Peter Dunne says compulsory Kiwisaver and Flexi-Super are the real superannuation issues we ought to be discussing and debating now

Peter Dunne says compulsory Kiwisaver and Flexi-Super are the real superannuation issues we ought to be discussing and debating now
Hold on tight - we're back on the superannuation merry-go-round again.

By Peter Dunne*

Crank up the pipe organ! The superannuation merry-go-round is starting up again.

In 2014 Labour proposed lifting the age of entitlement to 67 years, but National was opposed to it.

But in 2017, it was National wanting to lift the age to 67 years, with Labour opposed.

Now, National has revived that promise, and the merry-go-round is whirring into life all over again, promising everyone under the age of 48, at least a two-year longer wait until they can collect their New Zealand Superannuation.

Generations of New Zealanders have been adversely affected by superannuation changes since the infamous 25% surcharge imposed by Labour in 1984, and its even tougher replacement regime introduced by National after 1990.

There was a brief period of truce following the uncomfortable Accord negotiated by the two big parties in 1993, more to get superannuation and their pitiable records off the election agenda than to provide stability and certainty for retiring New Zealanders.

Finally, universal non-means tested superannuation from the age of 65 years was restored in the late 1990s, but almost immediately there began to be whispers about long term-affordability and sustainability, culminating in the two big parties returning to their old tricks in the last few years.

Neither seems to realise they have no credibility anymore when it comes to superannuation. So, every time one or other of them raises the prospect of changes to superannuation they raise also the spectre of their mutual historic duplicity, with the consequence that no-one believes what they have to say.

It is time to draw a clear line, and rule out once and for all any further tinkering with the age of eligibility. At the same time, to address affordability and sustainability issues, two other steps should be considered.

First, now that most New Zealanders of working age are in Kiwisaver, it is time to make that a compulsory national savings scheme, with minimal exemptions.

Boosting people’s Kiwisaver accounts would reduce the long-term pressure on New Zealand Superannuation as the major source of retirement income. In turn, that would enable governments to consider whether, from about 2040 or 2045 onwards, the value of New Zealand Superannuation could be reduced for new retirees, while retaining universality from the age of 65. If, as a result of changing work patterns, the age 65 cut-off for Kiwisaver was moved upwards, moving the age of New Zealand Superannuation upwards in line with that could also be considered, but only at that point. 

At the same time, fresh consideration needs to be given to a scheme known as Flexi-Super to meet the particular needs of those who often do not enjoy long retirements – manual workers, Maori and Pasifika, for example.

Flexi-Super is a voluntary scheme that allows people to take a reduced rate of New Zealand Superannuation from the age of 60, or an enhanced rate if they defer taking up their superannuation until the age of 70. In reality, that would mean those taking superannuation from the age of 60, would be paid about 66% of the full rate of superannuation for the remainder of their lives, and those waiting until 70 would receive about 130%. The scheme would not be compulsory, although once a choice had been made, there would be no option to review it.

The key point of Flexi-Super is individual choice. If one was unwell or utterly fatigued, the option of a lower rate of superannuation for what might only be a few years (and might not even be as far off as 65) would be very appealing, especially as there is virtually nothing for them at present.

Various polls have indicated Flexi-Super resonates with many New Zealanders, but three main arguments have been raised against  it, although none have a great deal of merit. The first is that it will have little impact on overall costs. By itself, that may be true to some extent, but if it was accompanied by compulsory Kiwisaver as proposed above, it would most likely see a steady voluntary increase in the uptake age of New Zealand Superannuation until around 67, thus reducing the long-term cost of New Zealand Superannuation.

Others say, that it would be politically unsustainable to tell someone who has opted for the lower rate of superannuation at age 60, they will remain fixed on that lower rate once they reach 65. That ignores the fact that they will have had an effective five-year advantage over those who wait till 65. Also, it has to be assumed that in reaching their original decision people would have been made fully aware of the long-term implications. People are used to having to make hard calls in life, and Flexi-Super would be no different. But it is only an option for people to choose, if it suits them, not a compulsory requirement. 

The third counter-argument is the most novel and comes from the Treasury. It opposes Flexi-Super because it sees it as an incentive for everyone to opt in on the lower rate at age 60, bank the money as essentially free money and then derive the benefit at 65 or whenever, of what they see as a tax-free government retirement subsidy. They overlook two obvious points; first,  in the most unlikely event their scenario were so, there would be no additional superannuation payable to those people from 65, so there would be no additional cost to the government, beyond what was paid out from age 60. And second, because people would be taking the discounted, not the full rate, of superannuation, the long-term costs to the government would actually reduce by about one third.

