John Armstrong: Prized super fund at risk

Does Michael Cullen's expanded KiwiSaver scheme inadvertently open the door to some future Government draining his prized superannuation fund and stripping back state pension entitlements?

Has the Budget undermined the consensus over pension policy - presuming there was one in the first place?

These questions hovered in the background this week as Labour challenged National to say whether it would support the Mark 2 version of KiwiSaver while National goaded Labour over the absence of tax cuts in the Budget.

The sparring during the Budget debate in Parliament has been widely seen as drawing distinct philosophical battle-lines between the two major parties ahead of next year's election.

But on closer inspection, much of the post-Budget argument has been about both parties seeking to monopolise the middle ground, while mounting major raids into each other's traditional constituencies.

It was notable that John Key attacked Labour from the left, not the right. He slammed the requirement that workers' contributions to KiwiSaver be a minimum 4 per cent of a person's wage or salary, saying that made the scheme unaffordable for many New Zealanders.

The Prime Minister dismissed the National Party leader's concern for the less well-off as "crocodile tears". She would have seen Key's ploy for what it was - National trying to drive a wedge between Labour's lower-income, blue-collar base and Labour's middle-class constituency, which is likely to benefit far more from KiwiSaver because it can afford to save and therefore get the tax credits on offer.

In that regard, KiwiSaver Mark 2 is the most visible expression yet of Helen Clark's "ownership society" - a Blairite concept with which she toyed before the last election and which is designed to make inroads into National's vote.

The target audience for KiwiSaver unashamedly extends into higher income brackets and more conservative voting blocs, not least in offering everyone some modest help in getting onto the first rung of the home ownership ladder.

As a byproduct, KiwiSaver should reinforce Labour's economic management credentials. The boost in household savings and the surge in investment capital should drive the kind of growth needed to substantially lift personal incomes - and, in the process, lift New Zealand up those dismal OECD rankings with which National currently flays Labour.

Encouraging personal savings also fits the right's self-help ethos of personal responsibility, and gives the lie to the claim Labour always resorts to handouts which encourage welfare dependence.

No one is describing the tax credits which will match personal contributions to KiwiSaver as middle-class handouts.

Although the latest Herald-DigiPoll shows a majority of voters saying they will not sign up, the relatively muted criticism of the scheme should ring warning bells in National about lopping bits off the new version or stripping it back to its Mark 1 version.

The Mark 2 version is a quantum leap, however.

It also goes beyond the existing parameters within which a reasonable degree of political consensus had developed.

That consensus essentially covers the Cullen superannuation fund - now standing at $12.5 billion - to pre-pay part of the mounting pension bill as the baby-boom generation moves into retirement.

There is also a consensus of sorts on the "65 at 65" principle - that people get the state pension at age 65 and the married rate is not less than 65 per cent of the average ordinary time weekly wage. This consensus is now politically "locked in" to such an extent that even National joined the list of parties which have inscribed their names in the schedule of the act setting up the Cullen fund.

Now, Cullen has suddenly thrown the ingredient of compulsion into the mix by forcing employers to make matching contributions into employees' KiwiSaver accounts.

Add to that the introduction of tax credits - effectively savings incentives long dismissed as favouring the well-off.

It was significant that figures on the right and the left immediately started fleshing out possible longer-term implications of these moves.

Former Alliance president and union organiser Matt McCarten suggested KiwiSaver signalled the end of the welfare state, with the principle of state-funded superannuation being replaced by individual, user-pay schemes run by private investment corporations.

Act promptly gave grist to McCarten's argument by suggesting the Cullen fund be rolled into KiwiSaver, thereby giving every working-age New Zealander an $8000 endowment.

What Act did not say is that KiwiSaver could then be used as cover for future governments, facing intense fiscal pressures and a ballooning health budget, to strip back or means-test state-funded superannuation payments.

It would similarly become tempting to go the whole hog on compulsion and force all employees to contribute to KiwiSaver, further undermining New Zealand superannuation and, with it, the need for the Cullen fund.

The obstacle would be the aged who will be an even more formidable lobby than they are now.

But votes will be reaped in the young and middle-aged groups, who will be questioning why they are paying three times for their super - first, through KiwiSaver, second through tax for New Zealand superannuation, and last through contributions to the Cullen fund.

The Cullen fund, of course, is designed to avert inter-generational warfare. However, the very attractiveness of KiwiSaver means it could become the basis for retirement income, usurping state super which would be reduced to providing top-up payments for the poor and those not working.

But this will not happen this side of the next election or even the one after. The demographic pressures are still a long way off combining with any fiscal pressures to force cuts in state pension entitlements.

National has no desire to talk about the possible implications of KiwiSaver having twice betrayed voters on superannuation in the 1990s.

But with New Zealand First policy mooting compulsion for employees in exchange for tax cuts, Labour similarly wants to keep this particular Pandora's box firmly shut. Cullen and Clark insist that KiwiSaver will remain a voluntary scheme - but that does not bind future politicians.

Moreover, by requiring workers to opt out of the scheme when they change jobs, Cullen has veered close to compulsion.

He has done so because high job turnover is the key to getting mass sign-up to KiwiSaver. If the scheme is still intact by the 2011 election, Cullen believes it will be near impossible for National to wind back.

To boost take-up, an Auditor General-approved publicity campaign will start next week highlighting the scheme's long-term benefits and explaining in more detail how it works.

But the danger lingers. The more successful KiwiSaver becomes, the greater the risk that it may ultimately end up dissolving the very state-funded super scheme which Cullen has worked so hard to preserve.

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