Sustainable Superannuation
I am of the view that the current superannuation scheme is not sustainable. In fact almost everyone who has studied the long-term demographics is of this view. Treasury, especially, has done some excellent work in this area.
The Government has ruled out changes while the PM is PM. I understand the politics of why that decision was made (to reduce the scare mongering from Labour) but regret it was made. However just because the Government is not going to change anything in the next few years, is no reasons why we can’t start a discussion on what sort of public superannuation system we want in our future. We know a future Government will confront this issue, so let’s start the discussion now.
Rather than focus on tinkering changes to the current system, I’m hoping over many posts we can have a first principles discussion on what our public (or first tier) superannuation should look like to be fair and sustainable. Second tier superannuation incidentally is workplace scheme such as KiwiSaver and third tier are other private superannuation schemes.
However the reasons changes to superannuation has been so politically lethal in NZ, is because the changes have been to the current scheme, and affecting those already retired. I understand the upset this can cause when changes are made that affect someone already retired. How would you like it if overnight your pension is means tested?
Therefore what I want to propose as a first principle is that the current superannuation scheme be preserved and locked off for the currently and soon to be retired. No more changes of any sort – including both upwards and downwards changes. This would give absolute certainty to those retired, and also prevent politicians such as he who must not be named as trying to make the current scheme even ore expensive for taxpayers.
The current scheme is:
- eligibility age 65
- NZ citizens and permanent residents who have spent both at least 10 years since aged of 20 and five years since age of 50 in NZ.
- A floor so that the pension for a couple after tax is no less than 66% (and a ceiling of 72.5%) of the average ordinary time earnings after tax.
- The single living alone rate is 65% of the couple rate
- Inflation adjusted annually
- No income test
- No asset test
The above scheme is incidentally thought to be the most generous in the world, with no asset or income testing and a link to the average wage.
So to allow us to design a sustainable scheme for the future, I propose the current scheme be locked off, as per a certain date. The key question, is what date.
I would propose around 2025. In other words, those aged 50 or over in 2010 would still get the current scheme. The costs of the current scheme would remain high through the 2020s and 2030s, but from 2040 to 2050 fall significantly so by 2050 less than 10% of retired people would still be on it.
The population projections are:
- 2010 – 586,000 over 65s
- 2015 – 698,000 over 65s
- 2020 – 811,000 over 65s
- 2025 – 944,000 over 65s
- 2030 – 779,000 over 70s
- 2035 – 606,000 over 75s
- 2040 – 431,000 over 80s
- 2045 – 264,000 over 85s
- 2050- 130,000 over 90s
So a 2025 cut off date, would give those aged 50 or over at present certainty, but by 2050 only a small number of people would still be on the scheme.
I am specifically interested in feedback on two things:
- The principle of preserving and locking the current scheme for the currently retired and near retired.
- The desired date to cut off the current scheme, and have a new scheme come into force.
People may be interested in what the numbers would be like if one had a 2020 or a 2030 cut off. For 2020 they would be:
- 2010 – 586,000 over 65s
- 2015 – 698,000 over 65s
- 2020 – 811,000 over 65s
- 2025 – 667,000 over 70s
- 2030 – 517,000 over 75s
- 2035 – 366,000 over 80s
- 2040 – 224,000 over 85s
- 2045 – 107,000 over 90s
For 2030 they would be:
- 2010 – 586,000 over 65s
- 2015 – 698,000 over 65s
- 2020 – 811,000 over 65s
- 2025 – 944,000 over 65s
- 2030 – 1,071,000 over 65s
- 2035 – 884,000 over 70s
- 2040 – 686,000 over 75s
- 2045 – 489,000 over 80s
- 2050- 301,000 over 85s
The problem of waiting until 2030, is you will still have 300,000 people on the “old scheme” in 2050, plus the cost of one million on the “new scheme”.
Incidentally it is likely one might have some sort of transition between the two schemes, but until one has designed the new scheme, you can’t detail a transition.
March 17th, 2010 at 3:37 pm
My 2 bits worth:
Grandfather all existing superannuitants and those aged 55 or over.
Raise eligibility age to 68 in 3 month annual increments from 2020.
Implement mandatory kiwisaver contributions (including by government to beneficiaries’ individual accounts) into individual retirement accounts on a TEE basis.
