Susan St John

1. Introduction

It is great that 'women in super' is being so well supported. Full marks to the committee both here, and in Auckland. It is especially pleasing to see the group in Auckland take off. I venture to suggest it is harder in Auckland to keep the momentum going.

The immediate reason for this evening is that it is an election year. If we don't care about superannuation, where are the women who will?

I am keen to expand the discussion beyond just looking at private saving and superannuation schemes. I want to share with you some of my concerns in looking at the overall picture.

[Slide 3] I want to touch on five issues:

• Loss of voice
• Why it matters
• The policy void
• Tax and women
• Loss of process

 

2. Loss of voice

[Slide 4] Here is the board of directors of the Investment Savings and Insurance Association. What do you notice about the lineup? This is a country where women are reaching top positions and having an influence, it is noticeably absent in superannuation. With notable exceptions of course, few women's voices are heard on policy issues. I hope to convince you that it actually does matter and that we need to become as informed as possible and as active.

For about 10 years I kept score when attending conferences on superannuation and related issues in New Zealand. The typical contributions from women versus contributions from men ran at round 1:10.

[Slide 5] Out of interest I checked out the last superannuation conference held Wellington in March- you guessed it-31 men's names ands not a woman among them Moreover, there is a real age bias- with far too few younger commentators. (I believe that Linda McCulloch took Paul Fyfe's place on one of the panels. Good on you Linda! )

 

3. Why it matters - risks of old age

[Slide 6] Good policy always first identifies and describes the problem. The problem is that women face many risks in old age and the facts are the majority are ill-protected on average, and things are likely to get worse from 2010 as the babyboom pressures start to bite.

Women are going to be most markedly affected because:

• Their retirement period from age 60 or 65 is longer than men's (4 years) and are more likely to need formal long-term care. Most of the increase in longevity has been at later ages, and this is set to continue. Between 1990-2 and 1995-7 life expectancy at birth rose 0.9 years for women (1.4 for men) with most of the gains occurring because older people are living longer. [Slide 7] The closer you get to the average expected age the more years you can expect to live on average. Thus today, an 80 year-old women can expect to live another 8.6 years, and these figures are edging up all the time.
   
• [Slides 7 8] Women's incomes are markedly lower while of working age. On average, they work fewer hours per week for less pay for fewer years than men. They are much more likely to have part time work only when employed.
   
• [Slides 9 10] One of the biggest cause of female poverty is relationship breakup. Divorce and the aftermath can drastically erode the asset base, along with responsibility for ones' offspring until they are 25. I am not at all optimistic that this will be different under the new Property Relationship Act. I often wonder why women are so silent on the glaring faults in the Child Support Act, the Student Loans scheme, and the inadequacy of government assistance with the costs of bringing up children. Women rarely challenge these policies. Are we bought off with sweeteners like Paid Parental Leave?
   
• [Slide 10 11] women face high EMTRs when in the workforce: not uncommon to have a marginal tax rate of 21(tax) +30 (abatement family Support) +10(student loan repayment)= 61%.
   
• [Slide 12] I am concerned that the experience of middle and low income women coming into retirement is now markedly more adverse. [Slide 17] Figures from the MOSP show the declines in real disposable incomes for households adjusted for size, but large gains at the top end. [Slide 13] More families, especially sole parent families (predominantly female) fall under the unofficial poverty line of 60% of the median after housing costs equivalised disposable household income and will find it impossible to save anything at all.
   
• Figures from WINZ suggest that at any one time, around nearly one third of the 60-64 age group is on a benefit. New research from Massey University Judy McGregor is highlighting the difficulties of the job market for many over 50. As a benefit will have a very harsh abatement regime for extra income, this is not a good omen in what is supposed to be the key saving time!
   
• [Slide 14] Women are far less likely to belong to a superannuation scheme and those who do belong contribute far less than men (and hence receive far less employer subsidy). Since 1990 active membership of private sector employer and government employee schemes dropped from 22.6% of the employed labour force, to 14.9% in 2000. I estimate that today only around 70,000 employed women have employment-based superannuation, 8% of the employed female workforce. If we believe that employment-based superannuation affords one of the best ways of saving for retirement this bodes ill for the future.
   
