What are the next steps? Susan St John RPRC Business School The - PowerPoint PPT Presentation

KiwiSaver and the ageing population: What are the next steps? Susan St John RPRC Business School The University of Auckland

KiwiSa ve r is he re to sta y � But how stable and sensible are our policies looking out to 2050? � Are there unintended consequences, especially distributional? � How can we move forward using a principles- based approach? 2 A presentation from the Retirement Policy & Research Centre

Conte xt: 2010- 2030- 2050 � Fiscal pressures � More old and more ‘old’ old � NZS more generous � Long-term care financing problems � Distributional pressures � KiwiSaver and social equity � Implications for future of NZS A presentation from the Retirement Policy & Research Centre

Ag e de pe nde nc y ra tio double s Treasury 2006 4 A presentation from the Retirement Policy & Research Centre

Conte xt: Coming re a dy or not: More old a nd more ‘old’ old Stats Stats NZ 2007 5 A presentation from the Retirement Policy & Research Centre

He a lthie r young g roup 65- 74 numbe rs double by 2030 2006 276,000 2031 559,000 2051 548,000 6 A presentation from the Retirement Policy & Research Centre

Ove r 85 numbe rs g row by fa c tor of 6 Ove r 90 by a fa c tor of 8.5 400,000 350,000 300,000 250,000 85+ 200,000 90+ 150,000 100,000 50,000 0 6 1 6 1 6 1 6 1 6 1 6 1 0 1 1 2 2 3 3 4 4 5 5 6 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 A presentation from the Retirement Policy & Research Centre

How low doe s morta lity g o 85+? Stats NZ 2007 8 A presentation from the Retirement Policy & Research Centre

Inc re a se d he a lth c osts Ageing New Zealand and Health and Disability Services Demand Projections and Workforce Implications, 2001–2021 NZIER and MoH Discussion Document December 2004 MOH A presentation from the Retirement Policy & Research Centre

Costs pe r c a pita e sc a la te with a g e Age group Expenditure per capita As % of expenditure ($ per annum) at 40–44 ($1050) 40–44 1,050 100 60–64 2,300 219 65–69 3,150 300 70–74 4,300 410 75–79 6,150 586 80–84 8,400 800 85+ 13,600 1,295 A presentation from the Retirement Policy & Research Centre

He a lth re sourc e implic a tions � Acute and sub-acute hospitalisations 16,000 14,000 2001 2011 2021 12,000 10,000 8,000 6,000 4,000 2,000 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90+ A presentation from the Retirement Policy & Research Centre

E xpe nsive c hronic dise a se E.g. Diabetes 20,000 18,000 2001 2011 2021 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90+ Source: NZIER .. MoH 2004 A presentation from the Retirement Policy & Research Centre

L ong - te rm c a re 2001- 2021- de ma nd double s.. 2051? ? ? ? 35,000 30,000 25,000 2001 20,000 2011 2021 15,000 10,000 5,000 0 50-64 65-69 70-74 75-79 80-84 85-89 90+ NZIER MoH 2004 A presentation from the Retirement Policy & Research Centre

F isc a l pre ssure s e me rg e from: � Demographic shifts � Policy changes � Long term care � New Zealand Superannuation � Tax treatment of investment A presentation from the Retirement Policy & Research Centre

T he a sse t te st libe ra lise d T he a sse t te st libe ra lise d Years Single Married couple Married person with one in care couple, both in care Pre July $15,000 $45,000 +house $30,000 2005 July 2008 $180,000 $75,000 + house etc $180,000 or $180,000 total 15 A presentation from the Retirement Policy & Research Centre

T he c a p re duc e s priva te c ontribution T he c a p re duc e s priva te c ontribution DHB Top-up Contract subsidy price for Subsidy rest homes Subsidy Other Other Income income State State State pension pension pension State High Some other pension only income income 16 A presentation from the Retirement Policy & Research Centre

More for the ove r 65s ove r 65s More for the New Zealand Superannuation 2007 2012 $6.8 Billion $9.2 Billion 1. More over 65 2. Net average wage rises 3. Expect fiscal pressure to come from other social welfare expenditure PIE investments 1. Allow tax on investment income at 19.5 or 30% 2. May allow most gross super to be effectively taxed at only 12.5% A presentation from the Retirement Policy & Research Centre

