A question to Q+A about those welfare bludgers emphasises why the conversation about superannuation reform is so vital... but also comes with risk

I wrote this post for TVNZ yesterday, but wanted to share all of it with Pundit readers, because it's something we've discussed more than once and several of you have really helped me get my head around this... It's why superannuation matters, how it's perceived as the "good welfare" and how the real problem we face is from the "bad welfare". Anyway, here 'tis:

A question from Q+A viewer Jonathan has prompted this post, because he raises such a crucial question.

He emailed the programme while David Parker and Steven Joyce were debating the retirement age and compulsory superannuation to say we were looking at the wrong issue.

Can some one please tell me why we are worrying about retirement money and were it will come from, when the main problem is at the other end of the scale, which is unemployment, and the amount of money we are spending there. [That money] could go in to retirement, but is sucked up by the unemployed who contribute nothing to the country!

It's a point I've heard made a few times (with or without his dubious generalisation about "the unemployed") and is a crucial question – or it would be if Jonathan's premise was right. But it's not.

The simple reason superannuation is such a big talking point now – and why Labour's new policy is so significant – is that the super bill is one of the country's biggest.

It's the elephant in any room that has something to do with government spending.

Bigger than the dole.

Even bigger than the DPB. Because there are so many retired folk – many more than there are unemployed or sick.

Here are the numbers. This year's Budget had a total social welfare spend of a little over $23 billion. So how does it break down?

Sickness benefit: 782.38 (3.40%)
Unemployment benefit & emergency benefit: 1,028.95 (4.40%)
Accommodation assistance: 1,264.23 (5.50%)
Invalid's benefit: 1,346.84 (5.80%)
Student loans: 1,589.68 (6.90%)
Domestic purposes benefit: 1,894.64 (8.20%)
New Zealand superannuation: 9,575.37 (41.30%)

As you can see, superannuation is over 40 percent of the bill. Nothing else hits double figures. And as a share of GDP, the cost of super is forecast to double in the next 40 years.

The true significance of Labour's announcement this week is that the politically unspeakable has been said out loud.

No-one wanted to touch the superannuation debate exactly because it involved so many people – so many people who vote.

Now that a major party has committed to raising the retirement age, it seems inevitable the policy will happen.

To paraphrase Humphrey Bogart – maybe not today, maybe not tomorrow, but some day and for the rest of your lives. A gazelle has split from the pack; the spell has been broken.

And the significance of that is that such a large chunk of government spending is now on the table – for better or worse, richer or poorer.

Yes, there is a risk that if we're willing to have the super debate, everything from its universality to its percentages are up for grabs.

If it's changed once, future governments could change it more – cut it, slice it, shrink it.

But the plus side is that we can now talk about how we save, as a country, for our retirement.

And that's essential, because contrary to what Jonathan thinks, it really is one of the biggest issues in town.

Comments (13)

by Danyl Mclauchlan on October 31, 2011
Danyl Mclauchlan

Slightly off-topic, but I really wish pundits and commentators would explain to the public that there's a link between inflation and unemployment, and thus unemployment and their mortage rate and weekly shopping bill, and that the unemployed actually play a really vital role in our economy, which is why we have an unemployment benefit rather than policies aimed at zero unemployment.

by Richard Aston on October 31, 2011
Richard Aston

I agree Super has been the mammoth in the room for a while and good on Labour for having the courage no others have had to at least get some debate going on it.

The cost as you point out Tim is huge but there is a weird attutude to it eg " I have paid taxes all my working life and now I want them back"  - ie its my money and my super.  Those taxes paid for all the other stuff we needed and until the super fund none were held back for super. Its our kids who pay for our super.

And how many actually need super ? Raising the retirement age is one thing but what about income testing. Why does a retired district court judge get a equal right to super as a retired factory worker?

 

 

 

by Iain Butler on October 31, 2011
Iain Butler

No-one wanted to touch the superannuation debate exactly because it involved so many people – so many people who vote.

Hi Tim, this is one more thing that needs explaining: why is the popularity of this policy being guaged by the reaction in the street of people who already retired? Yes, they know a bit about retirement, but they are the only people not affected by Labour's proposal - unless I've missed something and Phil Goff plans to march them all off to work for two extra years to make up for the free ride they've been getting?

by Iain Butler on October 31, 2011
Iain Butler

Jack chen, I don't think you're taking this important issue altogether seriously.

by Tim Watkin on October 31, 2011
Tim Watkin

I guess the thing about super, Richard, is that you can't be blamed for getting old. You can blame people for being unemployed or, it seems, for getting sick or injured or having children.

