Susan St John: We really don't know how lucky we are

Retirement in Ireland is not good for women who get a third less in pension payments than men.

Opinion

I went to Ireland recently at the invitation of Insurance Ireland to showcase KiwiSaver as that country grapples with out-of-date retirement incomes policies.

Ireland, a country about the same size as New Zealand, still has a plethora of small workplace pension schemes. There are about 160,000, some of dubious quality and many no doubt not particularly transparent or accountable. People may end up with several pension pots because they change jobs and this is hard to manage. But worse, coverage is under 50 per cent of the workforce and, because women's participation in the labour force is low, women are much less likely than men of working age to have a pension scheme. Tax concessions remain an embedded part of the system.

I was shocked to discover how women in Ireland are disadvantaged by the complex and confusing rules for the Irish state pension. Confusingly there are two state pensions: a contributory one that needs a complex history of contributions for a full pension, and a lower alternative non-contributory pension that is stringently income and asset tested.

Sadly, any system that relies on a contributory basis and a means-tested top up will put women at a disadvantage. According to the European Institute for Gender Equality, women get a third less in pension payments than men. Only 16 per cent of women actually qualify for a full state pension and overall, total pension payments are a third less on average than for men.

Recently, the Irish National Women's Council called on the Government to act to close the pensions gap. Many New Zealanders do not appreciate that we offer a model that countries like Ireland can learn from.

New Zealand is one of the few countries that has a credible comprehensive policy for retirement income that covers virtually all of the population. New Zealand Superannuation (NZS) is paid to people at 65 as individuals from general taxation after 10 years' residence. It is a great equaliser of incomes in retirement with women's contribution to unpaid caregiving effectively fully acknowledged. Together with high levels of home ownership, New Zealand has achieved very low rates of hardship for all those over 65.

In New Zealand we also got lucky when all tax concessions for pensions were removed over 25 years ago. Those concessions went largely to high income career-based men and were highly inequitable. However, as a result many employment-based retirement schemes were closed, and many defined benefit (pension) schemes were replaced by defined contribution schemes. Public-sector pension schemes were closed to new members in 1992. By the mid-2000s, coverage of the workforce in employment-based retirement schemes had fallen to only around 14 per cent, with few in pension schemes.

To ensure wide access to work-based saving to supplement NZS, KiwiSaver was introduced in 2007 as the world's first national auto-enrolment national saving scheme. Membership in KiwiSaver is not confined to those in paid work and coverage is 78 per cent of the working-age population.

Every member has one account and one provider linked to their Inland Revenue number. The IRD collects employer and employee contributions and makes sure they are sent to the correct provider. Individuals can make lump-sum contributions at any point and there is a lot of flexibility around opt-out provisions and contributions holidays. Over time, KiwiSaver has either supplanted other employment-based schemes, or plays a complementary role to the few that remain.

KiwiSaver is in its 10th year. It has achieved remarkable acceptance, low administration costs, and wide transparency. It will evolve further and there is still work to do however, especially on how the savings are accessed in retirement, but the lesson for Ireland must not be lost.

This lesson cannot be stated too strongly: KiwiSaver's success is due in large part to the fact that it supplements a very good and secure first tier of state pension.

The key to reform in Ireland will be to relinquish two sacred cows; a contributory basis for the state pension, and income and asset tests for the non-contributory pension. The two state pensions should be joined up into one simple adequate comprehensive wage-linked, individually-based state pension.

Once that is done, a good, centrally administered, auto-enrolment IrishSaver can be grafted on and begin to replace the multiple "not fit for purpose" current employer-based schemes.

Susan St John is an honorary associate professor and director of the retirement policy and research centre at the University of Auckland business school. This is a contribution to the Retirement Commissioner's 2016 review of retirement incomes.