Retirement incentive needed

By TOM CLARKE

New Zealanders are beginning to come to grips with the need to make some provision for financial security in their retirement.

They are starting to "make it happen," says Paul Fyfe, managing director of fund and investment management company Armstrong Jones NZ Ltd. Mr Fyfe has just become chairman of the Investment Savings and Insurance Association (ISI).

He says the change is happening despite New Zealanders' lack of incentive to save for retirement.

This is a real worry, he says.

New Zealand is the only country in the OECD that doesn't compel, give incentives, or provide some exemptions to assist citizens to put money away for retirement.

"Currently we have a taxation system that works against that. Superannuation funds pay taxes on capital gains and are taxed at 33 cents in the dollar on profits. Some citizens pay tax at a lesser rate than that, which is obviously a disincentive for longer-term savings through superannuation products."

Mr Fyfe says over the last 20 years there have probably been 20 different changes to legislation governing superannuation. Every time that happens, he says, planning becomes harder for some and others can be disenfranchised.

What is needed, he says, is a thorough look at the system and the development of a strategy that recognises that the state will not be able to look after everybody in their retirement. It should provide a level playing field.

The ISI represents most fund managers and life insurers in New Zealand. Since it started in 1996 it has taken a proactive stance on issues it considers of importance to New Zealanders, and particularly the need for a cohesive policy on superannuation and taxation.

Last year it released a report on retirement savings in which it identified six key policy areas. These need to be addressed, it believes, to reduce the risks that working New Zealanders face in preparing for retirement, one of which is the tax treatment of savings.

Rather than seeking ad hoc changes to the tax system, the ISI wants a simpler tax regime to tackle the "serious disincentives for retirement savings that abound in the current regime."

It says a neutral environment for savings and investment, and some certainty about the level of public pension provision in the future, are the key to persuading people to accept responsibility for their own income in retirement.

Mr Fyfe, who is also a member of the Government's Super 2000 Taskforce, says all the major political parties have policies on superannuation, but he is not convinced that any one of them, or any combination of them, offers the right answer.

"The key issue is the sustainability of whatever we put in place," he says, "so when it is agreed that we have an answer, that no one is going to come along and tamper with it as they have in the past.

"New Zealanders need to know what they're going to get and when, and that they can save for their retirement by whatever vehicle they choose, and that nothing is going to change as they go along."