Privatise all existing SOEs by contribution to the individual retirement acconts (with 20% licks going to Cullen fund) as part of the listing of all same.
Decouple super from average wage for those aged under 55, means test it.
Yep I’m against compulsion but this is probably the one thing both Winston Peters and Bill Rowling were right about for NZ.
March 17th, 2010 at 3:39 pm
What a pity National, out of sheer spite, connived to scaremonger the referendum result on NZ First’s compulsory superannuation savings scheme. Not too late to admit you were just being childish, National, and resurrect the idea.
It’s simply daft having today’s workers supporting yesterday’s workers, who’d been led to believe that a portion of their taxes were being set aside to fund their retirerment. Asking a government to leave a portion of taxes alone is like asking Parekura Horomia to leave you a few chips next time he’s at Maccas.
We need to shift to today’s workers funding their own retirement through what is, in effect, a compulsory savings scheme, but one that is administered by a range of private sector organisations and thus locked away from the greedy fingers of the Treasurer of the day.
In short: copy Australia.
March 17th, 2010 at 3:56 pm
Rex W>It’s simply daft having today’s workers supporting yesterday’s workers
Today’s workers MUST support yesterday’s workers, by definition. Because the first group is working and the second isn’t. Pensioners (or the government, or whoever) haven’t stockpiled a quantity of goods and services for each retiree to consume during their retirement, so those goods and services must be produced by working people.
The only real question then is how are those goods and services paid for. We’re mostly relying on taxes. We’re moving to a position where investment income is more important. But regardless of funding, the ratio of old people to young working people remains the same.
March 17th, 2010 at 3:57 pm
The sad thing of course, is that significant superannuation adjustments are currently being ruled out because of the personal political promises of a political leader, and ridiculous spats between politicial parties that. in 20-30 years, may be both a distant memory.
March 17th, 2010 at 4:03 pm
I have to ask why the hell do some get govt super after only ten years in NZ.
I notice some immigrants whining they should get both NZ and Brit super.
Is it time to make super pro rata for the time in country ?
Yes there will be some refugees whom it should not apply to, but, I expect the children of refugees to take care of their elderly.
March 17th, 2010 at 4:17 pm
The principal of not changing people on the scheme seems very sensible. We could discuss adjusting for inflation to be means tested. But only if a sufficient number of retires would have assets, else not worth it.
But a 2020 cut-off date is more fair, else we have people who are still forced to contribute for a long time to retires, but won’t enjoy the benefits of the scheme.
But the date for changes depends on what changes obviously. I think a gradual rise in year of eligibility would be quite acceptable. Everyone knows that is going to happen. I don’t like asset test, because it usually means that the same people are hit twice. First they pay taxes, next their assets are attacked, and the bludgers and spenders are being financed by the government.
March 17th, 2010 at 4:41 pm
davidp: Sorry, I should have added “…in future”. Yes, we have to support yesterday’s workers at present becasue successive government’s have stolen what was meant to be the nest egg that was to be set aside from their taxes to fund their old age. But wwe can’t keep doing it as their relative numbers increase is what I meant. I’m bad enough with actual numbers… once I start using words to describe them, I lose the plot entirely
March 17th, 2010 at 4:48 pm
I think what you have proposed David is both sensible and a good place to start from, I would be in favour of this transition.
However I think one issue needs to be brought up and that is taxation on investments for the retired and retirement funding.
Kiwisaver is a good idea and we have the maximum we’re can, however if retired people were not taxed on their investment income that would help moving the populace towards a totally individual invested retirement.
If people knew that the funds were not taxed on receipt as income then they would be more likely to put into them in the long term.
Another issue is that Kiwisaver must be protected from the politicians and that includes John Key and National, it isn’t right now and needs to be.
I would allow non-nationals to receive NZsuper now on top of their overseas pension funds instead of the qualifying system they have now whereby they lose one or other or partially.
If they have paid into NZ Super and have the good fortune to have invested whilst they were overseas then good on them, nailing them for their prudence is shallow and short sighted and just not right.
We need to get rid of the envy attitude in NZ, it is stopping us be all that we can be as a nation.
March 17th, 2010 at 4:54 pm
No new taxes. Shift the age of eligibility up to 68, by 3 months per year, starting 2015.
