report pages 117-119

Section 22 - Policy nirvana – what a stable retirement income framework might look like[1]

New Zealand has had a long tradition of dealing with superannuation and retirement-related issues through the political, rather than a research-led, processes.

Political parties seem to think that policy on NZS and retirement saving is ‘whatever it takes to get elected this year’. The history of each of our main parties’ retirement incomes’ policies (on both public and private provision) does not bear close examination. This is unsatisfactory, and the process needs to change so the public can be assured that policy will be guided by principles rather than by political expediency.

As described in section 4 (How much will New Zealand Superannuation really cost?), when governments set their spending priorities, they balance competing claims on economic output by everyone, including pensioners. In theory, those decisions can change every year; in practice, they don’t because a stable policy environment allows everyone to make private decisions more ‘rationally’. So, decisions about the way in which, for example, unemployment benefits are calculated and who is entitled to receive them do change but remain relatively stable despite being administered by different governments. Similarly, businesses need stable economic policies that allow them to make long-term investment decisions.

NZS is different. We know that “a very large proportion” of retirees currently depend on NZS for most of their retirement income[2]. That position has not changed much since 1989 and is unlikely to change over coming decades. We also know that financial preparation for retirement is a multi-decadal project. That doesn’t mean, as some in the financial services industry suggest, that we should be putting money into saving products for 20-40 years, but it should mean taking a long-term view of what we want our own retirements to look like, financially.

It should also mean that discussions on policy changes should be research-led and that isn’t the case today.

Our suggested review should begin now.

Our experience tells us that the more we discover from decent data, solutions become more obvious. The review should actively engage with the political parties to take them along with the public discussion. Superannuation should not be a party-political issue and New Zealand should want to convince parties that it isn’t a vote-winner, particularly if we don’t actually face a crisis, as we think the Treasury’s ‘Long Term Fiscal Model’ continues to indicate (see section 5 - Is NZS ‘sustainable’?).

We think that a political consensus on a framework for both public and private provision for retirement is possible. New Zealand surprisingly achieved a form of political consensus in more difficult circumstances in August 1993 with the Superannuation Accord [3]. We suspect that most political parties would probably be relieved to see at least NZS taken out of the party-political contest[4].

The national debate should be open to all, including the political parties. It will be founded on the best available information and its aim will not be to cut costs but rather to:

  • test each aspect of the design of NZS (see section 6);

  • test the resilience of NZS to changing demographic conditions and to investigate all possible reform options, including ‘no change’ or just minor reforms.

The review’s objective should be nothing short of a consensus on all the key design components of NZS for the 21stCentury. If everyone (who wants to) is part of the process, the chance for consensus improves.

There is usually an assumption in calls for a review of NZS benefits that they will have to be cut. That may be required but the review we propose might be needed just to restore New Zealanders’ faith in the future sustainability of the simplest, most effective state pension arrangement in the developed world.

We should apply a similar rigorous approach to public policy issues associated with private provision for retirement. Currently, those are inconsistent, directionless and not founded on any defensible research.

Part of the review should also be to establish a basis for ongoing research and engagement with both the public and political parties. Within the 1992 Task Force, we discussed whether the Retirement Commissioner should be an Officer of Parliament[5]but were persuaded by officials that the office should report to the most appropriate government department concerned – the Department for Social Welfare[6]. In the light of the experience of the last 26 years, that was probably a mistake.

If we want proper engagement by the political parties in the ongoing, needed consensus, we think that Parliament as a whole should agree the research and review agendas proposed by the new review team. In the end, governments do the governing but decisions about public and private provision are likely to be more obvious and less controversial in the presence of the data-gathering and public discussion that we envisage.

We see the review team as becoming a world-class research centre, perhaps based at a university but certainly standing outside the political processes and departmental bureaucracy. Political parties should be able to request research on policies that are of concern to their members and those who vote for them and the centre itself should be free to initiate research projects.

New Zealand’s taxpayers spend more than a net $12 billion a year on NZS and at least another $800 million a year on KiwiSaver-specific tax breaks. We should surely be at least curious to understand whether we are getting good value for those very large sums or whether New Zealand’s interests would be better served by spending some or all of that elsewhere.

We know that NZS can be made better now; our tax and regulatory framework can certainly be improved. It seems difficult to understand why anyone should be reluctant to engage in at least developing a process to make those things happen. At least agreeing to start that process might prevent superannuation from, again, becoming a political football as was the case, so memorably, in the 1970s to 1990s.

Terms of reference for 2019 Review

There was no reference in the Terms of Reference for the Retirement Commissioner’s 2019 Review to issues associated with the review process itself.

However, we strongly urge a consideration of the following questions.

Questions for New Zealand to discuss

  1. Do New Zealanders want the political parties to debate and agree on policies associated with public and private provision for retirement? That debate cannot really start until many of the data gaps we have identified in this report have been filled.

  2. Might the political parties themselves welcome that possibility (we should not expect that support to be expressed publicly)?

  3. What is the appropriate framework for the needed debate on these issues?

  4. Who should lead that debate and what resources might be needed over what period?

  5. How should the research momentum be maintained over decades? Where should the ‘stewardship’ of the debate and the data rest?

[1]This section is adapted from the RPRC’s PensionCommentary 2015-2 The coming debate on New Zealand Superannuation – the review process by Michael Littlewood (accessible here).

[2]Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2017, Bryan Perry, Ministry of Social Development 2018(accessible here).

[3]An account of the Accord’s genesis is recorded in Jeff Todd’s Superannuation Task Forces in the 1990s and the Political Accord, 2008 accessible here. We need to note that the leader of New Zealand First, Winston Peters, described the Accord at the time as a “cosy little conspiracy” though he did acknowledge the virtue of ‘true’ consensus rather than an “in-house agreement” with just the political parties.

[4]Some suggest that NZS is a ‘third rail’ issue – touch it and you die. That may have been true in the 1980s but we like to think that New Zealanders would now welcome a research-led, national discussion of the kind we recommend in this report.

[5]See here for details on how Parliament itself sees the role of an Officer of Parliament – we think that something like an Officer is needed on issues associated with retirement and retirement incomes. They are every bit as important to New Zealanders as the responsibilities of the Ombudsmen, and the Parliamentary Commissioner for the Environment.

[6]Task Force on Private Provision for Retirement, December 1992 The Way Forward, at page 97.