So super is ok, whereas other welfare is not. I tend think they're all about supporting people in need.

by Matthew Percival on October 31, 2011
Matthew Percival

It's somewhat sad that it takes one of the big two parties to put an issue into the spotlight. United Future has a an interesting superannuation policy which provides for more flexibility.

Flexibility is a key point here. Whilst the office worker may be able to work through to 70 and beyond the labourer may be struggling to work to age 65. A simple age requirement for super doesn't cater for the varying needs of aged workers we see in our society today.

Richard brings up a good point in relation to Income testing for super. I'd look at going a step further and go to Asset testing. Why should a 68 year old with $10 million in Assets held in a trust be entitled to super?

The other aspect I'm yet to hear people talk about is Kiwisaver. Are government contributions to Kiwisaver not an advance on your pension? By contributing to Kiwisaver and super isn't the government paying out twice for the same thing? Should we look at taking this into account as increasing numbers of Kiwisaver come to retirement?

by Gareth Ward on October 31, 2011
Gareth Ward

Re Matthew's points on Kiwisaver - it ONLY makes sense as a response to "the super problem" if at some point we asset/income-from-asset test the pension against, at the very least, your Kiwisaver account.  Until then, it's actually increasing our superannuation costs, not managing them.

Cullen HAD to have realised this - Kiwisaver must have been setup to eventually become:
a. Compulsory
b. A replacement for superannuation welfare except where the Kiwisaver balance is insufficient to provide a base-level pension.  i.e. Income and Asset Tested superannuation welfare payments

In short, Australia's setup.

by Bruce Thorpe on October 31, 2011
Bruce Thorpe

Surely an income and asset test is required.

People who lose their jobs after fifty have real diifficulty in ever again getting permanent full time employment. That has been true in this country for 30 years now.

Much the same section of the workforce are also most likely to die before or soon after 65.

These are the people most in need of a decent level of superannuation at an age where they can appreciate it.

Many of the most privileged will live long and healthy lives without any real need for assistance from the tax payer.

 

by Tim Watkin on October 31, 2011
Tim Watkin

Thing is, super is universal now, which is something not to abandon lightly. If not everyone's invested in it, how long before it becomes a political football – an indication of bludging and not properly savings for your own future, and treated with scorn like other benefits?

And where do you draw the line?

Matthew, I only have a rough idea of Dunne's plan. At first blush it looks good, but I'm told it's only cost neutral if people keep behaving the same; if they retire early as a result of the earlier benefit option, it becomes hugely more expensive.

by Richard Aston on November 01, 2011
Richard Aston

"super is universal now, which is something not to abandon lightly"  Why ?

We are abandoning the near universality of DPB ( for solos) and playing around with youth unemployment benefits .

The original intention of old age pensions act 1898  was

"a small means-tested pension to destitute older people who were 'of good moral character';"

ie it was targeted to those who really needed it .

um..  except the Chinese - they were explicitly excluded.

As you point out Tim its a huge expense to the country - to our children , why is it so problematic to look at it in a wider context?

 

 

 

by Matthew Percival on November 01, 2011
Matthew Percival

Taken from the United Future Website

"Mr Dunne said the figures used would make it cost-neutral with the superannuation scheme as it stands, with the long term sustainability issue addressed by having compulsory KiwiSaver."

So no cost saving in the short term but by making Kiwisaver compulsory at least he has a long term plan to deal with the cost of super.

by Mark Berghan on November 01, 2011
Mark Berghan

I am amazed Key boxed himself into a corner on this one; a major strategy blunder. Agree with Richard, many people do have this concept that part of the taxes they pay now (while working) are for funding their future pension. Many think of a portion of their tax as being a "saving" for retirement. But nothing has been "put aside" in the coffers; it has all been used up, with the current work force funding the pension of the currently retired, not their own future retirement. Now, with Kiwisaver, we are tasked with funding our own future retirement, while simultaneously paying for the currently retired, and you can bet your bottom $ that Kiwisaver will become compulsory, and minimum contributions will increase, as the state looks to remove as much pension expense as it can. If so, as Gareth said, why not integrate the planned age increase with a move to a 100% self funded pension via Kiwisaver, gradually increasing contribution rate while decreasing PAYE rate?

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