Money: Lessons in Aussie rules

By PHILIP MacALISTER

Losing football matches against the Australians is becoming a more common experience and it's one that isn't just confined to the rugby fields.

In New Zealand, our political football match over superannuation remains scoreless. However, the Australians dotted the ball down over the tryline years ago and are building a healthy lead.

With superannuation becoming a hot debate in New Zealand, more and more people are starting to look at what Australia has done to see what lessons can be learned.

After all, the two economies are gradually moving closer, so there is some merit in both countries having superannuation regimes which are broadly compatible.

This zeal for looking at the Australian model is apparent from the stream of experts who have crossed the Tasman recently to discuss their experience.

AMP has had its Australian manager of superannuation strategy, Kevin Casey, in New Zealand to talk to ministers, bureaucrats and industry. Challenger International technical services manager Alex Denham addressed a superannuation conference on the topic in Wellington last month and last week Colonial brought Mavis Robertson, a key player in the industry, to Auckland to give a keynote address to the Association of Superannuation Funds conference.

While adopting the Australian system in total is not necessarily a wise option, it can be used as a case study to help build a better regime in New Zealand.

Ms Robertson, who is the executive chairwoman of the Conference of Major Superannuation Funds, says she did not come here to tell New Zealanders how to do the super thing; rather she was explaining the pros and cons of the Australian method.

She admits that if she had a clean sheet of paper there are things that should have been done differently.

Australia's approach is to have a system with three pillars, as opposed to our two-tiered structure.

Their first pillar is the pension, which is a state-paid benefit similar to New Zealand Superannuation.

If New Zealand pensioners reckon they are hard-done-by getting a pension at 65 per cent of the average weekly wage with no means testing, they should stop and spare a thought for their cobbers across the Ditch.

The Australian pension is 25 per cent of the average weekly male wage and it is subject to both means and asset tests.

On the surface, that appears harsh, but it's not as bad as it appears. A big plus is that there are a raft of add-on benefits, such as a telephone allowance and reduced rates, for essential services.

The second pillar is the "super guarantee" - 8 per cent of a person's pay is deducted by his or her employer and put straight into a super scheme in the individual's name.

New Zealand doesn't have anything like this. The closest we have got is an earlier version of the Big Cullen Fund where it was proposed that 8 per cent of the Government's tax take would be hived off and invested into one big fund run on a commercial basis at arm's length from the Government.

The third pillar of the Australian system is private savings. This is similar to our approach, where individuals save for their own retirement. But there is little evidence to suggest there has been any major improvement in savings habits or levels in the past decade.

The idea of the system, according to Mr Casey, is that it is a partnership between the Government, employers and individuals.

The Government provides the first pillar, employers the second and individuals the third.

Ms Robertson says there are four big lessons New Zealand can learn from Australia:

People should not have the choice of opting out of the need to save.

Savings at the second-tier level must be preserved until retirement. The money has to be locked in and made unavailable for spending on things such as holidays or a new boat while people are still in the workforce. She says the superannuation regime in NZ is "terrible" because people have easy access to super funds.

Savings have to be invested in an individual's name, as opposed to being in a big consolidated fund. In Australia an individual owns the money, although it is held in trust on his or her behalf. In Ms Robertson's view, the ownership issue is one of the most important, as it gets people involved in their savings and makes them a stakeholder.

Savings should be portable. An individual should be able to switch from one fund to another if he or she wants to. Again, this is a problem here, as some superannuation fund providers won't allow their members to switch to competing funds.

Once you put aside all the technical arguments about superannuation, there is one compelling reason the Australian system is good: attitude.

People get statements each month which tell them how much money they have and it gives them a full breakdown of payments into their fund, and performance.

This has helped to provide a significant level of comfort and made people more aware and better-educated about savings.

New Zealanders who are now working in the financial services industry in Australia are impressed with the system.

When Morningstar managing director Graham Rich moved to Sydney, he was fiercely opposed to any superannuation system that forced people to save. He is now a convert, as he has seen how beneficial it is.

The Australian system is not perfect. It is established in such a way that people are forced to make their own savings so they are not reliant on the state pension.

Because the second-tier is done through employers, there is near-universal coverage of workers. Recent statistics suggest that more than 90 per cent per cent of workers have their own savings.

Since the scheme was introduced, the level of employer contributions has steadily risen, most recently to 8 per cent of wages, with the target being 9 per cent in 2002.

However, there is growing concern that this level may be insufficient to provide for a decent lifestyle in retirement and some organisations are pushing for the contribution rate to increase to between 12 and 15 per cent.

One of the big lessons for politicians in NZ is that they have to take a bipartisan approach to superannuation. Politicians who put their "answer" to the issue and try to force it on others are bound to fail.

In Australia, superannuation is the only policy agreed on by 90 per cent of politicians.

If the Australian can dot the political football of superannuation down over the try line, NZ should at least be able to get out of the opposition's 22.

NZ politicians can learn from looking overseas.

"The point of looking overseas should be to identify the possible options, consider the various results and come back to NZ to make some decisions that are right for us," says the AMP head of superannuation strategy and manager of corporate markets, Linda McCulloch.

The risk in NZ, as we saw in the NZ First-driven superannuation referendum in 1997, is that just one option will be put up as an alternative to the existing system, instead a range of options.

If that happens then we are unlikely to get a satisfactory result.

* Philip Macalister is the editor of online money management magazine Good Returns. Good Returns provides news on managed funds, mortgages, insurance, superannuation and financial planning.