Superannuation Timebomb

How to fund the wellbeing and health costs of those members of society approaching the age of 65 and over is the political puzzle of this decade. The problem is not unique to New Zealand.
With regards to New Zealand’s unique set of circumstances:
The answers are clearer if you take some political ploys of the last decade and unstitch them. The two political imperatives are:
1. Neuter Winston Peters. Okay, maybe not physically and perhaps the word I am looking for is neutralize.
Winston is the politician who will profit the most from negative press about any changes to Superannuation. This would be fantastic if he were even remotely productive and gracious but to many observers and collegues he is not endowed with these qualities. The majority of MPs might enter politics as a calling or to advance their particular socialist or conservative cause. Following this, they learn the art of politics. It would appear that Winston has never entered parliament to be productive; he is in there purely to play,”politics”. That is why he has such great appeal to the media and malcontents alike. He offers up the story pure, without any pesky policy analysis required. No intellectual engagement is needed.
A pure hit of P for the media and the public alike. We are hooked. Because of this, Winston profited the most from the Cuppagate incident prior to the last general election.
No matter what is suggested, Winston will always accuse government and opposition alike of being mean to oldies. This has a destabilizing effect to be avoided at all costs,
One way to prevent this effect is all parties to rule out a change in the age of Super to 67, rather than John Key to capitulate.
Why the media has latched onto John Key’s proclamation that there will be no change to the entitlement is beyond me. It is only delaying the impact of the cost of Super to the country. At some stage New Zealand is going to be supporting a bubble of superannuitants. The timeframe or mean age that this occurs at is irrelevant. ¬†The only person to profit from a dispute in the age is Winston and he has no good solutions to proffer. UnitedFuture policy is for graduated Superannuation depending on the age of commencement and this bears further looking at – this was the situation in New Zealand circa 1938. It is in some respects the situation today as you can draw a benefit if you are close to retirement but can’t or are unable to find work. For all the noise made by Labour about raising the age of retirement to 67 – all they are proposing is means testing from 65 – 67 as you can draw a benefit by another name prior if you are not working.

2. Deal with the means testing conundrum. One argument against means testing that I have sympathy for is that it is a double tax to means test those led to believe by Muldoon, from 1975 onwards that following generations would be able to support the pool of Superannuitants.
Superannuitants who have worked hard and paid taxes through most or all their lives have paid both into a tax pool that they were told would cover the costs of their pension, as well as into investments that would give them a quality of life greater than relying on the meagre Super alone and allow them more comfort than with an abated Super. There is no need to pick on oldies – if they were to take 65% of the average take-home pay and then supplemented it with +35% off their own investments then that would not necessarily be “unfair”. ¬†There is a lot of unpaid childcare and volunteer work done by these “oldies.” They may have structured their affairs differently and had savings additional to those that would have been appropriated by the 27 week old compulsory savings plan that Muldoon Scrapped in 1975.
However wholly non-income tested Super can no longer be afforded. The age at which means testing of Super and the levels of abatement applied should be roundly debated in Parliament as a political juggernaut that threatens to loom over upcoming generations. ¬†This needn’t be wholly negative – you could quite easily remunerate the approaching oldies and change the savings culture in NZ for the better:

Frantic Unpaid Housewives are good at trouble shooting. Fuck Yeah.
I’ve deliberated over the Super options on the table and suggest the following.
JAFUH Super proposal:
1: Introduce “incentivised” kiwisaver by opening a kiwi saver account for everyone in the country. If people who choose to not to grow their savings then they are responsible for for their own survival on a modest income at retirement. I’ve never been a fan of “compulsory” anything. Getting individuals interested in their financial fortune would have a far more positive effect on the country’s savings track record.

