Cullen moots step to private super funding

Last updated 05:00 12/12/2012

Relevant offers


Shoppers angry stranger was allowed to take home their table Kiwi head of British bank honoured at Massey Alumni Awards Insurers offer no cover for damage by 'invited guests' Kick your credit card habit Having children does not have to mean breaking the bank A $5.1 trillion deal? Painter says he's richer than Gates, Buffett and Bezos KiwiSaver members urged to put heat on tobacco investments Reserve Bank warns house prices could resume climb on supply shortage Crunch time for baby boomers as health insurance premiums sky-rocket Financial Markets Authority voices concerns over Forestlands' investments

The architect of KiwiSaver, former finance minister Sir Michael Cullen, is proposing a revamp of the scheme to help cut the long-term costs of superannuation to the Government.

Under his plan KiwiSaver would be made compulsory in 2016 and contributions would rise to 4 per cent for employees and 4 per cent for employers, followed by further increases to 6 per cent or 8 per cent for employers.

But half of a saver's nest egg would have to be used to buy an annuity.

If that provided an income lower than the current superannuation formula, the state would top it up to the guaranteed retirement income.

"In effect this means that for many people the shift from state funding to private funding would result in half of their retirement KiwiSaver savings being income-tested away," Sir Michael said.

His proposal, to a Treasury-Victoria University conference looking at ways to pay for the Government's rising costs, could also act as an alternative monetary policy tool.

Adjusting the contribution rates could boost or cool the economy but not take money from an individual's account.

The increases would close the gap with Australia, which has a compulsory scheme with 9 per cent contributions, rising soon to 12 per cent.

Sir Michael said a second option would be to lift the pension age to 67 and tax withdrawals from the scheme - or when someone permanently left the country - at either 10 per cent or 15 per cent.

He admitted the scheme would be "difficult to establish and maintain as acceptable" but the fiscal impact was impressive.

His first option would be to cut the cost of state superannuation below 2 per cent of GDP by 2050 and to zero by 2099.

The second option would be to lower the cost to about 5 per cent of GDP and hold it there.

He said it was inevitable the age of eligibility for super would rise, as life expectancy increased.

"An initial phased increase with ample notice followed by periodic reviews seems the most sensible way to go and most likely to win broad acceptance."

Prime Minister John Key has ruled out any changes to superannuation policy while he is leading the Government.

The two-day conference was one step towards Treasury's 2013 long-term fiscal projections that will assess costs out to 2060 and how to pay for them.

Economist and Victoria University professor Norman Gemmell said Treasury's tax and expenditure model suggested extra social services costs could almost be matched by allowing some "fiscal drag" to lift incomes into higher tax brackets.

Spending was estimated to increase by 3 to 4 percentage points of GDP by 2060: from 24.6 per cent to 28.2 per cent.

Ad Feedback

Over the same period average tax rates were estimated to increase by 4-5 percentage points from about 27 per cent to 32 per cent if tax rates were indexed to price rises. That would be the equivalent of 2.5 per cent to 3.5 per cent of GDP - close to the projected increase in spending.


Special offers

Featured Promotions

Sponsored Content