• [Slide 15] Women arrive at retirement with far less saving than men on average; very few, or almost no women will have a private pension, still fewer if any one at all will have one that is inflation linked. Their nest eggs are highly vulnerable to inflation, poor advice and investment risk.
   
• [Slide 16] Around 58% of women over 65 are on their own, with about one half of these living alone. At the older age groups 79-85, only 28% are married and only 7% are married over 85.

[Slide 14] While there will be very wealthy women and widows, on average, women are much more reliant on New Zealand Superannuation. 72% of women and 54% of men received at least three-quarters of their income from NZS. 42.7% of all women aged 65 years or older were solely reliant upon New Zealand Superannuation compared with 32.3 percent of men.

[Slide 15] NZS provides some protection against the risks of old age that realistically cannot be provided by private superannuation (inflation, wage growth, investment risk, longevity). But now look what has happened to the value of NZS relative to the average wage? The relativity is about what it was in the early 1970s.

• The 2001 living standards survey indicates that the old are in many cases doing better than the young, especially once home ownership is taken into account. But, while policy has been relatively successful in keeping most of the retired out of poverty to date, this rosy picture is changing. The Auckland City Mission for example reports increasing demands from the elderly at the food banks and we can expect this to intensify. Even if you are personally well set up for retirement you will find your friends or parents or neighbours will be affected.
   
• [Slide 19 20] - How will the babyboom generation get on?
  I believe that NZS must be supported to the hilt as a basis on which women can build, and we need to be ever vigilant about the erosion of it and the pressures that will inevitably build to cut it further. Containing costs of NZS by raising the age or lowering the level are both more adverse for women than men, but in general are just bad news for all those who have limited other resources.

I do not want to say very much about Dr Cullen's super fund tonight but in my view it will have nothing to do whatsoever with making NZS more secure, and it has been a red herring diverting the debate away from more useful issues.

NZ women are particularly fortunate in having a pension like New Zealand Superannuation (NZS). They get NZS without a contributions record and without reference to a partner's earnings. NZS recognises past care-giving is just as important as paid work . Other countries look at us with envy. In the UK, the basic pension has fallen to extremely low levels until recently when the government was force to make an adjustment. The reason is that it has been indexed only to prices not to wages. Around one third of pensioners have to apply for a means tested top up which they find stigmatizing and many just remain poor and isolated. In other countries the women's pension is usually tied to what the husband has contributed. In the case of Australia there is a joint income test.

[Slide 19] But what do we know about living on NZS? The living alone rate is only $225 or $11,700 net a year. It does not require much imagination to see the restricted lifestyle this now affords. Suppose, the home has a mortgage or rent is being paid, as is the case for one fifth of women aged over 65, then housing costs are likely to be at least $80 a week ($4000). Health insurance might be necessary ($1-3000) Power and phone ($1200). Big and unpredictable expenses can be catastrophic. That does not leave much at all to live on and provide a means of transport.

But overall pensioners have done better than others and better off pensioners have done extremely well. The poor are now low income families especially sole parents, giving rise to all kinds of intergenerational equity debates about whether universal NZS is justified.

 

4. The policy void

Election year is unlikely to be an inspiring time. Some odd things are in the wind. The new Periodic Report Group for 2003 will need to be appointed under the Retirement Income Act. We will get the first taste of the fund and the role of the guardians. Legislation abolishing asset testing will be introduced. I am not optimistic they will get it right but Labour made a promise and it is the last promise thus far not fulfilled, so it sticks out like a reproachful weed in a garden of other beautifully and exactly fulfilled promises.
 

What are Goals of policy?

New Zealanders have rarely articulated what retirement policy goals should be. I believe the ideal is that each retired person, male and female, has enough income to last through their entire lives to enable their participation, sense of security and contribution to family and society, and to assist them with their special health needs as they age. The outcomes must be fair between retired and non-retired.

