Roughan on Super age

February 16th, 2014 at 12:00 pm by David Farrar

John Roughan writes in NZ Herald:

To my astonishment I have passed the age of 60. In fact two more years have passed since that milestone flew by. In no time at all, I’m going to wake up one morning to realise I can claim the public pension and Winston’s card.

This is ridiculous. It really is.

Babyboomers have begun to declare 60 the new 40 because it’s true. It’s not just that we feel as fit and well as we were at 45, but human longevity has visibly rocketed in our lifetime.

My grandfather died at 66, my father is now 86. At this rate, unless the age of entitlement is raised I could be receiving the pension for a quarter of a century.

I have no need to stop work at 65 and I know I am not unusual.

I believe the age of eligibility should increase. Also a case for means testing, so long as the administrative cost of doing so wasn’t too high compared to the spending saved.

John Key has not made many political mistakes but even on his side of the fence there is a feeling he went too far when he solemnly promised the terms of national superannuation would not be altered while he was Prime Minister.

It was a mistake. No one should ever make a promise beyond the next term. We have elections to allow parties to offer different policies in the future. It is unfortunate that Labour’s scaremongering over superannuation in the mid 2000s resulted in Key going too far with his promise. I suspect he regrets making such an commitment.

But he did. He not only promised no change while he is PM, he pledged in writing that he would resign as both PM and an MP if he broke his word. I do not want him to break his word, because it would result in a Labour/Green/Mana Government. I suspect Labour would ever have signed up to increasing the retirement age except for the political benefit that it puts pressure on Key to break his word, which would politically cripple him.

It should be a lesson for future leaders that they should never be pressured into making a commitment beyond one election.

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A problem for Cunliffe

January 27th, 2014 at 10:00 am by David Farrar

Newstalk ZB reports:

The bartering’s already underway ahead of this year’s election, with New Zealand First laying down the law on superannuation.

Leader Winston Peters is making it crystal clear his party’s against the age of entitlement being changed.

“Categorically, we will not support any party that seeks to move the age to beyond 65 at this point in time.”

This is a real problem for Labour.

I support the eligibility age going up, and Labour policy is for it to go up. It is a rare area where they can try and claim they are fiscally restrained and credible.

But the reality is that if Winston says it is non-negotiable, then their policy is worthless. Almost every poll since the election has shown Labour/Greens can’t govern unless NZ First support them. So the NZ First stance means that Labour’s policy is almost certainly dead on arrival.

National is (sadly) also saying the age should stay 65, so the NZ First position causes them no problem.

“Now I don’t want you running off and saying we’re reneging on raising the age. That’s a post-election discussion, I have not said that.”

But the reality is that the policy is dead in the water.

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Labour on superannuation

December 5th, 2013 at 12:00 pm by David Farrar

The Herald reports:

Labour would raise the age of eligibility for New Zealand Superannuation to 67, make KiwiSaver compulsory for employees and increase the KiwiSaver contribution rate if voted into power.

Deputy Labour leader David Parker told members of the superannuation industry his party was not afraid to tackle the age of eligibility issue despite it being politically challenging.

“I am willing to deal with the age of eligibility for superannuation. This is not populist politics.”

Parker said the Census data released this week backed its decision. He pointed to the number of people in the 50 to 59 age group increasing by 22 per cent since 2006 to 989,000.

“Although the total population increased, fewer people are under 15 than in 2006 and this reinforces the need to address superannuation.”

Paying for superannuation cost more than all benefits combined and within two years he expected it to exceed the annual spend on education. Labour has proposed raising the age of eligibility for New Zealand Superannuation from 2020 increasing it two months at a time to reach 67 by 2026.

I back raising the age. It is worth noting that in the fine print of Labour’s policy is that they are not so much increasing the age, as applying a means test for those aged 65 and 66. So if you stop working at 65 and have few investments you will still get super.

The party would also make KiwiSaver compulsory for those in employment. It would be optional for the self-employed and those without an income.

This means a take home pay cut for those who can least afford it. If you make KiwiSaver compulsory, then you should over time cut the level of NZ Super to recognise that everyone will have private savings.

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Assertion as fact

November 23rd, 2013 at 9:00 am by David Farrar

Stuff reports:

Waikato pensioners are starving and raiding their KiwiSaver accounts to pay back mounting credit card debt.

This is a badly written story. It takes an assertion of a financial adviser and reports it as fact. It should report it as an assertion and credit it to the financial adviser.

Hamilton Budgeting Advisory Trust manager Clare Mataira said financial abuse of the elderly is a growing problem and she is pushing for banks to tighten their lending policies.

“We’re seeing people use credit cards for living expenses.

“I’ve seen more superannuitants in the last four to five years using credit cards for living expenses than in my whole career,” she said.

Not sure why, as the pension has increased well beyond the rate of inflation. Every year the purchasing power of NZ Superannuation tends to increase. We have the most generous superannuation scheme in the world – universal, linked to the median wage, no means or asset testing etc.