March 17th, 2010 at 4:57 pm
Rex… My point was that if the ratio of workers to retirees is problematic at (say) 3:1 then that ratio is the same regardless of how wealth flows from the 3 to the 1. If it is an onerous burden for a working person to transfer (say) 20% of their output to retirees in the form of tax, then it will be equally onerous to have to yield 20% of their output in dividends and transfer it to retirees. Some workers just aren’t that productive.
What I would expect to happen if investment income became the primary source of retirement funding is that there would be so much investment required that rates of return would decrease and we’d still have a funding problem.
If pensioners were forced to stockpile tinned food throughout their working life that they would consume during their retirement, then “saving” would be a valid and sustainable form of providing for retirement. As it is, then will be hundreds of billions of dollars worth of pensioner savings in the economy and it’ll all be chasing the output of the relatively smaller productive sector.
March 17th, 2010 at 5:14 pm
Nothing highlights the failures of democracy as well as this issue (not that there is a better system). This is an issue where any simi literate/numerically able person can see we are going to run out of money without changes but because Greypower is such a powerful voter base and any hint of a change to Super creates mass panic (helped on by Labour) all we can do is stand on the rails and watch the train approach. Even tiny changes will become an election football (surcharge for eg – what a disgrace anyone promised to get rid of that let alone it went). Ideally parliament should agree that there will be a slow increase in the age to receive super (say 3 months a year for 6 or 8 years – bringing the age to 66.5 or 67). That would buy some massive time.
And as an aside I get a bit tired of hearing baby boomers who had the benefit of free education, cheap housing etc saying ‘we’ve paid our taxes so we shouldn’t compromise on super’. Bollocks to that.
March 17th, 2010 at 5:29 pm
First thoughts, if National goes into the next election seeking a mandate to do away with interest free student loans but yet not to address super in this country, then I am done and through with NZ fullstop.
Moan first suggetions second…ha.
I guess from a generation “y” person all you see with super is getting to pay for the current ridicolous super system brought in by dickheads voting Muldoon, but never to benefit from it, just ironically the baby boomers (who voted for Muldoon en force) do. Its a political reality but does it grate, yes, especially as those same people call me a bludger for getting a interest free loan to live and study and get ahead and then pay taxes so we can ‘afford’ (cough) super. Especially when the tax system favours them (PAYE rates vs trust rates anyone i.e. active vs. passive income), Uni used to be free etc etc. Yes times change, and its reality, but seriously seriously grates.
Anyway I am not for taking it away as clearly people rely on it. But the constant instance on not dealing with it is troubling.
The age of eligibility needs to at least go up gradually and sooner rather than later i.e. it needs to start tomorrow, i.e. 66 and increase every couple of years till we get to 70. JK cant do this on his current promises, but going into the next election he can openly seek precident for it. Eventually I see a retirement age of 75, but needs to get to say 70 by 2020.
Whatever.
March 17th, 2010 at 5:31 pm
Kiwisaver was always going to be the replacement to Super. But it needs a few tweaks to ensure that contributions are protected – say via an insurance component.
Now is the time to inform an age group (say 20/30/40 yrs ols now) that there is no super for you, and that your Kiwisaver account will be your retirement fund. Oh and to help your income tax rate is reduced by say 5/7/10% or similar to give you the excess to save.
Compulsion – not so good. Education – better.
March 17th, 2010 at 5:31 pm
What a pity National, out of sheer spite, connived to scaremonger the referendum result on NZ First’s compulsory superannuation savings scheme. Not too late to admit you were just being childish, National, and resurrect the idea.
Quote for truth.
March 17th, 2010 at 6:03 pm
What bullshit.
What the real goal should be is to make NZ a wealthy country and keep it that way. Do that and we can afford our super schemes. Allow our super schemes to be rorted as all super schemes are and that will definitely not happen.
Rex, don’t hold the Aussie scheme up as an example. It has caused the Aussies to be over priced and overpaid, has caused huge overpricing of assets both here and in Aussie as they all competed to spend the never ending flow of funds. (basically any return was better than none. ) Our Commercial property in the last five or so years was priced out of all proportion to reality because of the funds actions.
Currently they (the Aussies), are lamenting the inadequacies of the scheme, saying they should have changed it 20 years ago.
The Americans have clearly shown that others cannot be trusted with someone else’s savings and most super funds barely return bank interest. The Aussies to have had their go and no doubt some here in Kiwi land.
Make NZ wealthy with healthy incomes that are invested according to peoples own preference and allow people to be responsible for them selves until the day they die. Another good reason for dishing Trusts.
