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Superannuation - in brief
- The Government began contributing to the future costs of New Zealand Superannuation in Budget 2001. $600 million was put aside. It will sit in the Debt Management Office until the legislation setting up the governance arrangements for the Fund is passed.
- Unless forward provision is made now, New Zealanders will face the prospect of either reduced levels of New Zealand Superannuation; tighter eligibility criteria; or increased average tax rates to cover the additional costs.
- The Government does not believe that any of these options is desirable, defensible or politically sustainable.
- Pre-funding and building up financial assets is the only option that is politically sustainable.
Key Facts
- From about 2011, the baby boomers start to retire and the cost of New Zealand Superannuation starts to accelerate. By around the middle of the century, it is 9% of GDP. It is around 4% now.
- The Fund is not intended to be a complete answer to income adequacy in retirement. It will provide for a basic standard of living, but New Zealanders should, if possible, save to augment their income.
- Neither are we funding the complete cost of the pension. The scheme is partial, not total, pre-funding. A large part of New Zealand Super will always be funded out of current year revenues.
- The details of the design of the scheme were released on 10 October. Response from the public and the superannuation industry has been encouraging.
- Legislation to set up the scheme is now before the Finance and Expenditure Select Committee. All parties in Parliament voted for it in the first reading except the Greens who abstained.
- The bill is in two main parts: Part One enshrines existing entitlements in a single statute, including the newly-restored 65 percent wage floor and eligibility from age 65 free of any income or assets test. Part Two deals with the financing arrangements for the New Zealand Superannuation Fund.
- The Government believes it is important that New Zealanders also save privately for their retirement. Finance Minister Michael Cullen is establishing a small task force comprising officials and representatives of the savings industry to explore options to raise savings levels. They will report back before the end of this year.
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