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Superannuation changes

October 10th, 2013 at 7:33 am by David Farrar

The Commission for Financial Literacy and Retirement Income has made 16 recommendations around future superannuation. Some of the more significant are:

That a new method of indexation of New Zealand Superannuation, based on the average of percentage change in consumer prices and earnings but no less than price inflation in any year

This change is highly desirable, and important.It would do more to make superannuation sustainable than adjusting the age. All other benefits are inflation adjusted only. Superannuation also has a floor linking it to the average wage and as wages rise faster than inflation this means the gap between NZ Superannuation and other benefits will continue to increase. It also means that as the population ages, the cost of superannuation will increase as a share of the economy.

That as soon as fiscally prudent, an  auto-enrolment day be held for employees who are not currently members of KiwiSaver, with retention of the right to opt out

I believe this is planned.

That in line with a recommendation of the Savings Working Group, the Government remove tax on the inflation component of interest on simple savings products such as bank deposits and bonds

Does any other country do this? Might cost a bit, but worth considering.

That the proportion of life over the age of 20 in receipt of New Zealand Superannuation be kept at a minimum of 32 per cent

This is code for saying have the age increase over time, which I also support.

They key for me is that we should not tinker with just one aspect in isolation.  We should give certainty to everyone aged 50 or over and pass entrenched legislation guaranteeing the current scheme for those born before 1963. This would then allow a proper debate over the appropriate scheme to have in place for those yet to retire.

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Flexi-Super – change for changing times?

October 1st, 2013 at 4:30 pm by David Farrar

It can be tough to talk about the future; sometimes it seems like there are so many unknowns. Just think about how much the world has changed since the introduction of New Zealand Superannuation (NZS) in 1977 creating a universal – and not means-tested – scheme that paid 80 per cent of the average wage to married people over 60.

During the ensuing years, adjustments have been made to the scheme which in itself was the latest incarnation of much older systems. This shows we can be flexible when we need to be – and right now, with a population which is living and working longer,we need to talk about superannuation.

It’s time for an honest and frank discussion about how NZS might need to change to reflect these changing circumstances and lifestyles because the current arrangement of eligibility for NZS at 65 may not suit everybody’s needs.

Earlier this year, United Future leader Peter Dunne released a Government Discussion Paper on aFlexi-Super plan and New Zealanders have just a few more weeks left until the Friday, 11 October deadline to comment on the proposal.

Flexi-Super gives New Zealanders the option of choosing to take a reduced rate of NZS from the age of 60 or an increased rate if they delay taking up superannuation until they reach 70.

“The basic motivation for this policy is giving people more choice because New Zealanders want choice about how they live their lives,”Mr Dunne says.“At the moment, they have no option but to carry on working until they’re 65 or leave and make do.”

Under Mr Dunne’s Flexi-Super plan, the standard age of eligibility for the state pension remains at 65 and payments stay at two-thirds of the average after-tax weekly wage for those who take their super then. But the earlier someone decides to first take NZS, the lower the payment will be each year relative to the rate they would have received had they decided to first collect NZS at 65; alternatively, taking NZS after age 65 means receiving a higher relative rate.

These rates will be adjusted for inflation and wage increases,so the mechanism for adjusting rates of NZS does not change. It will remain possible to continue working and receive NZS-and that could offer greater flexibility to those in physically demanding jobs.

The paper points out that there are advantages and disadvantages in allowing such flexibility.

Advantages include making the system fairer for workers in tough, physical jobs and those, such as Maori and Pasifika, who have a lower life expectancy. It also avoids the possible stigma associated with seeking benefits among those who, for a variety of reasons, can no longer work. It may also enable some people to pay down debt or build up assets.

Giving people the option to wait till they are 70 before drawing down NZS will encourage older workers to stay in the labour force for longer, helping to retain much-needed skills, experience and institutional knowledge.

There is a risk that Flexi-Super may reduce incentives for the 60- 64 year olds to work and if NZS is taken too early, it could create hardship for many who retire early. It is vital for us all to understand that the reduced rate we accept in return for being paid earlier would be the rate received for life.

The State might end up having to supplement the incomes of people who retire early, then find themselves unable to make ends meet because of an unforeseen change in circumstances.

A layered system could also seriously complicate what is at present an easily understood and administered system. Government actuaries will face a Herculean task to figure out a sliding scale that takes all the required factors into account and delivers a system that iscost-neutral, as is proposed.

“This is part of a wider conversation about financial literacy that we all have to have and I encourage all New Zealanders to think about these issues and discuss them in the course of daily life,” MrDunne says.

According to a Fairfax Media-Ipsos poll in February, 49 per cent of people want to choose when they receive their state pension, with reduced or enhanced rates depending on the age they start drawing payments.

So we need to consider carefully Flexi-Super and the Government wants to hear your views. The Discussion Paper can be viewed at www.unitedfuture.org.nz and also on the Minister of Finance’s website.

The deadline for submissions is October 11, 2013. Submissions can be made by email to flexi-super@treasury.govt.nz or posted to Flexible Superannuation, The Treasury, PO Box 3724, Wellington 6140, New Zealand. Following this consultation, the Government will consider whether to further explore the Flexi-Super proposal. More detailed policy work and more consultation will take place before any decisions are made.

pd uf  House of Representatives black on white crest

 

Peter Dunne, Leader, UnitedFuture, 04 817 9410

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What will be the impact on Super of an effective minimum wage of $18.40?