2: Remunerate those who have paid taxes between 1975 and say 2015 with a cash payment into their kiwisaver account that can be drawn down from the age of 67 onwards. For the sake of argument we could say $1000 a year for everyone turning working age (20?) ¬†from 1975 until 2015 is an adequate garnishment. If somebody was born in 1950, they theoretically paid tax believing they were contributing to their retirement from 1975 until 2015 when they retire. Fine. Let’s put $40,000 into their Kiwisaver account. $1000 ¬†for every year they made a tax contribution into the pool; allow automatic drawing down of this Super at say the age of 67 and then debate the parameters of means testing.
Where to find this money? It would be quite fitting to nobble the lame horse called the Cullen Fund given the given the namesake Squire is now galloping in more exalted circles.

 

Discuss and share:
  • http://www.blogger.com/profile/04397709303588114549 Pete George

    Good ideas and comments , worth adding to the debate. I’ve included in http://yournz.org/2012/06/01/badass/ and http://www.facebook.com/ForAdvancingDebateAboutSuperSolutions

  • http://www.blogger.com/profile/12538783137602201932 Monique Watson

    Thanks Pete. I think the solution eventually lies somewhere in the discussion around recognizing those Baby-boomers that have already made a significant contribution to Super, but will quite rightly be teed off if the age to collect is raised and means testing is onerous.

  • http://www.blogger.com/profile/00359116789492498882 Chuck Bird

    Monique, have you worked out how the really wealthy including most MPs will be means tested when then have family trusts and can afford top accountants?

  • http://www.blogger.com/profile/12538783137602201932 Monique Watson

    Anyone who either can afford to or has the motivation to do so can avoid tax within the parameters of the law. There is nothing wrong with that. it’s a shocker that the NZ left wing desire to “tax the rich pricks” engenders a high tax rate that destroys wealth on one hand, and forces the uptake of the use of trusts and shrinks the tax base on the other hand.
    The bounds of the law and the tax catchment would be what should be debated in Parliament. What I am saying is – wind up the Cullen fund – it was a silly idea and the equivalent of mattress stuffing your cash. I relate to this and am always wanting to squirrel away cash in different bank account but it achieves naught. Return it to the contributors who have been sold short and led to believe their tax contribution to date would fund a comfortable lifestyle in retirement.
    Ongoing the aim should be to pay or top up those who really require Super. This is a lot of retirees from the age of 65 to 75 and almost everyone after that.
    As far as a an acceptable level of tax avoidance – loopholes that allow retires to pull a more than adequate wage and also pull the Super can be closed. this has been the situation with WFF and business owners.
    I think means testing is different from tax as far as willingness to own to an income stream in retirement is concerned. At least that should be the case, just as we don’t view working beneficiaries or student loan repayment avoidance too kindly.

    • http://www.blogger.com/profile/12538783137602201932 Monique Watson

      Voluntary compliance I mean.

  • http://www.blogger.com/profile/11495995981682025219 nasska

    Re your 8.11 on KB. You’re welcome if they are of use but I also have about 50MB of cartoons that may serve the same purpose. Let me know if you’re interested & I’ll give PG my email address to forward to you.

    • http://www.blogger.com/profile/12538783137602201932 Monique Watson

      It’s a deal Nasska! ūüôā

  • http://www.blogger.com/profile/00359116789492498882 Chuck Bird

    “Anyone who either can afford to or has the motivation to do so can avoid tax within the parameters of the law. There is nothing wrong with that. it’s a shocker that the NZ left wing desire to “tax the rich pricks” engenders a high tax rate that destroys wealth on one hand, “

    That is where I disagree and that is not envy. I do not envy a criminal and I do not not envy uses uses trusts to bludge off tax payers.

    It is only economic to set up a trust if you on a very high salary. I do not envy wealthy people use trusts to get a Community Service Card or avoid paying for their care in a rest home.

    I certainly am not in favour of high marginal tax for high income earner but am not happy with wealthy individuals using trusts and other scams to avoid tax and get benefits like cheap health care.

  • http://www.blogger.com/profile/11495995981682025219 nasska

    I’ve sent PG an email.

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