An age-old

Opinion

An age-old question NZ’s new pension scheme likely to disadvantage islanders

David Barber

Wellington

Less than a year after the last general election New Zealanders vote again this month - this time in a referendum on a new compulsory retirement savings scheme. They have to decide whether to compulsorily put aside a portion of their income every week to give them a pension when they retire.

It’s a complex issue and the debate, as one commentator has noted, is hard going for anyone who isn’t an accountant or an actuary.

No wonder then that New Zealand’s Pacific Island community - who have a different outlook on old age from most Europeans had shut off before the referendum information blitz had even got into first gear. Pacific Island people, it was pointed out, usually look after their elders until they died.

Unlike Europeans, they don’t put them in rest homes when they give up work or leave them to fend for themselves on their retirement savings. For them, it’s not a question of whether New Zealand’s existing superannuation scheme is putting an unfair bur den on young people who have to work to pay taxes to enable the government to pay the elderly’s pensions. "The future of our elderly is already in the hands of the young,” one islander told a meeting on the issue in Auckland. "That’s our form of retirement scheme.”

A survey taken in mid-July, shortly before the launch of a national television and press campaign to publicise the issues, showed 61 per cent of Pacific Island people knew nothing at all about the referendum or the proposed new scheme.

An independent referendum panel, given SNZS.6 million (SUS 3.4 million) to provide facts and raise public awareness of the vote, hoped to change that with leaflets and posters and com munity radio broadcasts in five Pacific Island languages. It remains to be seen how successful they are in getting the island community’s input into the referendum which will be conducted by postal ballot over three weeks this month.

The referendum is being held under terms of the coalition agreement signed by the National Party and New Zealand First

after last year’s election.

Both claim the existing superannuation system, which costs the government about SNZS billion (SUS 3 billion) a year, is unsustainable because the population is ageing. Put simply, peo ple are living longer and fewer workers will have to pay taxes to give pensions to more senior citizens.

NZ First leader Winston Peters, Treasurer and architect of the new scheme, says the current system cannot continue without higher tax rates, lifting the age of entitlement from 65 or cutting the pension.

Under his scheme, workers will have to save three per cent of their weekly wage from next year, rising to eight per cent after five years, until they have a target amount, initially set at SNZ 120,000 ($U572,850) but likely to be raised annually in step with wage rises.

At the age of 65, that sum will be used to buy an annuity which will pay them a fortnightly or monthly pension as long as they live. If they don’t earn enough during their working lives to reach the target amount, the government will top up their savings so they can buy the full annuity. All women will get a top-up because they live longer than men so will need a more expensive annuity.

Opponents say it is a major switch in policy away from New Zealand’s universal state-funded superannuation scheme to a pri vatised, individual, pension system. There are several concerns about the impact on Pacific Island people.

Firstly, the new scheme appears to hurt low-income earners and there are all too many Pacific Islanders in that category.

Contributions must be paid on all income above SNZSOOO (SUS3OOO) a year but tax cuts designed to compensate for them only affect those who earn more than SNZ9SOO (SUSSBOO). Those in between effectively face a three per cent pay cut, rising to eight per cent loss of earnings over the next five years.

In fact, some analysts say, workers on less than SNZ4O,OOO ($U524,000) a year will be disadvantaged compared with higher income earners.

The lower paid will have to pay the new superannuation tax all their working lives, while the better off will be relieved of it and able to enjoy the compensating eight per cent tax cut, as soon as they reach the target amount.

Secondly, Pacific Island people, like Maori, do not live as long as Pakeha, so they won’t get full value of their savings during a shorter retirement. 0 Calculations show they would be better off taking their nest egg and investing it themselves when they turn 65 instead of wait ing for the monthly pension payments.

But taking the lump sum is not allowed under the new system’s rules and islanders who return to their homelands before they turn 65 won’t be able to touch their savings until then.

Life expectancy rates also seem to discriminate against Maori and Pacific Island people. The average age of death for Polynesian men in New Zealand is 69.5 years, against 74 for Europeans.

Polynesian women can expect to live until 74, while the average European will see her 79th birthday. By dying earlier and not get ting the full value of their savings, Polynesians will effectively subsidise fellow New Zealanders who live to a ripe old age.

On the face of it, island people who familiarise themselves with the scheme and cast their votes this month seem most likely to turn it down. ■