September 9th, 2013 at 2:00 pm by David Farrar

A reader posted this question to me. NZ Superannuation is set at 66% of the average wage (for a couple).

Now if you jerk up the effective minimum wage from $13.75 to $18.40 per hour, that will increase the average wage significantly.

That will then mean the rate of NZ Superannuation will increase significantly, making it more unaffordable.

Any economists out there want to take a stab at what the extra cost of NZ Super would be if the minimum wage was $18.40?

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Superannuation vs Education

August 28th, 2013 at 2:00 pm by David Farrar

The Herald reports:

Mr Parker said Mr Key’s position, including his pledge to resign rather than increase the age of eligibility was “just populism” intended as a vote catcher.

“We know that it’s wrong to be spending more on super than education, that it comes at the cost of caring for children, and yet he has got his head in the sand.

Vote Education is $12.4 billion.

Vote Superannuation is $10.9 billion.

I would have though a Finance Spokesperson would know this.

I of course do support increasing the age of eligibility for superannuation, and delinking it from the average wage.

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Dom Post and Grey Power on flexi super

August 28th, 2013 at 1:00 pm by David Farrar

The Dom Post editorial:

Ohariu MP Peter Dunne already has one thing in his favour as he pushes for flexible National Superannuation: significant public support.

According to a Fairfax Media-Ipsos poll in February, 49 per cent of people would like to choose when they receive their state pension, with reduced or enhanced rates depending on the age they start drawing payments.

Certainly, Mr Dunne’s proposal, which the Government agreed to consider as part of its confidence and supply deal with UnitedFuture, breathes some fresh air into the superannuation debate. It is well worth the discussion kick-started by a Treasury scoping document issued on Monday. 

A more hysterical response from Grey Power:

Allowing national superannuation to start at age 60 would be a cruel poverty trap for people who are short of money, Grey Power says. …

“This latest idea from Peter Dunne is one of the more cynical, cruel and dangerous bits of stupidity I’ve heard in a very long time,” said Grey Power president Roy Reid.

“It will be a poverty trap for financially hard-pressed people already on low incomes who will be tempted to take an early but low pension with no hope of it ever increasing to the rate that people who can afford to wait until they’re 70 will get.”

Mr Reid says Mr Dunne is a typical MP who has no idea of what life at the bottom of the heap is like.

“It’s like offering a starving family a loaf of bread today, and every day hereafter if you take it now, or two loaves a day and a big box of sausages every day if you wait for 10 years to collect.”

Mr Reid says Grey Power will fight the Government if it takes up the idea – and it wants Mr Dunne out of Parliament.

My God, the hysteria. Grey Power obviously thinks elderly people are so stupid they can’t be trusted to make decisions about what is best for them.

if you are 60 and in bad health, the option of early retirement could be a massive advantage.

Of course there are potential problems, but we need a rational discussion, not mad rants.

I note also that the Grey Power President has declared he wants certain MPs to be defeated. So I hope Grey Power will be registering as a third party for the election campaign.

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Flexi Super

August 27th, 2013 at 9:00 am by David Farrar

UnitedFuture Leader Peter Dunne has announced:

UnitedFuture leader Peter Dunne has released a Government Discussion Paper on UnitedFuture’s flagship “Flexi Super” plan.

“Flexi Super gives New Zealanders the option of choosing to take a reduced rate of New Zealand superannuation from the age of 60, or an increased rate if they defer taking up superannuation until they reach 70.

“A Fairfax Ipsos Mori poll earlier this year showed almost 50% supported the idea – almost more than twice the level of support for shifting the age of entitlement for superannuation to 67, or keeping it at 65.

“Flexi Super lets people choose for themselves when they want to take up superannuation – without being told by the government when they should or should not retire,” Mr Dunne says.

Mr Dunne says Māori, Pasifika and other demographic groups with shorter life spans would benefit most from Flexi Super.

“The Discussion Paper is open for public submissions open until Friday 11 October, after which time the Government will consider these and determine what action it will take,” he says.

The Flexi Super Discussion Paper was a provision of the National/UnitedFuture Confidence and Supply Agreement.

Stuff reports:

Exactly how much more or less than the current rate of NZ Super they would get has not been calculated.

Examples given yesterday suggested a 6 per cent discount for every year the pension was drawn early, or 10 per cent extra for every year it was delayed.

The Treasury discussion document warned the final figures could be “much different” and would depend on detailed analysis which has not taken place.

The treatment of SuperGold cards would be unchanged, no matter when the pension was drawn.

I’m supportive of the principle. The challenge is how to do this is a cost neutral way. Individuals will know reasonably well their likely life expectancy based on their health. So those with bad health will take a reduced Super at 60 and those with good health a higher Super at 70 and the overall cost may end up higher for the taxpayer.

Labour finance spokesman David Parker said the party would consider the policy.

But he warned it had “fishhooks”.

Because many of those with shorter life expectancies would take the money early, Treasury would have to pay a much lower rate at age 60 if the scheme was not to add extra cost.

But Mr Parker warned that some workers would be tempted to take the money early because of difficult financial circumstances – even if that meant they ended up with less money for much longer.

