By Alex Tarrant
Labour will make KiwiSaver compulsory for all workers from 2014 if it wins the November 26 election, and push up employer contributions from 3% to 7% by 2022, leader Phil Goff announced today.
Releasing the party's savings policy, Goff said Labour would also restart contributions to the Superannuation Fund in 2012/13 - before the government books are forecast to be in surplus - and raise the retirement age by two months a year between 2020 and 2033 from 65 to 67.
The policy comes after the government announced earlier this month it would look to enroll all workers not in KiwiSaver into the scheme in 2014/15, although this was subject to the books being in surplus and those automatically enrolled would have the option to opt out.
Labour went a step further by saying KiwiSaver would be universal for all wage and salary earners.
Goff said employer contributions to their employees' KiwiSaver schemes would be hiked by 0.5% a year from 3% in 2014 to 7% in 2022 - a move that would bring New Zealand closer to the Australian savings scheme, where employers contribute the equivalent of 12% of their employees' pay to their saving scheme.
Goff said employees would still contribute 2% of their wages to KiwiSaver, and that would not rise as many families were struggling with rising costs of living.
Labour said it would take on a Savings Working Group recommendation to spread the NZ$1,000 kick-start payment for new KiwiSavers over five years - NZ$200 a year - to spread out the upfront cost to the government from new enrollments.
"By making it easier to save, everyone in the scheme will have a nest egg to supplement their pension and give them a secure retirement," Goff said.
"Universal KiwiSaver also reduces our reliance on foreign borrowing and builds up on our pool of savings to invest in Kiwi businesses and create jobs. We will be able to own our own future, and grow our economy - not someone elses," he said.
Resume Super Fund contributions
Labour said it would resume Super Fund contributions with a NZ$750 million payment in 2012/13, and ramp that up to NZ$2.4 billion by 2016. Goff told a media conference he was comfortable resuming contributions before the government's books were in surplus - meaning the government would have to borrow funds in order to make contributions to the fund.
Goff said he was confident the Super fund would be able to deliver higher returns than the interest rates that government would be paying on its borrowings.
See BusinessDesk's Pattrick Smellie's piece, Opinion: BusinessDesk's Pattrick Smellie says Labour is seeking the moral high ground with its new pension policy
(Updates Doubleshot with David Cunliffe, with video)
56 Comments
At least they are a party that has some convictions and a vision, unlike the other lot who govern by the polls and do bugger all for fear of upsetting the peasantry.
It's about time some party made a realistic decision on the sustainability of Superann. Hey, I'm a turkey and I would vote for this Christmas. I'll be 64 when the age of eligibilty moves completely to 67.
If you want to retire early move to Italy were school teachers can retire at 39 on a generous pension. http://www.telegraph.co.uk/finance/financialcrisis/8851408/Italian-MPs-in-fist-fight-over-pensions.html
steven, the positive money folks are running someone in your electorate;
oops - just checked again, and it's Wellington Central and Rongotai they are standing candidates in.
Good idea but don't know if it's good timimng. Why didn't they announce it before? why wait until now. Seems like a desperate action to gain votes.
Assuming some employers will grumble about 7% contribution.
Still not convince if Labour will get my vote in Epsom.. David, he put me off as my MP
I think most 'workers' would rather make their own mind up as to how they save and what they do with their wages...I doubt most workers are willing to have goofy and cunny run their lives for them. All the evidence to date points to Kiwisaver being a money spinner for fund managers....and a constant drain on taxpayers.
+1. I think most people were sick to the back teeth of the Clarke & Cullen show where they just kept on with their 'we know better than you how you should live your life'. Be interested to see the numbers on total voter turn out this year. There's slim pickings out there on the voting papers....
Do we really want to re-create a 1950s style working environment?
Money to support pensioners comes from those of working age. Why is money from compulsory Kiwisaver owned assets better than taxation?
I can see the secondrate fund managers do well out of Kiwisaver. Is there evidence these sort of schemes actually really benefit a country in the long term?
Surely they destroy the incentive for entrepreneurial risk taking. Doesn't it just encourage sheep like working in a safe government or big business job?
My understanding is that Kiwisaver is seen as needing the dumb asset sales so there is something for the dumb Kiwisaver funds to buy.
There is something deeply messed up in all this.
