Transcript here - LEANZ

Retirement income policies in New
Zealand:
- what really matters
Michael Littlewood
for
Retirement Policy and Research Centre
Wellington, 21 April 2015
Four main points
• The cost of New Zealand Superannuation is
the pensions paid (pre-funding doesn’t change
that)
• Private provision not materially different
(economically) from public
• So, forcing New Zealanders (or the
government) to save does not cut the cost of
an ageing population
• What can (should) governments do?
Latest Treasury projections (2014)
• NZS is a claim on the economy
• Ageing population will double so-called
‘age-dependency’ ratio
• Not a doubling in cost when measured
against a growing GDP
NZS projections
Net cost of NZS as % nominal GDP
- from Treasury NZSF models 2000-2014
12%
2000
10%
2001
2002
2003
8%
2004
2005
2006
6%
2007
2008
2009
4%
2010
2011
2012
2%
2013
2014
2060
2058
2056
2054
2052
2050
2048
2046
2044
2042
2040
2038
2036
2034
2032
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
0%
How does NZ compare?
Cost of public
pensions
2010
2060
Austria
14.1%
16.1%
Canada
5.0%
6.2%
Germany
10.8%
13.4%
Greece
13.6%
14.6%
Ireland
7.5%
11.7%
Netherlands
6.8%
10.4%
4.7% (net 4.1%)
8.0% (net 6.6%)
Norway
9.3%
14.2%
Portugal
12.5%
12.7%
Spain
10.1%
13.7%
Sweden
9.6%
10.2%
United Kingdom
7.7%
9.2%
United States
4.6%
4.7%
New Zealand
Note: excludes the cost of tax breaks for private provision
Pre-funding doesn’t affect cost
• The cost of NZS is (and will be) the pensions
paid
• Pre-funding (the NZSF) doesn’t change cost,
only the incidence of cost
• The NZSF is effectively 100% leveraged
• Three key questions:
– Should the government borrow to invest?
– Does ‘intergenerational equity’ matter?
– What is it about pensions that justifies pre-funding?
• Economic growth is what really matters
What can only governments do?
…with specific regard to retirement incomes
•Reduce (eliminate?) poverty in old age
•Enforce codes of private (and public) conduct –
levelling tax and regulatory playing fields
•Gather and publish impeccable, accessible data
•Provide information and education programmes
so citizens can make appropriate decisions
What can’t governments do?
• Force citizens to save more than they prefer
• Encourage citizens to save more than they
prefer
• Both options tend to be:
–
–
–
–
–
Very expensive
Regressive
Complex
Distortionary
Inflexible
• In addition, tax breaks:
– Are inequitable
– Increase deadweight costs of tax
• Worst of all: neither seem to ‘work’
In summary:
Governments should:
• Do things that only governments can do
• Stay away from the things that:
– Governments do not have to do
– At the very least, seem not to work
We need to talk about:
• NZS: what do we think might be acceptable to
2060 taxpayers (benefits first; then costs)?
• Data: better, deeper data – longitudinal data
the ‘gold standard’
• Regulation/tax: simple, comprehensive
rules; levelling the playing fields
• Private provision: let employers and
individuals make their own decisions
It’s really not that complicated
Talking about New Zealand Superannuation
• Key benefit design decisions:
–
–
–
–
–
–
–
–
–
–
Universal or means-tested?
State pension age
Residency test
Annual amount
How re-valued?
How paid for (PAYG vs SAYG)?
Single person’s pension
Couples’ living together
Overseas’ pensions and section 70 deductions
Transition arrangements if changes made
Talking about NZS - 2
• Minor benefit design decisions:
–
–
–
–
–
–
Interface with ACC pensions
Favoured periods of absence overseas
Annual revaluation floor
Hospital rates
Payments overseas
Special position of ‘specified Pacific countries’
• None of these 10 major and 6 minor design
elements has ever been the subject of a
research-led national discussion
• Asking New Zealanders what they think first is
a bad idea
The politics of change
•
•
•
•
•
NZS the archetypal political football
National won’t talk about it
Labour now doesn’t know what to think
Other parties suggested different changes
Endless reports continue to suggest costcutting changes
• We need to break the cycle
What next?
• John Key’s threat to resign constrains debate
until, probably, 2020
• The debate will happen
• Much work to be done in the meantime
• Gathering impeccable, deep data is the first
priority
• …and perhaps, politically acceptable
Impeccable, deep data? – home
ownership
Understanding pension claims
• All retirement incomes are claims on the
economy (private and public)
• Forced private provision to replace public
provision shifts costs but does not reduce
them (and may increase them)
• Governments must balance competing claims
of all sections of society
• Regardless of today’s decisions/process,
tomorrow’s taxpayers can change things
What really matters
• Growth
Deck chair from Titanic
“Democracy is the theory that the common people
know what they want and deserve to get it good and
hard.”
- H.L. Mencken