“Some people, because of their economic circumstances might be pressured to take their pension early, despite the fact that doing so could mean they live in poverty as they age.”

I’m not sure you protect people from their own choices. And I would presume that the level of NZ Super, even if taken early at 60, would still remain higher than being on another form of welfare benefit.

The discussion document is here. The example given is that if you took NZ Super at 61 you would get $279.06 a week but if you held off until 69 it would be $523.30 a week. I’d be holding off!

The document also lists other countries that have similar policies such as Australia, Canada, France, Germany, Ireland, Japan, Netherlands, Sweden, UK and USA.

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The retirement age

August 15th, 2013 at 11:00 am by David Farrar

Simon Collins at NZ Herald reports:

The growing numbers of elderly New Zealanders who are working beyond age 65 have cut the net cost of the country’s ageing population.

Statistics NZ said yesterday that the population aged 65-plus had doubled since the early 1980s to 635,200 and was likely to double again by 2040.

But a paper by the University of Auckland’s Retirement Policy and Research Centre, published today, says Treasury estimates of the net costs of superannuation in 2060 have been revised downwards from an estimate made in the year 2000 of 9.7 per cent of national income to just 6.6 per cent in the latest revision this year.

Centre co-director Michael Littlewood said a key factor in the reduced net cost was an increase in national income because of spectacular increases in the numbers of elderly people working well past 65.

This shows there is no immediate crisis, but it is still inevitable that the age of eligibility for NZ superannuation will increase.

Labour’s policy is a modest step in the right direction. It doesn’t in fact really increase the age of eligibility. It merely applies an income or means test for those aged 65 or 66. The logical extension of their policy should be to extend the means test to everyone who is eligible for NZ superannuation. I’d rather we tax people less, and only provide welfare to people who need it – than over-tax people, just to give them some of their own money back later.

The argument against means testing is that the cost of applying a means test would be considerable, and the money saved not great. I wonder if Labour have budgeted for the extra compliance costs of their means test?

In terms of the age, I think a gradual shift to 70 is sensible.

But Mr Littlewood said the revised figures gave the country time to have a “research-led debate” about all aspects of retirement policy – not just raising the qualifying age to 67 as the Labour Party advocates, but also whether super should be linked to wages or prices and whether some of the cost should be clawed back through tax changes from those still on high incomes after 65.

The key measure you could change to make superannuation more affordable would be to link it to inflation, not the average wage.

What I’d like to see is the current scheme locked in place for everyone born before 1965 or even 1960. And then have that research-led debate on what sort of scheme we should have in place for those far off retirement.

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UK Fabians say raise taxes on elderly

May 7th, 2013 at 4:00 pm by David Farrar

The Daily Mail reports:

Pensioners’ taxes should increase, their benefits be cut, and a tax on property wealth should be introduced in order to share the pain of austerity with today’s hard-up workers, a think-tank said today. 

The income gap between pensioners and workers has shrunk massively in the last few decades, so taxes should be raised on those in retirement, the Fabian Society said.

Middle-income working households enjoyed an income 93 per cent above that of middle-income retired households when Margaret Thatcher came to power in 1979, but that figure is now 37 per cent.

I don’t think we should raise taxes on the elderly, but I do think NZ Superannuation should be means tested and linked to the rate of inflation rather than the average wage. Otherwise the gap between it another benefits will continue to grow significantly.

‘Old age is no longer a proxy for poverty’, the Fabian Society said. ‘In public policy and deficit reduction measures, ministers should adopt a presumption of equality across age groups.

‘In financial terms alone, older people are no longer distinct, and blanket policies favouring them should be reviewed.’

I agree.

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Cullen on KiwiSaver and superannuation

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

Vernon Small reports:

The architect of KiwiSaver, former finance minister Sir Michael Cullen, is proposing a revamp of the scheme to help cut the long-term costs of superannuation 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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Kirk Hope on superannuation

September 5th, 2012 at 11:00 am by David Farrar

Kirk Hope of the Bankers Association writes in the Herald:

 It’s Money Week. It’s not just about our everyday personal money management. We also need to think about how we’re providing for retirement income as a nation. The debate has recently been dominated by a narrow focus on age of eligibility issues for New Zealand Superannuation.

And the debate needs to be far wider than that.

Ignoring the fact that the best mix for providing retirement income is neither fully public nor fully private leads us to ask the wrong questions, and gets us caught up in issues that may not be as important as we think. The questions we need to ask are whether we should adopt a compulsory approach to private savings, retain the current voluntary arrangements, or move to a mix of the two depending on individual circumstances.

I would go even wider than that. There are basically three sorts of retirement savings. They are:

  1. state
  2. workplace
  3. private

We need to debate all three together. KiwiSaver has been created, and no changes made to NZ Super. This means that some people will actually be earning more in retirement than when they are actually working.

Another critical issue in respect of NZ Super is its universality. Is it necessary? Is it affordable? Most importantly, is it sustainable? The Australian equivalent of NZ Super is both means and asset tested, acting as a safety net for those without sufficient savings income. The Treasury acknowledges in its 2010 paper, Saving in New Zealand – Issues and Options, that if we were to move to compulsory private provision of superannuation then also retaining a universal government funded pension scheme would make us unique.