At present the money for pensions comes partly from profits from monopoly power companies via government ownership. Under the new scheme some of the money for some of the pensions will come from monopoly power companies via Kiwisaver ownership. Hard to see the improvement unless you are a senior manager or on the board of the power company or you are a fund manager.
Does anyone understand why politicians think this stuff is progress?
Theres a potential for a 7% pay decrease for workers where the employer chooses to do salary sacrifice payments as opposed to Australia where the average salary is higher with superannuation on top. Whilst a person gets it back [no guarantee how much though] at 65-67- whatever, in their current situation they are left 7% short each pay day.
Kiwisaver should be compulsory because people won't save on their own. Its fine to say you don't want the Govt to run your life but the reality is people live for today and put nothing away for tomorrow.
The piece missing from the puzzle is to introduce means testing of super which will also bring us into line with the Aussies. Why pay someone super when they are still in full time employment? Retired people go on about the $40 mill the Rugby World Cup cost the nation when hundreds of millions are paid out to those who don't need it.
Kiwisaver should be compulsory because people won't save on their own
That's the meat of the issue right there.
I'd personally prefer that the government had as little to do with my finances as possible. However, I know there are people out with no foresight, or intention of saving for retirement. In this respect I think compulsory super is a good, although it's still a shame that people capable of managing their finances have to be roped in. I'm on the fence with this one...
Do you guys understand Kiwisaver at all? The kiwisaver funds do not go anywhere near the Government or its coffers. It goes to the likes of the mainstream banks, insurance companies, Gareth Morgan etc. The Govt subsidy adds to your savings, along with your employer contribution, and it is deposited into one of these places of your choosing. The way you guys go on about it makes me think you think somehow it ends up in Govt control. This is not the case.
What you puritans are missing out on is over 100% return on your money! I hope you enjoy your principled stand and your 3% return with no subsidy!
Perhaps read what NZ First are promising to do with your "hands off" saving...
Worth noting the "hands off" Australian scheme was used by the government to prop up their banks during the lehman debacle.
One of the long term problems of goverment legislated solutions is that each politician has his own ideas about how it should work and changes the legislation.
A return on an investment is only a return on paper until you get it back. Which potentially might never happen.
Sure Skeeter, the government might not have the kiwisaver funds in their hands. But here's some things that governments have done in recent times;
Used their influence to play with share values in companies like Telecom and AIA (granted, you could be invested in either through other channels than kiwisaver. And as a side point, I remember Paul Henry brilliantly snookering Michael Cullen on tv on morning on the AIA shambles).
Change the rules of kiwisaver after you've signed up to it. This is the key one. Expect a lot more of this.
The government could take the lion’s share of the return through taxation of disbursements
The value of your savings could be obliterated through the government debasing the currency (pretty much guaranteed)
They could make it mandatory for KS funds to invest in NZ Govt bonds) at a return lower than real cpi)
They could tax on any profits KS Funds make overseas when bought back into NZ.
They could insist on compulsory buying of the funds in exchange for NZ bonds.
Increase the age of entitlement out into never never land and balance the balance of the fund when the recipient dies.
One way or another, the value of my KS will not be there when I retire that much I know for certain.
" the reality is people live for today and put nothing away for tomorrow." Nah. Some people live for today and put nothing away for tomorrow. Others have actually grown up at some point and are mature enough to make sure they can and will be able to take care of themselves and their family, instead of expecting someone else/the govt to do that for them.
Surprised Wolly hasn't responded to your point about means testing - he dealt with it pretty effectively over on the "Labour will raise retirement age" thread. Here's what he said:
it would cost more to do the means testing than it would save. That cost is partly the bureaucracy needed to run the numbers and hunt down the avoiders...and partly the cost of people deciding they will not save (or work - MdM addition), knowing some pinhead politician will steal their pension while the boozehead living nextdoor who splurged everything for decades, receives a pension.
Having said which, both costs can be avoided if you means-test against the savings that people have made under a compulsory savings scheme.
And....Here's Winston's response:
New Zealand First says Labour’s new policy of lifting the entitlement age of superannuation to 67 is an admission of failure to grasp economic opportunities.
Labour today announced it would raise the pension age to 67, make KiwiSaver compulsory for all working New Zealanders and increase employer contributions.
Rt Hon Winston Peters has long advocated a compulsory retirement scheme but says there is no need to lift the age of eligibility if New Zealand cranks up KiwiSaver now, starts buying back overseas owned assets and lifts economic growth.