Most superannuation debates are arid and focus on anything but a genuine policy goal. The latest Treasury paper on tax incentives, along with the McLeod Committee for example gets totally sidetracked into assessing different versions of the tax regime for superannuation as to the impact on increasing national saving. There is not one word about any socially desirable outcome, such a improved additional regular income for retired low and middle income people that might be achieved. It goes without saying that there is no gender analysis at all.

[Slide 21] The tax rebate idea was clearly analysed by Treasury. It is of far more value to the rich who will save anyway and are already tax advantaged, than to those struggling on low pay. Labour rightly rejected the proposition but that has not stopped it being picked up by the National party. Nowhere, as far as I can see in the sterile debate over tax incentives has there been any mention of what they are actually for. Surely their sole justification is if they achieve more income in retirement, to meet the goals outlined above. This means new schemes will have to be devised with lock-in and annuity requirements. This has not been well thought through, or even discussed at all.
 

5. Tax and women

[Slide 20] I am forever astonished at what happens in politics. We have a left-leaning government who subsidises the rich in super schemes (by allowing them to avoid the top tax rate of 39% by contributing to superannuation funds through salary sacrifice schemes) while markedly penalising the poor.

Tax is a sorry story. Lets begin with the tax cuts of 1996. The government was aware that those people who pay 21% tax would be penalised by the current tax regime for superannuation. So it set up the Taxation of Life Insurance and Superannuation committee (TOLIS) who produced three options. The tax credit option found its way into a bill in late 1998 which was first supported by Winston Peters but then, he voted against it and so it did not pass. It was as if from that time government put the issue into the too hard basket. An interim reduction in the 33% rate of fund earnings was promised in 1998 but that too quietly faded away.

Now 6 years on from when the TOLIS committee was set up we are no closer to a solution. The McLeod committee did not in any way solve the problem- their two-step preferred tax scale would make matters worse by increasing the gap between the lowest and top rate. The latest Treasury document on tax incentives entirely refrains from mentioning the problem of penal tax treatment of lower paid people in superannuation.

Remember that women's incomes by and large are going to place them in the under $38,000 category. Even in the older age groups where the last shot at saving for one's retirement can occur, far fewer women than men will have incomes over $38,000. For these women, some freed at last from the onerous family demands and looking to make up for lost time in their employment scheme, the tax regime for superannuation is disastrous. It constitutes an up to effective 50% tax penalty on both their employer's contributions the dividend earnings in the fund.
 

6. Loss of process

[Slide 24 25] The loss of process signalled by the demise of the Accord is perilous. This is now count-down time for the baby boom generation. We are 8 years off the beginning of the baby boom retirement, but have we really got the model we want? Politicians are like the mouse that sees the superannuation cheese and want it so bad. They can't help themselves. The policy history is mawkishly fascinating. There is too much to give more than a quick review tonight.

[Slides 26 27] The lessons are that unilateral policy changes do not work.
 

7. Conclusion

[Slide 32] The rest of the developed world is having a really intense debate about their retirement income systems. The reforms that are proceeding rapidly are largely all emphasising the increased role of private pension provision. The Economist of 16th February has a supplement 'Pensions: time to grow up' which gives the flavour of the international attention to these issues. New Zealand seems like it is in a time warp.

We are in grave danger of sabotaging what could be considered to be a world leading retirement policy regime, by neglect of private provision of income in retirement. The tax treatment of superannuation is a disgrace, as is the demise of employment-based schemes. We are also failing to discuss the other big issues to face us in old age especially long term care and health and disability.

Options such as offered by companies like Planit that give employees control over their own superannuation while the employer facilitates contributions, overcomes the unfair tax on contributions, but does not deal with the unfair tax on fund earnings. Politicians need to hear that this must not be put in the too hard basket. They need to be reminded that New Zealanders are sick of unilateral imposed decisions. We need a reinstatement of the multi-party process with a strong chair. Once that is convened, women's voice must be heard with urgent resolution of the tax issue.

 

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