The provision of a state pension for everyone over a certain age, regardless of their need, assets and other income, was a great innovation in its time. It was a defining aspect of 20th century New Zealand. It had its place in a time when we had a strong economy, a large working population, and a relatively small retired population that did not on average live too long past the age of retirement. Much of that has changed. We now need to develop a sustainable solution for this century, and we’re well on the way with KiwiSaver.

To truly make NZ superannuation sustainable, we need to delink it from the average wage. Other benefits are inflation adjusted only. In recognising superannuation is a bit different, I’d look at having the level be adjusted by say CPI +1%. This means it will increase in real terms, but not be unsustainably linked to the average wage.

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Armstrong on Peters

June 25th, 2012 at 10:00 am by David Farrar

John Armstrong writes in the Herald:

So much for the theory that Winston Peters was mellowing into Parliament’s version of everyone’s favourite, if somewhat cranky and irascible, uncle.

It was a more familiar Peters who delivered the leader’s address at New Zealand First’s annual convention last Sunday.

The speech was not so much a dog whistle as a wolf howl for attention. There was certainly no coded language to decipher.

His pinging of Chinese immigrants for allegedly sponging off New Zealanders by picking up state-funded super payments and other entitlements without paying any income tax was unquestionably populist – so much so that he was almost parodying himself.

A lot of people view Peters as a benign joker like figure. I’m not one of them. I think he has a history of scape-goating, and trying to convince people that it is the fault of some other group that they can’t receive more money or jobs or benefits.

He instead rationalised his accusation of freeloading by arguing that New Zealanders needed to know all the facts about superannuation rather than being manipulated by the savings and insurance industry into believing there was a “crisis” which required an end to universality in the payment of the state-funded pension.

Peters knows that superannuation is not sustainable. He argued so in 1997, when he proposed compulsory superannuation, saying that people “do not believe that the current arrangements will be there to deliver the same level of assistance in retirement that their parents currently enjoy”. Even worse Peters proposes superannuation be made even more expensive, with an increase in the floor.

It actually did not add up at all. Peters is the one choosing not to put all the facts on the table, especially major Government policy changes affecting those applying for residency under Immigration New Zealand’s family and parent categories.

While Peters rails against Chinese immigrants supposedly gobbling up the super – but then refuses to say what he would do about it – the National-led Government has quietly stolen a march on him. …

What is clear is that imminent changes to immigration rules are going to screen out those unlikely to pay tax.

The parent stream is currently closed pending the introduction of a new two-tier category.

Those applicants earning more than $27,203 a year as singles or nearly $40,000 if they are a couple will be able to go into tier one. They will also have to bring with them at least $500,000 in “settlement funds”.

Their sponsoring adult son or daughter will have to have an annual income of at least $65,000 and have been a New Zealand resident for at least three years.

Those who cannot meet these requirements will go into tier two where the only financial obligation is a lower benchmark of nearly $34,000 in income required of the sponsoring adult child .

Tier one applicants, not surprisingly, will get priority. As do a separate category of parents who can gain entry if they invest a minimum $1 million in New Zealand for at least four years.

With a two-year wait already for applications to be processed and a capped annual limit of 4000 on the number of parents approved for residency, those in tier two could be waiting years to get to the front of the queue.

So in fact the Government has already acted to mitigate the issue that Peters talked about.

Peters also used his convention speech that day to climb into the council for calling for the age of eligibility for super to be lifted to 67.

Claiming the council would be pushing for the privatisation of super, he also rounded on its chair, his old bete noire Jenny Shipley, who openly campaigned against Peters’ proposed compulsory savings scheme while National was in coalition with New Zealand First in the late 1990s.

This is such a bending of truth, it is hilarious. Peters proposal in 1997 was to effectively privatise superannuation, and Shipley was a prominent campaigner against it.

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10% KiwiSaver

June 18th, 2012 at 1:00 pm by David Farrar

Stuff reports:

 Politicians are divided over a suggestion by the Financial Services Council for an increase in KiwiSaver contributions to 10 per cent of incomes to help pay for Superannuation.

The council, which represents investment and life insurance companies, says raising KiwiSaver contributions by 1 per cent a year will enable people to still retire at 65, despite the growing costs of the scheme because of the ageing population.

There may be merit in an increase in KiwiSave contributions, but it is important to note the not inconsiderable self-interest the FSC has in the proposal. It would see KiwiSaver funds and revenue for their members triple.

Chief executive Peter Neilson said New Zealanders surveyed by the council said they could not live on the current Super payment of $349 a week.

Expanding KiwiSaver would enable them to use that saving to pay for their retirement at 65 until the future eligibility age, of perhaps 67, kicked in.

It would also enable people to double the amount they received in Super.

The trade off is not that simple. First of all, we do need to look at retirements savings as a whole. You should not treat superannuation and KiwiSaver separately. What no politicians have done is look at whether the current floor for super should be lower in future – in recognition of the level of private savings in KiwiSaver.

For someone on the average wage, they would under this proposal have a higher net income in retirement than they would have had while working. Now that is actually nuts, as when you are working you have the greater expenses, and are raising a family etc.

This is why we need a first principles review – what is the minimum and what is the desirable level of retirement savings, and how much should come from public super, from workplace super and from private super.