“Our problem is that New Zealanders are fighting over pieces of a shrinking cake instead of increasing the size of it. Many people in their sixties are simply unable to work and employers do not as a rule employ older people.
“It is mean spirited to expect a person who has raised a family and paid his or her taxes to go out job seeking at the age of 66 – particularly if there are not enough jobs to go around as is the situation now.
“However, if we start accumulating funds in New Zealand now and invest them to boost farming, manufacturing, fishing and other export industries there would be no need to lift the age of eligibility.
“For example, New Zealand First would direct KiwiSaver to buy the Crafar farms instead of letting them go to a foreign company. KiwiSaver could also buy back the breweries that made record profits for their foreign owners during the Rugby World Cup.
“The opportunities are under our noses and we should take them instead of penalising senior citizens with policies set sometime in the dim future,” says Mr Peters.
"New Zealand First would direct KiwiSaver to buy the Crafar farms"
How predictable.
The poor old saver has her money forcefully taken from her (by law).
Where her money is invested is decided by someone else.
Whether she ever sees a cent of her "investment" is decided by rules made up by someone else.
It's almost a protection racket.
Though being implacably against the Left (including National), I did credit Labour from time to time with some smarts in playing their constitutency of the envious and greedy, but now this.
So they have a platform of a CGT to turn against them anybody who has strived to get ahead in life. Compulsion to remind the free just how the Left always works, bottom line. And now putting the boot into those who've paid for their welfare state on a dream and a promise all their lives through taxes, and were thinking they were going to retire, but instead will just have to keep on paying taxes.
Brave, and right for once, raising the retirement age, but bloody stupid. They seem to have created their very own perfect storm for never being elected.
Cunliffe in 2009 (HT Farrar) http://www.labour.org.nz/news/labour-will-keep-super-it-will-national
Labour is committed to keeping both the current age of eligibility and entitlement level for New Zealand Superannuation, Opposition Finance spokesperson David Cunliffe said today.
“Labour is committed to retaining the age of eligibility at 65 and entitlement at 66% of the average wage,” David Cunliffe said.
“Labour’s policy remains that it is committed to reinstating payments into the Fund to ensure the security of pensions for New Zealanders for the future.
“We argued strongly following the Budget the deferrals were a big mistake that would leave Superannuitants much worse off in the future.
“National’s decision to halt payments is already been shown as being short sighted following the $1.2 billion dollar higher than forecast gain by the Super Fund in April and May.
“National can not be trusted on Superannuation. They have never been committed to universal superannuation, as their track record over decades has clearly shows,” David Cunliffe said.
As a 30 plus adult, If the govt is not going to take care of my retirement. Then they should not dictate how I save for my retirement..
Given there is an acknowledgement (By Labour today) that there will be no retirement savings for the younger generations. Surely this should be taken into account with lower taxes for the young now.....
The only country in the First World where David Cunliffe (the next Labour leader, please) and Labour would be taken seriously is Germany, which pursues the same sensible and necessary policies that Labour's now proposing.
It all comes down to a politically and financially literate voting base - the current coalition (Centre-conservative/Liberal) over here proposes to cut pension contributions (as required by constitutional law when the coffers are filled to a given level) and over 70% of voters surveyed (across all political colours) spoke out AGAINST the practice, prposing in many cases to re-channel the money towards helping in-need pensioners.
The same thing played out last year with an attempt at vote-winning running up to a key state election - ruling coalition offers a tax handout, vox populi loudly acclaims "Don't be stupid. Don't you read the papers? We need to reduce Government debt, not increase it.
The SPD (Labour-ish) is going into the next federal electional on a platform of zero tax cuts and "we might do something when we afford it, but that's not going to be any time soon"
Meets with general approval and the drinks are on me if Peer Steinbrück (ex Finance minister in the previous Grand Coalition and as smart as they come, eloquent with it) isn't the next Chancellor..
Meanwhile, the NZ press crows about the high NZ dollar and the public bemoans the fact that their property values have only increased 3% year on year. and the Government is closing all the tax loopholes....
interesting that the 1%PM says its a sign of panic, Winnie says its a sign of a failure to grasp their own failure....other complainers don't like the impact on them selves or employers....but no-one apart from the odd reluctant realist has said "yep national super is a timebomb that must be dealt with".......
it'll affect me negatively, but it's gotta be done. i'm very surprised that a gang as witless and gutless as this labour crowd are the ones to come forward with it.....
