Cullen on KiwiSaver and superannuation

December 12th, 2012 at 1:00 pm by David Farrar

Vernon Small reports:

The architect of , former finance minister Sir , is proposing a revamp of the scheme to help cut the long-term costs of to the Government.

Under his plan KiwiSaver would be made compulsory in 2016 and contributions would rise to 4 per cent for employees and 4 per cent for employers, followed by further increases to 6 per cent or 8 per cent for employers.

But half of a saver’s nest egg would have to be used to buy an annuity.

If that provided an income lower than the current superannuation formula, the state would top it up to the guaranteed retirement income.

“In effect this means that for many people the shift from state funding to private funding would result in half of their retirement KiwiSaver savings being income-tested away,” Sir Michael said.

This approach has some considerable merit. We have not adjusted superannuation policy o take account of KiwiSaver. I recall when KiwiSaver came in, the projections were that someone who earned the average wage would receive in retirement a higher income from KiwiSaver and NZ Super combined that they did when working. This is clearly not sustainable.

Labour’s proposal to lift the age from 65 to 67, while a step in the right direction, is just tinkering. What Cullen proposes would make a huge difference to the long-term financial sustainability of retirement savings.

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27 Responses to “Cullen on KiwiSaver and superannuation”

  1. Manolo (13,312 comments) says:

    Ought to be mad to trust Cullen, squanderer of billions of NZ wealth over the Labour years.
    On the other hand, Smile-and-wave refuses stubbornly to even consider lifting the retirement age.

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  2. Paulus (2,490 comments) says:

    Never thought I would have a sympathetic ear to anything Cullen proposes, but this worth exploring further.
    Greenpeace and Labour will run with it for 2014, despite lacking real details.

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  3. Adolf Fiinkensein (2,787 comments) says:

    At last, albeit from a tainted source, some common sense on this issue. A further useful step would be the introduction of a proper means testing regime.

    Of course the knuckle draggers cannot comprehend any solution other than ‘raising the age of eligibility.’

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  4. Grizz (500 comments) says:

    Seeing as labour have already spent your Supperanuation several tmes over, I guess it is only natural to ask the “rich” to fund their own retirement, allowing money and printing presses to be directed towards all their other social programmes.

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  5. anonymouse (693 comments) says:

    Kiwisaver is an inflexible stick, that locks you into a one size fits all approach,

    Want to save more and retire early, Sorry Nah you cannot get you savings until we decide when you retire,

    I have a private superannuation scheme that both I am my employer contribute to, it allows me the freedom to withdraw some of my saving once I near retirement, and generally provides a heck of a lot more security that a scheme that the government has is grubby paws all over……

    Sure make superannuation saving compulsory, but forcing everyone into Kiwisaver is a bad idea,

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  6. dime (9,356 comments) says:

    nice! the employer only has to tip in 8%!

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  7. RRM (9,418 comments) says:

    nice! the employer only has to tip in 8%!

    Yes because of course it’s impossible for you to take that 8% into account when you recruit someone new for a position.
    And it’s impossible for you to take that 8% into account when an existing employee tries to negotiate a pay rise.

    I work for a small-ish business, and when Kiwisaver first started our bosses actively told us it was a great idea, and we should definitely all sign up for it.

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  8. rouppe (913 comments) says:

    What ticks me off about all this is that for a very long time we were told that National Superannuation was a base retirement income and that if you wanted a more comfortable retirement you had to save more. So some of us duly did. I’ve been saving and salting away and investing and doing all the things suggested in order to ensure my retirement is fairly comfortable. But remember it is predicated on the base superannuation being there.

    Then governments come along and say thanks for that, now we’ll take the basis for your superannuation planning away. This fundamentally shifts the financial plan and screws over the middle-class PAYE worker (again) while protecting the lower paid and makes barely a jot of difference to the really wealthy.

    Under Cullen’s proposal the person who did no planning and spent all their income on piss, drugs and whores will get the same retirement imcome as the middle-class person that saved about $250,000 (assuming a 6% gross return before tax – not achievable right now) while the really wealthy (like Cullen on his guaranteed inflation-linked government super plan) don’t care.

    That is just flat out shitty

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  9. Sean (299 comments) says:

    The Singapore scheme has contribution rates of 20 and 16 percent for employee and employer. The big advantage is that you are allowed to decide what to do with it – within limits – so its less of a one size fits all approach. Most folks use it to pay for the deposit and then (using the ongoing contributions each month) the mortgage on their property but one may also invest or even use it for education.

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  10. burt (7,786 comments) says:

    rouppe

    I think you missed the key point in Cullen’s idea – It will get picked up by Labour and make Labour popular enough to gain the treasury benches again…. what else could be more important than that ?

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  11. Manolo (13,312 comments) says:

    That is just flat out shitty

    What else can you expect from the discredited Sir Michael Cullen?

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  12. dime (9,356 comments) says:

    “Yes because of course it’s impossible for you to take that 8% into account when you recruit someone new for a position.
    And it’s impossible for you to take that 8% into account when an existing employee tries to negotiate a pay rise.”

    to continue in your tone:

    and it employees wont mind seeing their in hand pay stay still for 2-3 years while their living costs go up. it wont be demotivating at all.

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  13. insider (999 comments) says:

    If the govt is going to top up private annuities what incentive is there for the providers to do a good job ie minimise the chance of a top up being needed? Ruthless funds managers will just rape the funds to maximise their own benefit and force the taxpayer to pick up the bill.

