Editorial: Labour scheme not such a super fund

One thing should be said clearly at the birth of the Government's superannuation fund. It does not carry a personal entitlement. Unlike the scheme proposed by Winston Peters a few years ago, there are no individual accounts in Labour's plan. It will be a collective account. And the pay-outs will be set by future Governments.

That needs to be said loud, clear and often because it was quickly forgotten after the first Labour Government introduced universal superannuation. That, too, was a collective scheme. Introducing it, Prime Minister Savage stressed that the eventual benefits would depend upon the performance of the economy. It did not carry a defined entitlement; it was never even an invested fund.

Yet that was forgotten by the time the terms of trade went into chronic decline. Eventually, when welfare had to be means-tested, superannuitants would have none of it, insisting they had been given a lifelong right to a pension regardless of their private means.

The long campaign against the surtax has bedevilled attempts to put national superannuation on a sustainable footing, and continues to do so. It is the reason the Government now pretends that its partly funded scheme can guarantee a universal pension at the present level 20, 30 or 40 years hence.

There can be no guarantee. Public pensions will always be set by the Government of the time, and depend on the growth of the economy between now and then. It is debatable whether compulsory savings in any form will help or hinder the growth. Economists point out that greater national savings, beneficial as they would be, do not necessarily translate into greater national wealth. Everything depends on how the savings are invested.

The amounts the Government proposes to put away each year is money that might otherwise have been spent on services such as health or education, or left with taxpayers to be saved or spent. Thus the fund will reduce economic activity as it builds up.

At its peak, it is said, it will amount to half the total value of the economy. The prospect frightened New Zealanders a generation ago and could do so again. Then, as now, the fund was to be managed at arm's length from Governments and safe from political raid. Then, as now, the assurances were not credible.

Already a Government ally, the Green Party, has a list of investments that it would not approve. While the Greens' support may not be needed to establish the fund, Labour and the Alliance are politically sensitive to Green criticism.

A former union leader, Angela Foulkes, says there is bound to be a committee to vet the portfolio every week for fear of political embarrassment. That is not the path to maximum growth.

The fund would always be a political instrument, though it will be quasi-independently managed and "entrenched" in law so that it can be changed only by referendum or a 75 per cent majority of Parliament. Ultimately any form of public property can be raided if there is sufficient popular support. It is not hard to imagine a crisis for which a big fat public pension fund would present an irresistible palliative. A raid would be much more contentious if the chest contained individual accounts.

Accounts in taxpayers' names would also entice individuals to save more than the public minimum. If Mr Peters can secure some provision for them as the price of his support for this scheme, it will be vastly improved.

But no form of saving can guarantee that the public pension will never again be means-tested, or always available at age 65. Those who can save for themselves should not depend on it.