March 17th, 2010 at 6:17 pm
Following the next election, Key needs to start the discussion, even if it gets implemented after he leaves.
The age has to go up slowly but sooner rather than latter.
Income and asset testing needs to be brought in but it is useless unless there is a trust look through. I dont know how this will work and no doubt whatever they bring in, there will be a way around it.
There should be some sort of pro-rata for the amount of time in NZ. 10 years is too short. I would say half the working life should be in NZ (say 20years) or it gets prorated. Additional benefits can be applied for, but not automatic in cases of need.
The benchmark to average wage works well at the moment but maybe a basket of goods approach is more suitable (similar to the CPI but based on what old people buy). This may also need to be tied to location – ie auckland gets paid more than smaller town due to higher cost of living??
As a Gen X/Y, I know that whatever the current scheme is, I wont benefit from. The longer we leave it, the bigger the mess will be.
March 17th, 2010 at 6:20 pm
I agree with principle 1, primarily because many will have planned for retirement based on expectations surrounding the current scheme.
Principle 2: I don’t feel comfortable commenting so much on a precise date, as I have not considered the issues surrounding this in depth. If the scheme was changed relatively quickly, many in the 40 to 45 age bracket (maybe even 50) would have a good amount of time to adjust their plans and expectations accordingly, particularly if the retirement age was given a significant raise with some relation to furthered life expectancies in recent decades.
I would advocate a bare-bones scheme replacing the current one, however, although this may have somewhat interesting flow-on effects (such as potential higher birth rates) which would possibly need to be moderated somehow, incentivised the opposite way. It’s a complex issue which definitely needs more research and consideration, and less scaremongering and talk about entitlement.
March 17th, 2010 at 7:07 pm
David congratulations on raising the issue. It is a very important one, and one very dear to my heart. So much so, it was afeature of my maiden speech.
I agree with you. It is hard to alter the minimum benefits for those currently in retirement, and the expected benefits of those approaching retirement. Whether the cut off is 60, 55 or 50 is debateable and will depend on the exact transition arrangements.
Without doubt the current scheme is simply not sustainable. We are going from 5 workers to every retiree, to a 2:1 ratio of the next 30 years. The government can either leave people in the dark, as National seems to want to do, or be honest with those nearing retirement so that we and they can start planning now.
My personal thoughts are probably closest to Rex’s.
However it wasn’t NZFirst’s scheme that went to referendum Rex, it was Act’s. It might have been the NZFirst-Bolger referendum, but it was Act’s scheme. Eventually after opposing it throughout the 1996 election, NZ First essentially copied the Act scheme. No problem with that. I thought it was fantastic. The tragedy was that it became a referendum on Peters and NZ First and it went down 93- 7%. I have proudly counted myself as part of the 7% ever since.
Rex I do not think it was National that connived against it. More like some National MPs only. I thought Jim Bolger promoted it very fairly.
Some refer to it as complusory superannuation. It is no more complusory that income tax. People already pay for superannuation. The problem is that they pay for the generation ahead of them. We need individual accounts, so they can start paying for their own super.
In 1996 Act campaigned on a portion of what would otherwise be our income tax going into a dedicated personal savings fund to be access at 65.
In his speeech ‘No second Class Citizens’ last June Roger Douglas highlighted that the average NZ er pays $12,000 pa in personal income taxes, and that superannuation accounts for a third of this or $4000 pa. If instead of paying this in personal income tax to the IRD, it went instead to the taxpayers own account to be accessed at age 65, it would compound to over $1 million ( aassuming 5% real). This is a massive sum to retire on, and would provide an annuity far far higher than the current pension.
More importantly our “second class citizens”. the poor, the under privileged would be huge winners. Maori men have much shortened life spans. That is a tragedy, and a story in itself. However they pay taxes all thier lives, and when they die prematurely at 65, 70, they leave little to the widows. They have paid all their lives, but get little from super. If they individual accounts at least thier widows would be very well cared for.
Australia has been referred to, however the real model is Singapore. They introduced complusory super in the early 1950′s and it has been the foundation of their economic revival ( following the second world war) and their prosperity.
The related issue is ever rising health costs for our growing number of elderly.
In my maiden speech I congratulated Michael Cullen for introducing Kiwisaver. The time has surely come for everyone to be a member.