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  14. burt (7,786 comments) says:

    insider

    Ruthless funds managers will just rape the funds to maximise their own benefit and force the taxpayer to pick up the bill.

    But that won’t start to happen before a Labour government has been elected – so who cares !

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  15. jacob (16 comments) says:

    I think Kiwisaver is a pretty good scheme, but Cullen and the rest need to stop this rubbish talk about ‘employer contributions’ – those come out of your salary, not the kindness of your bosses heart

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  16. SPC (5,334 comments) says:

    How do contributions into Kiwi Saver deal with the rise in tax paid super cost?

    They don’t.

    We require a compulsory payment, not into Kiwi Saver but into the Cullen Fund – 4% from each employee and 4% from each employer. Then this Fund can better meet some of the cost of future tax paid super. Clearly we are not going to have the budget surpluses required to grow this fund and this alternative has to be applied.

    The other option is a similar health fund – a charge to assist in the funding of health costs – say 1% from the worker and 1% from the employer.

    As to the cost of tax paid super. ASAP

    1. make universal super to those over 70 only.
    2. pay it under 70 to only those who have retired – thus a retirement pension between 65 and 70. Define retired as earning less than the median wage from employment.
    3. signal an increase in age from 65 to 70 (from 2022 to 2042). This gets us to age 67 by 2030.
    4. pay income support benefits to the unemployed at the rate of super between age 65 and 70, so there is no hardship for those who cannot find work at this age.

    A back up option is paying tax paid super at two rates (an essential if deciding on a compulsory rate of 2% from employee and the employer rather than 4%). The assessment of the two rates being begun now and then applied when this was felt necessary.

    Universal at the current level plus the CPI.
    A means tested rate at the current level, linked to net wage.

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  17. s.russell (1,559 comments) says:

    rouppe makes a critical point: means testing of Super simply means stealing from those of us who have saved and giving the money to those who have not. I find this morally repugnant.

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  18. burt (7,786 comments) says:

    SPC

    You forgot to mention that bread vouchers and toilet paper vouchers would also be given out with the grey overalls we are all required to wear in your communist utopia.

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  19. B A W (98 comments) says:

    I can just imagine the fight back – they are after my Kiwisaver!, they are stealing my hard saved money, they sold me a lemon, why save, they are only going to steal my money!.

    Raise the age – yes
    Means testing – target the richer people first for polical coverage.
    Encourage people to delay retirement – yes

    If you touch Kiwisaver you need to ring fence contributions already made or people will really attack you for that or introduce whole of assets means testing.

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  20. Cunningham (811 comments) says:

    I agree with s.russell and rouppe. Where is the incentive to save? I am all for helping people in need but the amount of money that is extorted from me for very little benefit is really starting to get on my nerves. Changes like these are designed to just hammer away at the incentive to make something of yourself until one day people doing well will just say fuck this and either move away or stop trying. WFF, int free loans. I get nothing at all and this idea is yet another way to fuck me (and may other ppl in my situation) over. There needs to be some incentive for people who climb the ladder in life.

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  21. SPC (5,334 comments) says:

    burt, the alternative of compulsory input into Kiwi Saver will be high 8% employer contributions means

    1. lower wage increases and less tax revenue growth (from either income tax or company tax).
    2. no better ability to afford tax paid super (in fact less as economic growth will also be lower – much of the Kiwi Saver money will be invested offshore).

    This as rouppe correctly notes means less reward for saving (and less flexibility as to use of savings).

    The Oz model compulsory private saving is based on – results in more aged poverty and means testing. Our means testing will be more severe than in Oz given our relative economic circumstances.

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  22. Steve (North Shore) (4,489 comments) says:

    Grubby little bastard is still trying to steal money to pay others. Where does this money go until it is needed to pay the donar? Socialist prick wants to spend other people’s money.

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  23. calendar girl (1,172 comments) says:

    Why is it assumed that people of working age in NZ always have an “employer” to pay compulsory contributions towards their superannuation needs? Or does Cullen and other advocates of his statist policies intend a penalty tax on NZ’s many thousands of owner-operated businesses?

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  24. Ashley Schaeffer (402 comments) says:

    What rouppe said. This is just flat out shitty for the middle class. I’ve been looking at my growing KiwiSaver nest egg thinking about the additional comfort it’s going to bring in retirement, but now I’m looking at it thinking what’s the point? I could contribute four fifths of fuck all now and still end up with the same level of income during my retirement. Cullen is a contemptible asshole and should be put out to pasture. Want a sustainable system that encourages people to save for their retirement? – End Govt Super altogether and seriously cut taxes to enable people to super-charge their savings. Didn’t save for your retirement? Tough titty – take some responsibility for your life. What Cullen is proposing is standard Socialist wealth redistribution.

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  25. Scott1 (444 comments) says:

    Hurry up and Raise the age but more and faster than labour suggests.

    By the way – i note the above story already has me about to go down to cancel my kiwisaver contributions…

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  26. rg (197 comments) says:

    Kiwisaver is immoral. It’s too generous taxpayer contributions are funded by people who can not afford to be in the scheme and given to people who don’t need to be in it.

    What point is it when half the population will have it and half won’t. Kiwisaver is creating privilege as theer will be two classes of people, those with it and those without. How is that going to help?

    It is just more socialism accepted by National which is getting very god at socialism I would have to say. Almost as good as Labour.

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  27. Manolo (13,312 comments) says:

    It is just more socialism accepted by National which is getting very god at socialism I would have to say. Almost as good as Labour.

    Only almost? Both are one and the same!

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