NZ First leader Winston Peters said the council’s call was “hopeless”.

“We offered people a straight tax-break so they could painlessly save.”

The crisis in Super was “manufactured” by certain elements in the finance sector, he said.

The council’s idea was the first step in privatising Super, Mr Peters said, but would not elaborate how.

Now this is ironic, as Winston championed the 1997 referendum which would have essentially privatised superannuation entirely.

It was fair that over 65-year-olds who were still working received the pension.

“For decades we all believed in a universal scheme whereby if you worked hard and you saved, you should not be punished.”

Why should Winston get public superannuation while an MP? That’s outrageous. And when he leaves again, he’ll get his gold plated parliamentary pension plus his public super.

Public superannuation should be used to assist those who do not have adequate savings of their own. It should not be used to give Winston an extra $15,000 a year income.

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Peters wants superannuation to be even less sustainable

June 18th, 2012 at 10:00 am by David Farrar

This is one of the problems of MMP. Smaller parties don’t have to worry about whether their policies are in the national interest. They know they will never be PM. So they are incentivised to push policies that will benefit a small section of New Zealanders (to get them over 5%), even if it fucks the country over.

On Q+A, Winston said:

GREG Lets talk about the contribution. 66% to 68%. Is that a bottom line for you?

WINSTON Oh, look, it is a bottom line, and thats why we had the law changed to 66, because you can recall National took it down to 60%. 

So the bottom line for NZ First support is increasing superannuation from 66% of the average wage to 68%. This is fiscal insanity. So that means a Government which includes NZ First will actually blow out the costs of superannuation even quicker than the current projections.

We actually have the most generous public superannuation scheme in the world. But for some greedy people it is not enough. Winston is a fine example himself. He gets a massive salary as an MP, and gets non means tested superannuation – and he is now saying a bottom line will be that his superannuation payments get increased even higher.

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Winston on Super again

June 17th, 2012 at 8:30 am by David Farrar

The HoS reports:

NZ First will never agree to an increase in the pension age or a reduction in its level of payment, leader Winston Peters says.

And it would rather be in Opposition than be part of a government whose policies it opposed.

But Peters refused to be tied down yesterday on whether the pension age or even asset sales issues would be deal-breakers in any post election coalition talks in 2014, saying NZ First still had “options”.

Ahead of NZ First’s annual conference this weekend Prime Minister John Key challenged Peters to remove any doubt that maintaining the pension age at 65 truly was a bottom line for NZ First.

“I dare him to go out there and say he will not under any condition form a government with Labour even if Labour’s policy is to raise the super age from 2020,” Key said on TV3′s The Nation yesterday.

In a preview of the speech Peters will give to the conference today, he said NZ First would “never agree to reduce the pension or lift the qualifying age from 65 to 67″.

However, Peters’ comments fell short of giving the cast-iron promise Key challenged him to make over Labour’s policy.

This is why I think the only way forward is to entrench the current scheme, and set up a Royal Commission into retirement savings to design a post 2025 scheme.

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Winston says no to super age increase

June 16th, 2012 at 12:00 pm by David Farrar

The Herald reports:

Maintaining the age of eligibility for superannuation at 65 would be a bottom line for New Zealand First in any coalition negotiations after the 2014 election, says leader Winston Peters.

His stance could be an obstacle to coalition talks with Labour if NZ First is the kingmaker after 2014 – Labour has made raising the pension age to 67 a centrepiece of its policies and has sought to embarrass Prime Minister John Key on the issue.

Mr Key has been under pressure for refusing to contemplate raising the age of eligibility for super from 65 to 67.

NZ First meets for its annual conference in Palmerston North this weekend – its first since the resurgent party made it back into Parliament last year with eight MPs. It is looking for more next election and could be a strong contender for coalition talks in 2014.

Asked whether NZ First’s position that the super age should remain at 65 was likely to be an issue in such talks, Mr Peters said: “Of course it’s a bottom line.”

It is highly unlikely that Labour could form a Government without Winston, so their policy to increase the age (actually a policy to means test 65 and 66 year olds) looks dead on arrival.

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Superannuation

June 13th, 2012 at 11:00 am by David Farrar

Andrea Vance at Stuff reports:

Labour and the Greens have promised not to attack Prime Minister John Key if he agrees to cross-party talks on the pension age.

Mr Key admitted yesterday that National was isolated over the issue but is standing firm, saying lifting the age is “a very simplistic way of looking at a very complex issue”.

The debate has raged over the last few days with a series of reports questioning the affordability of the current scheme.

It is bullshit that Labour and the Greens would not attack Key if broke his word on superannuation. Every second TV ad at the election would show him having said he would resign if he changed the age or level of super.

It is quite correct that future superannuation costs are not affordable without large increases in taxation. But this is not some new revelation. This has been known for over 20 years. Up until 2008 Labour and Greens never showed any interest in reducing the future cost of superannuation. Labour in fact attacked the age going from 60 to 65 and savaged Don Brash when he suggested further changes were necessary.

While Labour and Greens support for increasing the age is welcome, lets make no mistake that the primary motivation is anything except to destroy John Key’s political credibility. Does anyone honestly think that if Key had not made the pledge he made in 2008, that Labour would be pushing for cutting spending on superannuation – when every other policy they have is to increase public spending?