Compulsory Kiwisaver and Flexi-Super are the real superannuation issues we ought to be discussing and debating now, rather than scrambling back on the faded old inter-generational betrayal merry-go-round of ensuring today’s income earners continue to pay for their parents’ New Zealand Superannuation, with no lasting guarantee there will be anything  there for them when they retire. That is the most short-sighted and unsustainable of all positions.


*Peter Dunne is the former leader of UnitedFuture, an ex-Labour Party MP, and a former cabinet minister. This article first ran here and is used with permission.

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Unhappily I have found many of the antics and utterances of Dr Cullen over the years rather difficult to stomach. But give him credit, at least he did do something. And it should have been developed a lot better and further subsequently. For a start, of course, Kiwi Saver should have been made compulsory by now.

No it should NOT. We should be able to choose where we PUT our money NOT be dictated by GOVT.

So force everyone and then dictate where the money gets spent is the next move.

The other side of the argument is a removal of super. If .gov is not allowed to require people to save for retirement, then it shouldn't be responsible for providing for retirement, especially for the people that lacked enough foresight to save for retirement.

Good luck selling that one.

I'd far rather .gov force people to save for retirement than to become a safety net for the spendthrifts. BTW, I have some issues with means testing for super as it rewards spendthrifts. That is, unless the means testing looks at the past several decades of income instead of current net worth. IMO, if one has had a higher than median income, then one should be able to fund ones retirement without .gov assistance.

that is where we are heading with kiwisaver,
no super and the state stepping in to house and feed those that have nothing.
that was the whole premise behind it, it was not to top up what the state paid you, in fact they are giving you the money upfront to invest and it is your responsibility to pick a good scheme and provider.
unfortunately financial investing is not taught but gained through parents or self learning so many are missing out and stuck in very conservative funds at a very young age with a long time line
if you are under 30 now and think super will be there when you get to 65-67 you have rocks in your head best to plan as if its not going to be there at all

Hey Sharetrader, the under 30's are thinking the entire plant will be uninhabitable by then anyway so no point in them saving or doing any planning really, just party it all away or not even bothering to get a job. The younger generations have a totally different attitude, if your thinking they are like you then your the one with rocks in your head.

It's a little bizarre in a way that a safety net was allowed to become universal and not means tested in the first place.

That said, the age should be put up but perhaps combined with a measure such as tax deferral on Kiwisaver.

(Also, while Peter Dunne doesn't want folk to talk about intergenerational issues, they can't simply be ignored. The pension wasn't brought about just to hand out free money to wealthy older folk.)

Consider two families. Both have had the same income for their 45 years in the workforce. One family spends all of their income on flash cars, fancy holidays, the latest gadgets, etc. and doesn't save anything for retirement. The other family foregoes the high expenses of a lavish lifestyle and saves diligently for retirement. At retirement, some would want to give the spendthrift family a superannuation and penalize the prudent family. This mentality has unintended consequences which I suggest is not healthy from a societal perspective.

My peers in the workforce were largely in the spendthrift camp, and are still working away. Some are still living paycheck to paycheck with little or no retirement savings. On the other hand, due to the results from persistent and diligent saving I quit my career job a dozen years ago and now only work when I get an offer for a job that interests and challenges me.

Using "wealth" as a means test for super results in irresponsible people getting a handout while penalizing the prudent. I would far rather that if .gov has to filter who gets super, they should filter based on lifetime income (including the currently untaxed income from capital gains) instead of wealth. It is rather easy to game the wealth aspect via trusts and other sleight of hand methods, so means testing is likely to only penalize a portion of the wealthy.

A sidenote, I'll be eligible by age for super in another 6 years. I'm not arguing for my personal financial benefit. It is rather unlikely that I'll ever get a single $ from super due to the US/NZ reciprocal tax agreement as my US social security check will be quite a bit larger than the equivalent NZ super check so I need not apply for NZ super even though I've paid a rather large amount of NZ taxes in the last dozen years.

Yep, you have quite nicely put the horns on the dilemma. If you are going to have superannuation then it is impossible to be selective and fair at the same time. You cannot subsidise one for being imprudent and deprive the other for being the opposite. It may yet get to the point that the super provides little more than soup kitchen level. Especially for those that may be made redundant late in their working life, with less equity than debt in their homes. That’s why compulsory Kiwi Saver comes into the mix I believe.