March 17th, 2010 at 7:33 pm
I agree with the concept, and thanks DPF for starting the discussion (yes, that was the obligatory suck up
)
We have to grandfather, nothing else is fair. If we’re going to grandfather, then I think we should start sooner than later. The earliest it could start is when John Key gets voted out (bet that will make him happy). Call it three terms, 2020. Realistically, we couldn’t consult and agree faster than that anyway.
I’d look carefully at the inflation indexing of the current scheme – I’d gradually creep the floor down towards 50% even for those we grandfathered. I don’t think that is unreasonable.
Off the concept you’ve put here, some thoughts on the next steps – what the new system looks like, how it works.
1. Means testing sounds like a good idea, but it creates some perverse behaviour around trusts and alienating income. How much money would it really save, once you factor in this kind of leakage? If we do abate based on wealth, make it a very gradual abatement so there isn’t a disincentive to save.
2. If we see output as a function of labour (as davidp does) then yes, more retirees is a problem irrespective of how we go about funding them. If our output is constant, then different funding mechanisms make no difference to output, and therefore don’t fix any problems. If we see output as a function of both labour and capital, then a scheme that saves more capital will result in higher output. Our pay as you go scheme doesn’t actually save anything, therefore creates no capital, therefore doesn’t increase output in the future.
A savings based scheme would result in a shift in the mix of labour:capital, and therefore (everything else being equal) increase total output. That is to say, davidp’s assertion doesn’t hold – you can save for your retirement, and the money does create additional output. It would be fair to say that there are diminishing returns to capital, so those savings might not generate as much output as people thought – but they are generating some output.
3. Australia’s super system has some problems, but the mass of capital in Australia is definitely increasing their productivity, their investment in infrastructure, and a bunch of other good things. People that I know in Australia don’t see the savings scheme as a failure, and I’d definitely encourage NZ to get one similar. Maybe without all the paperwork and weird arse rules, but the concept is sound.
March 17th, 2010 at 7:34 pm
Trouble with locking it off at 2025 and requiring anyone under the lock-off date to fend for themselves is that there will always be some (yes me) at the margins. I turn 48 this year so will have suffered pretty much all of the pain with none of the benefit.
Now I’m not against the idea totally, but I’d want some pretty substantial claw-back if I get the door slammed in my face. I am investing for my retirement (was going to be ‘extra’, rather than entirety) as well, but getting whacked full tax on that as well. So maybe there’s another transition scheme where those aged between 40 and 50 get tax-free superannuation savings at least if not investment income altogether to counter the fact that we will be the ones hurt most by paying for both our and others superannuation.
March 17th, 2010 at 7:42 pm
Yes I think we have to lock in benefits for the existing retired or soon-to-be population. Not to do so would be grossly unfair.
I don’t know about when, partly because that depends on what.
I support a gradual rise in the age of eligibility.
I oppose means or asset testing: that just punishes the responsible people who have saved with in effect double taxation, and rewards the irresponsible spendthrifts. That is morally wrong.
I think compulsory saving (building on KiwiSaver) is worth considering. But one of my reasons is a little unusual. It is the realisation that an adjustable minimum contribution rate would be a powerful tool to supplement monetary policy. It would have many of the same effects as raising/lowering the OCR but avoid many of the corrosive side effects. This is what Singapore does and it seems to work well for them.
March 17th, 2010 at 7:55 pm
You forget the country will be richer and will be able to easliy afford the scheme. But people will also be healthier and should be fit to work until 70 at least. I would favour income testing between 65 and 75 to reflect that reality.
March 17th, 2010 at 8:01 pm
Problem is that super is usually taken up and contributed to by persons that work and pay paye. Business owners, contractors and the like are developing their own super and those that are not working and being paid wages do not contribute so therefore someone else is paying their share. Much like health and various other Govt. funded entitlements.
We have students who spend 20 years at uni on various handouts and benefits that would qualify, we have people who never earn a days pay the qualify. At what point do we actually say to people , prepare for your own retirement as the state will not be there to do it for you. .
Without Cullens handouts Kiwisaver would be defunct by now but instead it lost big chunks of money whilst still swallowing more.
Like most things there is really no need for the state to be involved in peoples lives. We need a safety net, yes but we really shouldn’t be in the business of handing other peoples money to others. Encourage people to have a super scheme. Regulate those schemes properly but most of all tell people that without they save in someway for their retirement there will be nothing.