I have previously written in the Herald that I believe the 2008 pledge was wrong, and I regret it was made. However Key must never break his word on this issue – his pledge was too specific, where he said he would resign both as PM and as an MP.

But there does need to be a way forward. However this is a path that should not be rushed. Any changes are likely to be post 2025 or even later. Whether decisions are made in 2015 or 2017 is not going to be greatly material.

The first step that the Government should take is to entrench the current scheme for everyone born before say 1960. Pass legislation saying that nothing short of a super-majority in Parliament can change that scheme. This provides absolute certainty for current retirees and those near retirement. All parties in Parliament would hopefully vote for such legislation.

Then the Government should establish some sort of expert group on retirement savings for post 2025. We need a debate on more than just the age of entitlement. Merely changing the age does not make superannuation sustainable. It helps – but by itself is not enough. Also people may be unaware that Labour’s policy is not to simply increase the age, but to apply a means test to it for those aged 65 and 66 – this could result in minor savings only.

Merely moving the age to 67, will by 2030 make a difference of 0.7% of GDP. With Labour’s mean testing proposal, it is even less than that.  The debate must be about more than just the age.

We need a first principles review of retirement savings – not just public superannuation, but also workplace superannuation such as KiwiSaver and also private savings. Merely changing the retirement age is a knee jerk response which is more about trying to nobble John Key than making superannuation sustainable. We absolutely have to also consider the level at which it is set, the indexing, income or asset testing, fixed sum vs annuity etc. We need to define the minimum income people need in retirement and look at how much should come from public superannuation, from KiwiSaver and/or from private savings.

The current focus for the Government is the short-term fiscal outlook – getting back to surplus. Changes to superannuation after 2025 will not impact that, so I agree there is no need to be trying to resolve the issue today or this year. However as we get close to the hoped for surplus in 2014, this is when the focus should go on the longer term fiscal sustainability.

My wish is that in 2014, National does three things:

  1. Introduce legislation, with cross-party support, to legislatively guarantee the current superannuation scheme for those born before 1960. This doesn’t mean any changes for those born after 1960 – just that those arrangements will not be entrenched like for those born pre 1960. This means that Grey Power can not run a scare campaign that their members could ever be impacted by a future change. Also it would stop the current scheme being made even more unsustainable.
  2. Set up (preferably with cross-party support) a royal commission on retirement savings. This would be tasked with designing a sustainable savings regime for those born after 1960.
  3. Announce that the essentials of the regime proposed by the Royal Commission would go to a referendum in 2017. The public would get to decide whether to stay with the status quo or adopt the new model for those who retire after 2025. No cherry picking of some aspects – it has to be a binary choice.

From a public policy point of view this would be a desirable outcome. Those currently retired and near retirement would have absolute certainty over their retirement income arrangements. A binding referendum on the post 2025 arrangements would also provide certainty and a political consensus for those of us born after 1960.

From a political point of view, I believe this would be achievable without the Prime Minister having been seen to go back on his pledge. Any change will be made by the people, not by the Government. But also by having the referendum in 2017, it is likely Key will have retired by then (hopefully winning a third term, serving the majority of a third term but not necessarily trying to win a fourth term).

National doeesn’t need to take any action today, or even in 2013. But in 2014, I think it will be desirable for it to adopt an approach along the lines outlined above – both because it would be the right thing for the country, but also good for National.

It is important that we do not allow the debate on superannuation to be just about lifting the retirement age to 67. That would provide a false sense of security, and just be kicking the problem to touch for a few more years.

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Grey Power hypocrites

May 29th, 2012 at 7:00 am by David Farrar

Grey Power have campaigned for years against means testing of superannuation. They steadfastly refuse to accept the logic that millionaires who do not need NZ Super, should not get it. They don’t have a problem with the fact someone could still be working at age 65 earning $500,000 a year and still get NZ superannuation.

Now it is a legitimate view to be against means testing of superannuation. I think it is the wrong view, but it is a legitimate one. Their official policy is:

That superannuation be accepted as an entitlement and non-means tested.

They also say:

Grey Power is fundamentally opposed to any type of targeting of those in receipt of New Zealand Superannuation.

But compare Grey Power’s policy on NZ superannuation which they get to their submission to Parliament on the annuity paid to former Prime Minister’s:

The sentence “[the] annuity is payable at the rate fixed by the Remuneration Authority and must be paid until the person dies” should read but cannot be claimed if the former Prime Minister is employed. It shall only be applicable when that person retires permanently.

So they are against means testing of their pensions, but for means testing of former PMs when it comes to their annuity.

Now one can have a legitimate view that the former PM’s annuity shouldn’t apply while they are still working. But it gross hypocrisy for Grey Power to argue that NZ Super should be paid to those still working, but not the former PM’s annuity.

I also love the rationale by Grey Power, which is that the Government should reduce their expenditure wherever possible. Yet they have a list of policy demands that would cost the country billions.

 

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National’s Super problem

May 25th, 2012 at 12:48 pm by David Farrar

My Herald column is on National’s Super problem:

One of the reasons National got re-elected is they were seen as more fiscally credible than the alternatives. As European governments crumble under the burden of excessive government spending, deficits and debt, voters at home place great stock on fiscal sanity.

