Maori Party keen on Peter Dunne's flexi-super policy, co-leader Fox says; Set to meet United Future, ACT on proposals following National's plan to raise Super age

The Maori Party is interested in Peter Dunne’s ‘flexi-super’ policy and is set to talk to United Future and ACT on how the three government coalition partners will respond to National’s proposal to raise the superannuation age from 65 to 67 between 2037 and 2040.

Maori Party co-leader Marama Fox told media in Parliament that the flexi-super proposal was interesting as it would allow some people to retire earlier than 65. The party’s current policy is that Maori and Pasifika workers should be able to retire earlier due to lower life expectancies.

As the Maori Party policy stands now, they would not back National’s proposal, Fox said. Prime Minister Bill English announced Monday that legislation would be introduced in 2018 to formalise the plan.

The move has raised uncertainty on whether potential National coalition partners would support such a move.

Dunne introduced the flexi-super policy in 2011. It even attracted enough attention for then-Finance Minister to release a discussion document on it as part of an agreement with Dunne.

However, Treasury soon poured cold water all over the idea. In 2013, it recommended English halt all work on flexi-super, saying that while it would offer greater choice to New Zealanders, “it will also increase the complexity of the retirement income system and generate higher administrative costs relative to the status quo settings.”

Treasury’s policy concerns included:

• Reduction in option value. The introduction of Flexi-Super will complicate (and may in some cases preclude) future attempts to change retirement income policy settings. We see value in forming a broader view about the future direction of retirement income policy before moving forward with a specific proposal such as Flexi-Super.
• Durability. Many submitters have raised concerns about the potential for FlexiSuper to increase hardship among older people who take earlier retirement. These concerns raise questions about the likely durability of the policy settings: if Flexi-Super is perceived to increase hardship among older people, then the lower rates for early retirement are likely to be adjusted upwards over time, which will in turn affect the costs of the scheme as well as incentives to participate in the labour force.
• Fiscal sustainability. If Flexi-Super rates are calculated on the basis of average life expectancies across the whole population, they will give rise to an adverse selection problem, because those in good health who know they are likely to live longer than average will select deferral at the higher rate. As a result, they will enjoy greater NZS income than would otherwise have been the case. In order to mitigate the adverse selection problem, Flexi-Super rates would need to be altered so they are no longer actuarially neutral on a population basis. In summary, then, Flexi-Super will either increase the costs of NZS or will need to be subject to complex adjustments to improve its fiscal sustainability.