March 17th, 2010 at 8:12 pm
rouppe: yes, we’ll definitely have to have some sort of transition. Once we go past the lock-in date, I’d suggest that we reduce the benefit that people receive from the taxpayer, un-means-tested, by 4-5% per year away from retirement. So someone 20 years away from retirement, in 2020, would get nothing from the govt other than some sort of poverty benefit. Someone 1 year away would get 95% of the grandfathered scheme. Something like that.
Yes, that’s a very long transition, but I don’t really see what other option we have.
To be fair, I reckon we’ve been signalling for some time that the existing super arrangements will have changed for most people before they get there. If we haven’t, then we need to hurry up and do that, so there’s no excuses for people not knowing that they need to start saving.
Problem is, I don’t think we have the guts as a country to say ‘if you don’t save, you don’t get squat.’ We’ll always provide a benefit. And once we accept that, we really have to have compulsory savings and lots of rules about trusts and alienation of income, else why would anyone bother to save?
March 17th, 2010 at 8:32 pm
My two cents worth is that I’m glad I’m well into my super period and not somebody with their fingers crossed that the cowboys in the financial market won’t stuff up my contributions and leave me with little or nothing to retire on. It is completely un-acceptable for there to be no guarantee on Kiwi Saver. It is also a strong dis-incentive to save. Sorry David that that is not in line with your questions.
March 17th, 2010 at 10:01 pm
Do not copy Australia. The system we have in Singapore is far superior. At present the rule is that all employees contribute 20% of their salary to the Central Provident Fund. The employer at present contributes an amount equal to 14% of the employees salary. There is a cut off at SGD4500 per month; over that, you can contribute voluntarily either to CPF or to the Supplemetary Retirement Scheme – you get a tax credit equal to your contribution but the employer need not contribute any more.
Under the Singapore scheme the money going in to your CPF account is allocated to three sub-accounts: the Ordinary, the Special and Medicare. The split is approximately 60-25-15. The latter two change as you get older to reflect the likely increase in your medical expenses. The amoun that is contributed by you into either the CPF or SRS is offset against your (already low) tax.
The big advantage of the CPF (unlike Australia) is that the money in your Ordinary account is able to be used to pay for the purchase of property, either public or private. Once you have used the balance of your Ordinary account for the down payment, additional contributions from your salary to your Ordinary account may be used to repay the mortgage.
There are additional elements involved but the essential point is that this results in a population being lightly taxed and yet with a very high proportion of home ownership as well as having adequate savings for both retirement and medical care.
The Australian scheme locks your money away until you retire, which means that for many people it will simply be part of their estate.
March 17th, 2010 at 10:16 pm
wrong thread. Oops
March 18th, 2010 at 7:38 am
An intersting post Sean, and particular your comment that the Singapore scheme is far superior to Australia’s.
Singapore’s scheme shows you can have a great deal of flexibility with a dedicated, individual based savings scheme.
March 18th, 2010 at 7:47 am
where is John Boscawens post that I was replying to?
its just disppeared!
March 18th, 2010 at 7:53 am
Just cut the system for everyone like in the 80s (we didnt grandfather the benefits did we?) and take the fallout.
Then bask in the glory of almost everyone agreeing you did the right thing after it all settles down.
cut it as soon as possible so we can get onto a sustainable system. The longer you leave it like this the more current elderly rob from future elderly as with any unsustainable programe.
March 18th, 2010 at 7:56 am
“Yes I think we have to lock in benefits for the existing retired or soon-to-be population. Not to do so would be grossly unfair.”
This is flawed logic. Would you have said this about those on benefits? or to be more fair – how about sickness benefits? If not why not? expecting a government handout doesnt mean you have a right to it.
March 18th, 2010 at 8:32 am
As somebody who ended up paying about 15% of my income into my retirement fund I am interested in Sean’s description of the Singapore system becuase I thought and think that the Kiwi Saver 4% or 2% is a pathetic token. People simply have to learn to put away considerably more instead of buying new cars, Tvs et al. It would hurt the retail sector of the ecconomy for awhile but that is the price one pays for a sustainable system. The problem with any system is how it is paid for or into. It must hurt like mad to see money going out of one’s account if self employed … but for the ‘worker’ PAYE makes it relatively painless becuase you only ever see the nett amount. Perhaps that is an argument for increased GST with the increase going into a retirement fund. A snag there is that the self-employed can fiddle personal expenditure as business exprenses.