Role of re tire me nt inc ome polic ie s? � To facilitate a division of the economic cake � Should retirement incomes policies also make the cake grow? � May be too big an ask 18 A presentation from the Retirement Policy & Research Centre

We mig ht e xpe c t polic ie s should: � Prevent old age poverty � Allow participation and belonging � Facilitate income smoothing � Be fair as between • Workers and retired • Men and women � Not add to growing wealth and income disparity � Be as simple and transparent as possible 19 A presentation from the Retirement Policy & Research Centre

Ha ve polic ie s pre ve nte d pove rty ? MSD 2007 20 A presentation from the Retirement Policy & Research Centre

NZ Supe r a suc c e ss story Living standards by age - 2004 (MSD 2006) 21 A presentation from the Retirement Policy & Research Centre

Are polic ie s fa ir? Pre KiwiSaver � NZS : Flat rate same for everyone � No paid or work-based contributions needed � Good for women � Taxable � Same age for men and women � No hidden tax incentives that tend to be: • Pro rich • Pro male • Costly � NZS equaliser of incomes 22 A presentation from the Retirement Policy & Research Centre

T he simple st a nd most c ost e ffe c tive re tire me nt sc he me in the world? � Public provision � New Zealand Superannuation • New Zealand Superannuation Fund � Private provision � Voluntary unsubsidised • Saving for retirement taxed like saving in a bank 23 A presentation from the Retirement Policy & Research Centre

F or twe nty ye a rs OE CD wa xe d lyric a l The level playing field “After the radical reforms undertaken in the 1980s, the NZ tax system has long been regarded as one of the most efficient within the OECD.” OECD 2007 24 A presentation from the Retirement Policy & Research Centre

Wha t ha ve re vie ws sa id? Hard won consensus � Brash Committee 1988 � Task Force 1992 � Accord 1993 � Periodic Report Group 1997 � Super Taskforce 2000 � McLeod Review 2001 � Periodic Report Group 2003 � Retirement Commission Review 2007 25 A presentation from the Retirement Policy & Research Centre

As la te a s 2002, L a bour sa id: “The government is not considering upfront tax incentives. These are likely to have to be very large - with fiscal costs running to many hundreds of millions of dollars a year - before they have any desirable effect on overall savings. Their abolition in the mid-1980s represented sensible tax policy on both equity and efficiency grounds.” December Economic and Fiscal Update 2002 26 A presentation from the Retirement Policy & Research Centre

E nte r KiwiSa ve r - 2005 Budg e t � Portable � Extends workplace saving options � $1,000 “sweetener” � Lump sum � Progressive � Limited � Cabinet papers 2006 � Don’t go there with anything else! � The slippery slide begins as advice ignored 27 A presentation from the Retirement Policy & Research Centre

2007 … KiwiSa ve r is be ing e nha nc e d $20 per week per employee $20 per week 4% (phased in) 4% or 8% Cullen, May 2007 28 A presentation from the Retirement Policy & Research Centre

KiwiSa ve r subsidie s for some … … inste a d of ta x c uts for a ll � $1000 sweetener - one-off � Fees subsidy $40 p.a. � Matching tax credit of $20 a week for member contributions to KiwiSaver � Matching employer contributions made compulsory (for members) rising to 4% by 2011 � Tax credit up to $20 paid to employers � Matching employer contributions to 4% tax- free � PIE tax rate 19.5% or 30% � First home buyer subsidy $3-5,000 29 A presentation from the Retirement Policy & Research Centre

2007 Re vie w of Re tire me nt Inc ome polic y Raised questions about principle, process and fairness 30 A presentation from the Retirement Policy & Research Centre

2007 Re vie w “KiwiSaver’s generous incentives will compound the gap in retirement income between those who have saved and those who have not, threatening the equity and fairness of current retirement income policy” Review of Retirement Income Policy, p 4 31 A presentation from the Retirement Policy & Research Centre

Re c omme nda tions � That Inland Revenue fulfils and extends its plans beyond 2013 to evaluate KiwiSaver on the outcomes from the policy, in particular, … what its distributional impact has been. � That these outcomes are examined by analysing the spread of take-up and the value of incentives received by different households: by income level, gender, ethnicity, age, whether disabled, and employment status. p11 32 A presentation from the Retirement Policy & Research Centre