I like your idea of testing on lifetime income of all sorts, instead of point in time wealth. Genuinely interesting and worth thinking deeply on. Although...yes, as you note, has to include the currently untaxed, unearned income.

We also reward people who don't work by paying them and not people who do work, via the dole. It's difficult to avoid these disparities when implementing a safety net welfare system.

The two families example can also be applied to generations. Imagine generations who pay for a universal pension for older folk regardless of that lifetime income, only to face the issue of having to compulsorily save for their own retirement via KiwiSaver alongside of the prospects of a dwindling pension that many expect will continue to be eroded by politicians. If the older generations consider they've already paid for their pension by contributing taxes, won't the younger generations have also? (Even before contributing to a compulsory KiwiSaver. Essentially they're being asked to pay for their retirement twice over, in that case.)

Your argument about paying twice over is an interesting one, in that I've been paying into the NZ system for a dozen years and will not be taking anything out from the system in my old age due to my personal circumstances. Should I be complaining bitterly about this inherent unfairness?

There are multiple generational differences, and not all compare favorably for the past vs the present generation. Each generation has its own challenges and difficulties.

You can complain or not, as you wish. It's a fair point that perhaps you should receive a certain amount based on what you paid in if that's the model. That also suggests an argument for graduations of what's received based on how long an incoming person has contributed in New Zealand.

Agreed about the desirability of providing a limitation based on total time in country. Not so certain about defining the benefit as based on payments made. This option negates the safety net aspect. I'm actually more in favor of the opposite. If you have earned more than $XXX amount during your lifetime, you should have saved enough to provide for yourself and should be ineligible for super. On one side of the argument is the concept of a safety net for the less fortunate. The other side of the argument is the concept of a defined contribution pension. The latter, well... kiwisaver should be filling that role.

Exactly!

Everyone does what the second family does and you will have no economy, it is people spending that keeps it going, and if not kept going there will be nothing for anyone to save. You can only save because someone else spends.

Agreed PA, but believe the point is there is a difference between spending and squandering. The latter cannot possibly do anybody any good.

Nope, the only thing that provides excess for one is excess spending of another. If everyone sticks to just what they need to save the rest, there will be no rest to save. I am not in favour of this, it is just what we have left ourselves with by ditching the means of production and the ability to fix things (generalizing, yes, but just for illustration).

An economy is not a zero sum game. Excess productivity allows for saving. It is laughable to think that when one person saves, it is taking money from another person.

Rather amusing in my opinion... Even the prudent family that is saving spends money in order to pay for the usual requirements for living a reasonable life. I strenuously disagree that the only way for an economy to prosper is that everyone should spend every penny that they earn. Maybe you favor the grasshopper, I favor the ant. Good luck with the grasshopper approach when winter comes.

eff that idea of spending the entirety of ones income without any consideration of the future. I do not want to become reliant on the future largesse of whatever flavor of .gov that may be in power when my ability to earn has diminished. Based on your posting history, you expect .gov to provide. I harbor different expectations.

I’d rather have compulsory KiwiSaver with no superannuation instead of means tested superannuation. Those very few people unable to afford retirement even with compulsory KiwiSaver would go on normal benefit.

That's basically what existed (more or less) before voters voted for politicians to hand it out to everyone regardless of need.

This is a discussion on a sloping Titanic deck.

There won't BE super in 20 year's time. Why is it so hard for folk to understand that this growth-ponzi has peaked? I certainly don't expect Dunne to address the real issue (given his track record and inability to turn back time) but the rest of us should be doing so.

.. is it OK if we leave you to " address the real issue " , because the rest of us are too busy living , loving , and having fun ? . .. cheers .. I'll get some skellerup gummies to help you cope with the slope on your boat ...

Scoping failure. Goes with, well, just goes with. You wouldn't understand.

Try searching: 'displacement'.

Gumboots would only support a lightweight.....

Hey powerdown there is a real possibility there will be nothing left on this planet in 20 years time, let alone your super but no point dwelling on it because you cannot change a thing. Armageddon is inevitable at some point in time, just file it in the back of your mind, move to the back of the Titanic and keep on partying.

Some real calliope music to accompany the merry-go-round. Lyrics are oddly apt, too...

I always play Russian roulette in my head
Seventeen black or twenty-nine red
How far from the gutter
How far from the pew
I will always remember to forget about you

Tom Waits, Blood Money album, 2002

The reason for the argument about retirement age is simply due to a lack of vision. The real trick for National is they know raising retirement age will lose them the election so they can sit back and do nothing as opposition for another term.

