There has been very little media coverage of the Superannuation and KiwiSaver policies of the various political parties. The void was partially filled by a breakfast debate hosted by the Financial Services Council, held this morning. There were a wide range of views expressed and, as expected, some clear differences of opinion across the political divide.
It was a mix of good news and bad news from my perspective. The good news is that most political parties have moved on from whether KiwiSaver is a good idea or not – it is clearly here to stay.
The bad news is that it is being continuously tinkered with by the politicians with National now more strongly linking KiwiSaver with Housing policy and Labour incorporating KiwiSaver into monetary policy. Both policies risk turning a long term savings policy into something that is much more short term in nature and not for what it was set up to do – which was to build long-term (non-housing related) retirement savings.
In terms of NZ Superannuation most parties agreed that it should be universal (and not means tested). This is good news in terms of trying to provide some certainty for retirees but the bad news is that it may not be able to be sustained at current levels. With an aging population the commitment needed to fund this entitlement continues to grow and is starting to “crowd out” expenditure in key areas such as education and health.
One way to address this is looking at the age of entitlement. National has ruled out any change to the current age of 65. This is for purely political, rather than economic reasons. It is disappointing that politics has got in the way of good policy but this, it seems, is not going to change with John Key in charge.
One interesting aspect covered was United Future’s “Flexi-Super” policy. This is the concept where a retiree can choose whether they take a lesser amount of superannuation at age 60 (at a discount to the standard entitlement) or up to age 70 (at a premium to the standard entitlement). Variations of this structure are already used in countries such as the United States, Japan, Sweden, Germany, France and Canada.
While there are some potential fish-hooks in how this might be implemented this may be a policy whose time has come. Across the political parties there was recognition that some people need to retire earlier due to the physical nature of their jobs. There are also some ethnic groups who are not getting full value from their super as their life expectancy is materially lower than the New Zealand average.
Flexi-Super could be combined with raising the age of the standard entitlement to 67 but still allowing a drawdown on KiwiSaver from age 65. This mix might provide a more affordable and flexible superannuation structure that could serve New Zealand better than the current system, as we face the reality of dealing with a rapidly aging population.