New Zealand News - 28 October 1999

New Zealand First’s proposed compulsory superannuation scheme would act “like a big unit trust but with no fees” according to NZ First analyst Roly Metge.

New Zealand First’s proposed compulsory superannuation scheme would act “like a big unit trust but with no fees” according to NZ First analyst Roly Metge.

Under the plan, a compulsory state guaranteed and administered superannuation scheme would be set up with a dedicated fund starting at 3 per cent of income and progressively moving to 8 per cent.

Income tax would be reduced by the same amount concurrently as the system moved from a “pay-as-we-go scheme to a second tier save-as-we-go scheme”.

The fund would be administered by an independent, statutory body called the New Zealand Superannuation Authority, creating individual accounts with contributions collected by the Inland Revenue Department.

NZ First leader, Winston Peters, says the Superannuation Authority “will have a minimum bureaucracy - all it needs to do is to hire the financial expertise, invest the money and write the cheques”.

“Until New Zealand’s capital requirements are met and our dependence of foreign savings is overcome, this money will be invested solely in New Zealand to create more exports, more growth and more jobs,” Peters says.

“We believe that the income from these savings will maintain pensions at the rate of 70 per cent of the average national wage.”

However, Metge says exact details of where the fund created by the NZ First scheme would invest and who would make those investment decisions are yet to be finalised.

Peters has been critical of many private savings schemes claiming “too many of these schemes do not meet the promises of their promoters and are more designed to serve the interests of the promoters than the people”.

Metge says, though, that organisations like the Insurance Savings and Investment Association (ISI) should be “jumping up and down with joy” at NZ First’s proposal as the tax incentives will be a boost to the entire private savings industry.

Head of the ISI, Vance Arkinstall, says it is too early to comment on the compulsory super plan other than to request more information.

“The ISI doesn’t just want to criticise but there are a number of unanswered questions,” Arkinstall says.

“If NZ First has made acceptance of their compulsory super scheme a non-negotiable part of any future government they may be a part of, then more detail is needed.”

Peters says any political party contemplating a deal with NZ First following the November election will have to accept the compulsory super plan.

“We will draw a line in the sand over this plan in any coalition talks after the election,” Peters says.

However, both the Labour Party and the Alliance, who are widely tipped to be sharing power after the election, have criticised the NZ First scheme as unsustainable.

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The Superannuation 2000 Taskforce has released a discussion paper listing several ways of achieving a stable retirement income policy in New Zealand.

Taskforce chair, Angela Foulkes, says most New Zealanders want an end to the frequent and radical changes to retirement income policy the country has experienced.

“There are some ways in which stability could be achieved that are independent of the quality of any particular retirement income policy,” Foulkes says.

“Our options range from establishing an independent body to manage retirement income, to a Retirement Income Responsibility Act, to a new accord arrangement. Whatever option goes forward, though, will have to enjoy consensus support.”

She says the Taskforce aims to produce suggestions that will make it more difficult for politicians to alter the retirement income system without considering the cost to current and future generations.

“We are responding to what New Zealanders are saying to us. They’re fed up of the games of political football that New Zealand Superannuation has become,” Foulkes says.

“We can’t lock in super for the long term but we can slow down the game of political football.”

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Managed funds investing in trans-Tasman smaller company equities outperformed the average in an overall disappointing quarter, according to the latest Morningstar survey.

During the September quarter, unit trusts showed an average return of -0.18 per cent while superannuation trusts returned an average of -0.34 per cent.

However, for the year to September 1999 unit trusts returned on average 9.77 per cent while superannuation trusts returned an average 7 per cent.

Star performers during the September quarter were trans-Tasman share funds with exposure to smaller company equities with four of the top ten unit trusts and five of the top ten superannuation trusts in this category.

Best performing unit trust for the quarter was the Colonial First State Tasman Developing Companies Trust which returned eight per cent while the Sovereign Super Far East was the topped the superannuation funds with a return of 16.15 per cent.

Morningstar managing director, Graham Rich, says despite the overall drop in returns this quarter managed funds performed well over the year to September 1999.

“Although many investors in managed funds had a dip in returns this past quarter, over the September 1999 year, the average unit trust return of 9.77 per cent was substantially higher than that available through term deposits (5.88 per cent),” Rich says.