What Mr Dunne has raised are the mixed options that they have in the US that do appear to work. They have a mix of retirement accounts, public/private pension schemes (although these are currently failing), and retirement that some take early or later as described in the article.

The think that retirement could work with the change in demographics provided there are enough private investment and the super fund. Kiwisaver doesn't need to be compulsory, instead people need to make better choices than the default fund.

The better way to do this is to make the default funds a good choice. This can be done by enforcing low fees and making all default funds life-stages funds that allocate high growth when you are younger and becoming more conservative as you age.

Here is a scenario; at some time in the future the average Joe Cabbage voter will elect a party led by a person who believes they are an economic genius. At the time of election the country is going down hill economically, and is desperately in need of reformation/ or some bright ideas to turn the economy around. To achieve this they need a pot of funds, and by the way - government debt is already high, so what is the solution? oh I know the Kiwi Saver funds are north of $57 Billion, for a relatively simple re-write of the law, this can all be handed over to the government to solve "today's" problems.

Think it can't happen? think again, it has at least once before in NZ. that is why we are strapped for retirement funds today.

And thus quoth the King to the good peasants of ID. “ I have today good news and bad news. First the bad news. I am going to nationalise all your pension schemes. And the good news. You will all now be allowed to work until you are ninety.”

Yes or force ALL pensions to buy only GOVT bonds or dictate what type of funds can be purchased.

The government or individuals could always invest in something with a good daily return like this
https://www.binance.org/en/trade/MTXLT-286_BNB
i'm sure lonewolf will be interested but >$10m government hedge fund for future super would be good too
President of Property

If it's 57 Billion I'm going to add a zero or two to the above Government investment in
https://www.binance.org/en/trade/MTXLT-286_BNB

Get rid of universal pensions and brace yourself for becoming a third world country. With no pensions available it will be absolutely impossible for more than a few to save enough to take them through their retirement. I would fight tooth and nail to retain a universal pension.

It has to be either universal, no conditions, no means testing, or nothing at all. Those that save hard and act with fiscal responsibility are just as entitled to it, as those that do the opposite.

Same goes for the dole? As in, you're voting for a UBI?

Rick, admit I had to google what UBI meant, but as usual I see you have a point. An old friend of mine in his late fifties was unexpectedly made redundant. He was a divorcee, never what you might call a high income earner, he lived in his home of thirty years or so which he had only just got to be freehold. He was on the dole for over two years before he found work again. I think that is fair enough. I am probably wrong here, but is your point that he should have drawn into his home equity before being allowed the dole?

Perfect, reasonable use case for the dole, that one eh.

My point is more that the argument that it would be unfair to penalise those who have accumulated wealth by not giving them the pension applies equally well to the dole - i.e. that it's unfair to penalise folk who are working and instead only give money to those who need it because they haven't got one.

I guess it comes down to what the pension is. It came about as a support for folk who could no longer support themselves. At some point people voted for politicians who promised to hand it to everyone. But is that the way it should be? And if so, should we also have a Universal Basic Income so as to not penalise workers?

Buy some gold to insure yourself

The biggest obstacle to an honest conversation is acknowledgement of how screwed the current crop are....

I don't care if it's 65 or 67. However it's stupid to fight over that as if it's a single decision. I would be more impressed with a party that proposed multiple things, as a way forward and thinking through the issues decades to come.
Peter Dunne has made some suggestions like Super to 67 combined with Kiwisaver becoming compulsory. Also they should address those who have trouble saving. My approach to that is that part of ones benefit should be Kiwisaver levied.
30 years from now there should be no need for National Super at all.
But no, the Nats come up with an isolated age change, with nothing else thought through.

Kiwisaver is a rort. It has been nothing more than a sneaky way to get hard working people to pump up the share market; AND there is NO government guarantee. I believe the policy goal should be for a non asset/means tested universal pension funded from general taxation, and adjust any tax rates as necessary to fund it. It is not about the dwindling number of workers/taxpayers funding the pensions of a growing number of senior citizens. It is about the woeful productivity of our economy that is letting us down, and successive governments have a lot of answering to do in that regard. I am all in favour of flexi-super. The maths are simple. Talk to any life insurance agent. It works very well in the US social security system.

Great stuff. A multi party agreement seems to be the only way forward for Superannuation in NZ. I despise the National party for reducing the Kiwi Saver contribution in their last term, and totally disrespect both Labour and National for their cross purposes pointless cheap political game playing on superannuation, totally disregarding and disrespectful of future generations. Get your act together you dishonest superficial selfish idiots and do whats right for our future generations.