17 Jun 2012

Finance Minister defends superannuation policy

8:15 pm on 17 June 2012

Finance Minister Bill English is defending the Government's superannuation policy, following the release of an industry report.

The Financial Services Council, which represents the savings and investment industry, says the current scheme cannot be maintained without significant tax increases or cuts to entitlements.

Its recommendations include raising the age of eligibility for super over time, and increasing contributions to the KiwiSaver savings scheme.

Mr English says the Government is already increasing the rate of employee and employer contributions to KiwiSaver from 2% to 3% in April next year.

He says it strikes a good balance between supporting saving while keeping KiwiSaver affordable for New Zealanders.

Mr English says when the Government gets back to sufficient surpluses, it also intends to resume contributions to the Superannuation Fund and expand the number of people in KiwiSaver through auto enrolment.

But Labour Leader David Shearer says the report is a wake-up call for the Government.

Mr Shearer says the council has its own interests in mind, but is right to raise the question of how to change super policy so it is affordable.

"How we go about doing that is something that I believe that we need to be talking about across the Parliament and throughout New Zealand. I mean without doing that we will not reach the kind of consensus that we need to reach and we cannot simply leave things as they are right now, we simply can't afford to".

Mr Shearer says Prime Minister John Key should agree to hold talks on superannuation with other parties.

Plan 'not without merit' - Greens

The Green Party says the proposal is not without merit but would need to avoid putting pressure on low income households.

Co-leader Russel Norman says the scheme could work if paired with a new Government owned KiwiSaver fund manager.

"We think we need a public option for KiwiSaver so we get decent competition there, to drive down the fees, cause otherwise everyone's savings just get eaten up by overcharging by the providers".

Dr Norman says even a small increase in contributions could be difficult for low income earners, given the increasing cost of living.

New Zealand First leader Winston Peters believes that concern about the affordability of the super plan is a manufactured crisis.

He says New Zealand would be better off cracking down on immigrants who do not contribute anything to the economy but go on to draw a pension.

Retirement Commissioner Diana Crossan says she's not sure that increasing KiwiSaver contributions to up to 10% is a good idea.

She is doubtful this particular idea can work.

Ms Crossan says it's more important people have enough money to keep up their mortgage repayments.

FSC urges higher superannuation contributions

The Financial Services Council has issued a KiwiSaver Plus plan which proposes lifting contributions to as high as 10%.

Chief executive Peter Neilson says there is a way to do this without families missing the income too much.

This would be to gradually lift KiwiSaver contributions to 10% of incomes over a 10 year period, so as not to cut living standards.

Mr Neilson says life expectancy is increasing by an average of two years with every decade.

He says that means people could live for 30 to 40 years after retirement, as opposed to 15 to 20 years, as was previously the case.

Mr Neilson says that means looking at affordable ways to preserve the older generation's rights to New Zealand Super.

He says if people start saving at the age of 20, they will need to save about 10% of their income, while those who start at 50 years of age will need to save half.

Members of the Financial Services Council manage more than $60 billion of savings.