MEDIA RELEASE
30 April 2004
SAVINGS DOES MATTER
Superannuation: Vance Arkinstall, CEO, ISI, responds to claims
that New Zealanders are not bad savers after all.
Mr Littlewood's article in the NZ Herald on Thursday 29 April,
claiming that new Treasury research suggests New Zealanders are not bad savers does a
disservice to the research and ignores the risks that an ageing NZ population faces.
There is ample evidence that New Zealanders have a poor record of
personal saving. We should be very concerned at Mr Littlewood’s reference to Treasury
research as a basis to support complacency with regard to future savings rates in this
country.
The Periodic Reporting Group in its report in December 2003,
stated "There is no room for complacency about the current systems ability to provide
for future cohorts".
The reasons why it would be dangerous to place undue emphasis on
the Treasury research as a platform for the future include:
- The research takes a ‘snapshot’ from the Household
Savings Survey conducted in 2001.
- Many in the survey entered employment debt free (ie no student
loans).
- Many in retirement or approaching retirement had access to
employer subsidised superannuation schemes alongside relatively general tax deductions
that existed until December 1987.
- Many bought their first home before a sustained period of
double-digit inflation in the late seventies and early eighties escalated the value of
their homes.
- Many had limited capacity to accumulate personal debt, given the
tight rationing of consumer credit that characterised the finance markets of the past.
- Many have been employed in relatively secure career jobs in which
there was predictable increase in annual incomes associated with length of service.
- Many who suffered ‘life shocks’ as a result of
redundancy received generous redundancy settlements to either re-establish themselves or
to provide a platform for early retirement.
These represent the legacy effects of a never-to-be-repeated set
of employment, housing and saving conditions.
The PRG 2003 report clearly points to the heavy reliance that New
Zealanders already place on New Zealand Superannuation as the major source of retirement
income. Mr Littlewood seems to be saying that most of us (apart from the wealthy) should
be satisfied seeing out our later years on a pension of $12,000 for a married person. No
politician from any party that I am aware of will give an absolute assurance that NZ
Superannuation will continue unchanged. We know that demographic changes will lead to a
higher percentage of older people, placing further pressure on the system to cope
financially and we also know that the health costs of any ageing population will further
increase the fiscal pressure.
Young people (ie those below age 45) will approach retirement
from the workforce from an environment that has been characterised by:
- Rapid labour market turnover.
- Decreasing access to employment-based superannuation.
- A tax structure that currently is indifferent and even penalises
long-term savings.
- Student debt.
- Early access to credit card debt.
- Delayed first home purchase.
Faced with these challenges it is a disservice to use the
Treasury research to imply that complacency to personal savings is an acceptable policy
option.
I stick by my call to politicians for "immediate action to
encourage personal savings for future retirees".
In the absence of unequivocal/supportive signals and actions from
the political leaders, the day to day pressures most people face will act against any
meaningful change in personal savings rates with serious potential consequences in the
future.
For further information contact:
Vance Arkinstall, Chief Executive
Investment Savings and Insurance Association