However the stance on superannuation is the chink in National’s armour. Labour will try and use this issue to portray National as going for the easy spending targets but unwilling to target the largest item of spending.

Labour’s pledge to increase the age of entitlement from 65 to 67 is a tactical policy to try and position National as fiscally irresponsible, and National is locked into a five year old policy pledge that leaves it incapable of responding. …

The lesson for both the current Prime Minister, and any future Prime Ministers, is to never ever make any pledge beyond the next term of Parliament. Doing so is both short-sighted and anti-democratic. Elections should be about choices. Policies should change as circumstances change. Our three year electoral cycle allows policies to gain mandates in a fairly timely manner.

The Prime Minister’s pledge to never allow any changes to superannuation during his tenure will continue to grow as a problem for National. They are fortunate that at the last election the fiscal credibility of their opponents was weak, and a debate stumble by Phil Goff fatally crippled them. In 2014 David Shearer may have succeeded in portraying Labour as fiscally credible, and then the superannuation pledge could become a critical issue. It would be ironic is a pledge which helped National win the 2008 election became the reason they lost the 2014 election.

This is probably the last post for today as I’m in meetings the rest of the day. Enjoy the weekend!

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Shearer right on this issue though

May 21st, 2012 at 4:30 pm by David Farrar

Stuff reports:

Labour leader David Shearer has revived calls to raise the pension age and is calling on National to support the policy.

In a speech due to be delivered today, Shearer said the existing pension age of 65 was unsustainable and the Government should be “straight up” with people about that fact.

“Labour will be straight – the status quo is unsustainable. we need a genuine cross-party solution that ensures a fair outcome for everyone, especially those who need to retire earlier and as we move to a gradual rise in retirement age.”

Labour campaigned on raising the retirement age at the last election but National says it is affordable in its current form and won’t follow suit.

It has accused Labour of needing to raise the retirement age to pay for unaffordable promises.

Prime Minister John Key has pledged to resign rather than tinker with the age of eligibility for the pension or the current level of entitlements.

Being a cynical person I suspect Labour’s stance on this is primarily because they want to force Key to break his promise. But regardless of their motivation, good policy is good policy and Shearer is right that the current scheme is unsustainable.

I also welcome the call for a cross-party solution. This “solution” though should not just look at the retirement age, but also issues such as indexing, income and asset testing and the like. Our current scheme is the most generous in the world as it has no means testing of any sort, and is linked to the median wage. Ideally a cross-party group would take a first principles approach, and say “What sot of public superannuation scheme should be operating in 30 years time that is fair and affordable”.

Now any changes to superannuation would not take effect for 15+ years so as to not disadvantage those near retirement, who have made decisions based on current policies.  That means that changing superannuation policy will have no impact on the short to medium term goal of getting out of deficit and into a cycle of sustainable surpluses. However it can make a significant difference long-term.

The first step should be an agreement between all parliamentary parties that the existing scheme shall remain in place for all those who will retire before 2025, so were born before 1960. Even John Key should be able to agree to that without breaking his pledge. Sure it implies a different regime post 2025, but that is different to actually agreeing on any change.

If one could get all the parties to agree on ring-fencing the pre-2025 retireees, then a multi-party group could be formed on the basis they won’t agree on post-2025 superannuation, but instead devise a model that all parties say is fair – and put it to a public referendum. That way it is the public deciding, not the Government.

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An e-mail from Sir Bob

November 14th, 2011 at 2:19 pm by David Farrar

In my Herald column of 28 October I wrote:

Introducing the principle of means testing, is another very welcome step. I think it is wrong that we pay millionaires such as Sir Bob Jones, NZ Superannuation.

Sir Bob has e-mailed to comment:

Dear David,

Before using a photo of me to make your point you could have enquired whether I actually receive the Government super, which I have been eligible for over the past seven years.

The answer is I don’t. It is essentially a form of welfare which I absolutely don’t need.

That said I have been shocked at people of considerable wealth whom I know and who do take it.

Just possibly I am not just the only New Zealander who doesn’t have a cellphone but also the only eligible Kiwi who doesn’t take the super.

Best wishes,

 

Bob Jones

My thanks to Sir Bob for putting the record straight. In hindsight I am not surprised he doesn’t take it. I wonder how many others do not take it, whom are entitled to?

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Our super Super

October 28th, 2011 at 11:43 am by David Farrar

In my column at the Herald, I cover Labour’s Savings Policy. Some extracts:

New Zealand has the most generous public superannuation scheme in the world. …

So Labour have opened the doors for a national debate on both the age of eligibility and on means testing NZ Superannuation. They deserve praise for such a bold step. Our current scheme is too generous and unsustainable. …

Labour’s policy overall has a mixture of good and bad. I think it is an improvement over the status quo, and their willingness to advocate the age change gives them greater credibility. It’s a bold start to the campaign to tell New Zealanders that our taxpayer funded superannuation scheme is too generous. It almost reminds me of the Phil Goff of old, and yes that is a compliment.

I find it amusing that even when I praise Phil Goff, some nutters attack me for being too partisan.

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