I haven't participated in the KiwiSaver discussion before as I don't completely understand it.
On balance, the general consensus of the many posts by the various contributors on this site, regarding this topic, is one of absolute opposition, for a variety of reasons. Which surprises me. I'm located in Australia and consulted to an Australian Financial Advisor Financial Planner for 15 years so I'm familiar with the Australian system. It is compulsory, it started in 1990 under the Labor Government as a compact with the unions as a trade off against wage increases and wage rulings. In 20 years it has grown to become an AUD $1.4 trillion industry. It is now the largest single industry in Australia. I know a lot of people who have been in the system from the start, who, now, nearing retirement find themselves quite wealthy. Much more wealthy than they would have been otherwise. I have never heard anyone complain about it.
FYI ACT congratulates Labour for taking its policy.
ACT New Zealand Youth Affairs Spokesman Stephen Whittington today welcomed Labour’s adoption of ACT’s policy to raise the retirement age to 67.
"Labour’s flip-flop on this issue, while suspicious, is the right thing to do. Almost every expert – including the Retirement Commissioner – who has looked seriously at this issue, has concluded that the retirement age must rise in the future,” Mr Whittington said.
"Unless the retirement age is raised, young New Zealanders will be forced to pick up the tab in the future through higher taxation and more government debt. ACT has long called for gradual changes to be made now which will keep NZ Super affordable for taxpayers, while giving people time to adjust.
"It is unfair to expect younger New Zealanders to keep paying taxes to fund a universal pension scheme for which people become eligible at the same age as they did in 1940. Life expectancy has significantly increased since then. Over 10 per cent of people aged over 65 are now in part or full time employment, and this number is increasing.
"Raising the retirement age is exactly the type of evidence-based policy National claims it believes in. That Labour is supporting raising the age shows just how far National has strayed from its principles since moving into Government. This is exactly the reason why National voters should give their party vote to ACT.
"While the rest of Labour’s policy announcement was not that sound – for example Labour would have to borrow money to resume contributions to the NZ Super Fund in 2013 and in-the-hand wages would stagnate as employers adjusted for the increase in their compulsory contributions – National should still recant their ludicrous promise and introduce a Bill to the next Parliament to raise the age of eligibility. ACT would support this Bill.
"Raising the retirement age is the fair thing to do fiscally and morally. It is good to see Labour finally promoting at least one sensible idea. ACT hopes National will do the same,” Mr Whittington said.
Here's the NZMEA's reaction:
The New Zealand Manufacturers and Exporters Association (NZMEA) is applauding Labour’s proposed measures to increase saving and raise the age of entitlement for national superannuation. Compulsory savings will help to lift the savings rate and offer a source of much needed New Zealand based investment. The decision to raise the entitlement age for national superannuation addresses the potential fiscal crisis presented by an ageing population.
NZMEA Chief Executive John Walley says, “There has been a lot of talk about incentivising savings and investment, and fiscal prudence over the last electoral cycle, it is good to see these issues finally get some serious attention.”
“As we have seen in Australia compulsory savings will increase savings levels and increase local investment. On shore investment will reduce foreign borrowing which will help take some pressure off the exchange rate.”
“Lifting the entitlement age is also a welcome initiative although a faster rise could have been introduced. An entitlement age that is a percentage of average life expectancy seems to be a logical way to take some of the political steam out of this issue. As life expectancy grows the entitlement age should move with it. The demographers show us the fiscal time bomb is out there, the sooner action is taken, the smoother the introduction.”
“Labour must be applauded for grasping the nettle on these two issues.”
The reader poll is biased, of course politicians are not thinking long term,
of course we don't "deserve" to retire, at any age,
of course we don't trust politicians and fund managers,
of course buying houses is worst,
But especially don't trust fund managers with compulsory savings! The compulsory saver is the ultimate greater fool. Sure, for a while a pyramid scheme looks like running great..
Many, even the biggest, Dutch pension funds are under water and now younger workers have to pay more premium. Wait, that looks a lot like pay as you go, no?
Pension funds, expecially the mandatory ones, are sitting ducks for the investment banks.
South Park vs. Cafe Del Mar mashup:
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