Money: Confused times for retirement

By Mary Holm


It's no wonder New Zealanders are confused about what's going to happen to retirement income over the next decades.

Sitting through a superannuation conference in Auckland this week, one felt worried one minute, hopeful the next, and then perhaps puzzled.

Take the discussions about whether NZ superannuation should be cut for the wealthy retired.

It was done via the surcharge. By dropping it, and lowering the linkage between NZ Super and wages, "the Government rewarded rich old New Zealanders and lowered the living standards of poor old New Zealanders," says retirement policy expert Michael Littlewood, director of Planit Services.

You would think that Labour and the Alliance would be keen to reverse this. But National is the only party likely to introduce new targeting.

"The party that's there for those at the bottom of the economic heap [Alliance] is wanting to pay super to rich people," Mr Littlewood says.

"Therefore, the rich should get the DPB and other benefits. What's so special about NZ Super, the most expensive one of all? The answer - there are 450,000 votes riding on NZ Super."

Labour deputy leader Michael Cullen acknowledged voter power.

"If we lower the level of payments or introduce income tests, some future Government will unpick it. They'll be forced to do so by the electorate of the time."

Mr Littlewood is not so sure: "How does he [Mr Cullen] know?" He believes Mr Cullen should not assume that tomorrow's pensioners will have the same attitudes as today's group.

Many people probably expect NZ Super to be more limited in the future.

The Minister for Senior Citizens, David Carter, says 84 per cent of New Zealanders now accept that the current system is unsustainable.

The Super 2000 Taskforce, formed by the Government to "get retirement income policy right," is due to publish its findings in November next year but will it live to see that day?

"We have got to get in behind the Super 2000 Taskforce," says Vance Arkinstall of the Investment Savings and Insurance Association.

"And we've got to get our politicians to get in there."

But, Alliance leader Jim Anderton calls it the Super 2000 fiasco.

"It's a political cover for plans to abolish universal super."

Mr Cullen says Labour "won't have a bar of it." New Zealand First is also not impressed.

With such discord, it is not surprising that many people are not saving a lot for retirement.

Mr Cullen says those on limited incomes have reacted by simply carrying on with spending and saying "I may fall under a bus before I'm 65 anyway".

But for those who plan to stay alive for retirement, several issues that arose at the conference are worth considering.

WORRIES


* Baby-boomers, in their peak earning years, are driving asset prices up, says economist Gareth Morgan of Infometrics.

"In the next 10 years, stock prices will soar and bond rates will fall.

"But when we retire we'll want to trade down houses and cash in our stocks. There's a problem. There could be a shortage of buyers and probably dollars, unless we get growth in productivity."

* Many baby-boomers think they will not retire.

"We've passed an amendment to the Human Rights Act saying there's to be no discrimination on the grounds of age," Mr Morgan says.

But people in their 50s and 60s sometimes find it hard to get work.

"The peak earnings year used to be 58. Now it's in the low 50s, and it's falling fast. More and more people can't be certain when their earnings will stop.

* Student loans worry Ian Pool, Waikato University professor of demographics.

"They're pushing young people offshore. This will leave fewer workers to support the growing number of aged.

"Young professionals are paying 20 to 30 per cent more tax than anyone else. That's how the student loans are collected.

"We're competing with other countries to keep New Zealanders."

Chris Moore, Massey University professor of banking, finance and property, does not believe that it is purely because of student loans.

"Young people can't get jobs here. In London they can make two to three times as much as here."

* Girol Karacaoglu of WestpacTrust Financial Services is concerned that savings products are not aimed at people on middle and lower incomes.

"The focus of private companies in the industry is on the upper end of the income scale. The small investment market is unprofitable. And all new developments - phone investment, the internet - are aimed at servicing this higher-end customer base."

COMFORT


* Mr Anderton says the NZ Super scheme is the best in the world.

"It's cheaper and fairer than retirement income schemes in any other country.

"There's a constant refrain that the costs are too much. I want to emphatically refute that.

"The average for other countries is 10 per cent of GDP, excluding costs of tax incentives. In New Zealand, it's 5.3 per cent.

Professor Moore adds that "there's a fair bit of scaremongering around."

* New Zealand does well in international comparisons of the future ratio of elderly to those of working age. Professor Moore says in 2050, New Zealand's ratio will be lower than the US, Australia, Canada, Britain and Sweden.

* But, Professor Pool says the baby blip (a large number of babies born around 1990) "gives us a brief opportunity to recoup the effects of ageing."

"We've been very lucky with this baby blip. We can educate, employ and tax these people or have them on the dustheap of unemployment."

DEBATES


* Some politicians take comfort in the thought that while the number of old people increases, the number of young decreases. So the total number who must be supported by working-age people will stay fairly constant.

"The dependency ratio [of people under 16 and over 64 to working age people] is hardly changing," Mr Anderton says.

"The budgetary costs for young people will fall."

Professor Pool challenges that.

"Before, many young people left school at 15 and got jobs. Now people are dependent on their parents as late as 25."

Professor Moore says spending on education is projected to fall a bit in the next 50 years. But total spending on NZ Super, health, education, and other social welfare at about 36 per cent of GDP now will drop a little until 2015, then rise to nearly 50 per cent by 2050.

* The Super 2000 Taskforce is looking at how tax incentives change behaviour.

"In a world where every other country has them, if we don't look at them our work will be seen as flawed," says taskforce chairwoman Angela Foulkes.

Mr Karacaoglu says New Zealand should set up a scheme for lower income people. Every dollar invested would be matched with a dollar from the Government, up to a maximum amount.

The money would go into a private investment fund chosen from several approved schemes.

But Mr Anderton has reservations.

"If there are tax incentives for super funds, we need to be sure they're not just redirecting savings from elsewhere."

And Mr Littlewood says tax incentives are a bad idea. "They reduce Government income, they're distortionary and inequitable.

"Show me a country where they have worked by any measure you name. With any form of tax-advantaged retirement savings it will be the rich who benefit."

* Labour plans to set aside part of income tax to pre-fund NZ Super. Mr Cullen says the money would be managed by commercial money managers, and would not be available for Governments to invest in their pet projects.

He says tax rates would not rise. The money would come from Government surpluses.

But Mr Littlewood says that would not be true.

"Labour is dreaming when it says there'll be no increase in personal taxation to build up the fund.

"They would have to collect more taxes than would otherwise have been collected. It's Labour's version of National's Think Big."

IN THE END


* Everyone at the conference agreed with one comment from Mr Anderton: "If the economy grows faster than the number of retired New Zealanders grows, we'll be okay."

Professor Moore produced optimistic data that showed that labour productivity, after zigzagging through the 1970s, rose dramatically in the mid-1980s and has since continued to rise.

But how do we keep the economy growing?

That's a topic for another conference and, no doubt, there'll be just as much confusion and disagreement there.