change continuing,
challenges the process of managing change as never before.
The complexities I have outlined also serve to highlight the need for
political consensus to be the first step in developing a comprehensive
retirement income strategy for the future.
It was with these issues firmly in mind that the Government established
the Superannuation 2000 Task Force.
That Task Force is broadly representative across the range of expertise
required for the examination of the critical issues and to encourage the
development of a widespread consensus.
The Task Force has been structured so as to provide for and encourage
the participation of all parliamentary political parties that can be
represented on the Task Force. Those that chose not to be represented
will be consulted on issues and proposals.
Unfortunately the political temptations to try to make mileage from
superannuation mean that at present only National, Act, Mauri-Pacific
and United are involved. Labour, the Alliance and NZ First are not.
I am aware that in your letter of invitation you asked that I cover issues
relevant to the superannuation funds industry.
While acknowledging your wish to secure the commitment of the
Government on these specific points, in this an election year, I am
concerned that in responding I protect the integrity of the Task Force and
the process that has been set up to develop a retirement income strategy
for all New Zealanders of present and future generations.
However it is clear that the Government is very strongly supporting
private provision for retirement income.
The support given to the establishment of a statutory Retirement
Commissioner, and the annual financial allocation from Vote Social
Welfare, demonstrates the Government's commitment to promoting
private retirement income arrangements.
In the 1998/99 year the funding for the Retirement Commissioner was
$3.662 million and that figure has increased to $4.450 million for this
Obviously employer /employee relationships are a critical interface in the
furthering of private arrangements.
However, what direction that might take in the future, and what
incentives a Government may most appropriately provide, is something
which is best left to the Task Force to consider. So also should any
administrative and compliance costs that might result from the proposals
the Government expects the Task Force to bring forward.
I have no doubt your Association will be addressing those points in its
submissions to the Task Force.
While I can understand your wish to secure firm and specific
commitments at this time, it is not, I believe, a time to make any
commitment which might undermine the work of the Task Force.
In more general terms the Government has already very clearly signalled
its commitment to private retirement income provision.
One practical example of that commitment was the Tax Credit System
(Tolis) Bill which we worked with your industry on, for three years, only
to have Labour, the Alliance, New Zealand First, and ACT derail it.
Despite the defeat on the Tolis Bill in the House, National remains
committed to the principle of it because it is a fairer deal for New
Zealanders. Its introduction would have meant a tax credit for low and
middle income savers in superannuation funds and life office schemes.
The current system is an injustice which is only perpetuating because the
Opposition took a political rather than a practical stance on the Tolis Bill.
The defeat of the Bill is estimated to leave up to 600,000 of your clients
who are low or middle income earners worse off.
Tolis remains on National's agenda for progress when practicable.
The Government decided against a proxy rate of 27c as a long term
solution since it offers a major tax privilege to the most wealthy savers
while at the same time overcharging low income savers by 6c in the
On the issue of compulsory superannuation, I think it is enough to say
the Government took note of the resounding defeat of the Winston Peters
So in conclusion, I believe the Government and private providers of
superannuation must work together towards a common goal of a more
secure and assured financial future for New Zealand's ageing population.
I wish you well in your work to improve the retirement savings options
for New Zealanders.
Thank you for the opportunity to speak to you.