GNZ … obviously I think the current scheme must be grandfathered becuase those it is proposed not to cover cannot in most cases turn around and suppliment whatever is left from work, assuming they could find it it with a pool of un-employed. When I was a ‘worker’ paying tax I never bothered about how much I paid, even though I paid well above the average, becuase it was the price of living in a caring responsible society.
March 18th, 2010 at 8:41 am
Does the Australian system make contributions part of a person’s estate? or does it just dissapear? What is the Singaporean position?
I seem to remember this was one of ACT’s arguments for individual based schemes. Though if that money is lost to the scheme it means that payouts must be somewhat less for those who continue to live, unless it rejoins under the name of the beneficiaries.
March 18th, 2010 at 8:46 am
GNZ … but what was done in the eighties by Muldoon was wrong … although I benefited becuase I doubt if I would have saved in two schemes with the pressures of having a family and lifestyle.
March 18th, 2010 at 8:56 am
And actually now that I think of it I’m not sure the suggestion will solve the problem.
As I understand it, there is a big bulge of people approaching age 65. This bulge tails off in terms of birthdate from about 1960. I was born 1962.
David’s suggestion still has all those born before 1960 qualifying which doesn’t actually solve the problem of a large bulge drawing on the scheme. It seems to be a case of ‘the boom is going to generate a problem, so lets scrap the scheme, but still let the boom-babies draw on it’.
Well if the boom babies are going to be the large drain, then you need to deal with that, not the people born post-baby-boom. Of course we’re now too close to the bulge to do anything for those born 1945-1955. If you’re going to remove entitlement for those born 1955-1965, there has GOT to be some compensation now in terms of stimulating the savings growth of that age-group.
Perhaps the govt could contribute dollar-for-dollar to KiwiSaver accounts for that age-group up to maybe $5000 to $8000 a year in order to boost the private savings of that group…
March 18th, 2010 at 10:11 am
I reckon locking it off would create an inherently unfair system, those excluded will resent the privileged. Also an arbitary future lock off date gives the (unwanted) impression that really the plan is to cynically make it some later governments problem and avoid making any decisions.
Instead we should introduce asset testing and income testing as soon as possible. Cut the super to those able to pay for their own retirement.
Didn’t the PM also make some promises about GST and tax cuts? But these had to be deferred to economic realities. Promises (especially by politicians) are made to be broken.
March 18th, 2010 at 1:33 pm
I agree with Seans comments but would David like to consider how the current scheme would look like in terms of sustainability if the age of retirement was advanced by a month or more each January 1st?
March 18th, 2010 at 7:50 pm
A couple of points bought up by others – i): in times of economic hardship the government has moved the employer ( but not the employee) rate downwards, to ensure that employers keep employing rather than having to let staff go. While there is no difficulty in doing so in terms of Singapore employment law, there is also the Confucian social contract, known as the “iron rice bowl”, which makes it far preferable for people to suffer somewhat in a crisis than to lose jobs. I for example had my salary cut by ten percent, quite arbitrarily and without consultation, but the firm did not fire anyone; and ii): the amount in one’s CPF account becomes part of one’s estate – indeed the CPF Board actively encourages members (as all citizens and permanant residents are by law) to make a ‘nomination’, that being the person who automatically gets the value of the account.
Note also that the rates of interest one receives on the balances on one’s CPF account are not high by NZ standards, around 4%. Bear in mind, however, that interest rates in Singapore in general are low (I pay >2% on my mortgage). There is the ability to use the money in one’s Ordinary account to invest in unit trusts, some shares and (its an Asian thing) gold.
Oh and in Singapore we retire ar 62 and from 60 the employer is permitted to cut your salary by 10%.
March 20th, 2010 at 9:19 am
Interesting Sean … The 10% cut reminds me of a concept that wages should be tied to the exchange rate, at least in export industries, so both worker and employer benefit and suffer together … perhaps it would help if benefits/super were too. As for the ‘bulge’ it will come and pass and like any problem the country just has to grin and bear with it and not forget its sociel obligations to its members. Future generations will not breed like rabbits and both the country and the world will benefit from a hopefully a reduced population … instead of this mad struggle to be bigger and bigger that feeds the wasting of earth’s resources.