Super level assured after National shift

By VERNON SMALL deputy political editor

Both major parties have now agreed to maintain the current level of universal, non-means-tested state superannuation "for the foreseeable future," after a significant policy shift by National.

The main Opposition party yesterday said it would support that part of a Government bill locking in the existing state pension framework.

Previously National had pledged only to maintain the current level and age of entitlement for those at or near retirement age.

But it remains at odds with Labour over the best way to pay for the rising cost of pensions.

After the announcement, both Finance Minister Michael Cullen and National's finance spokesman, Bill English, said the current payment level for a couple, set at 65 per cent of the average wage paid at age 65, was sustainable "for the foreseeable future" under their policies.

But another bitter election year battle looms after National rejected the Coalition's scheme to set money aside to partially pre-fund future pension costs.

The May Budget allocated $600 million to the fund with $1.2 billion earmarked for next year. Contributions would rise to more than $2 billion in subsequent years. At its peak the fund would reach the equivalent of $50 billion in today's terms - half the size of the economy.

Cash will be withdrawn from the fund to help pay for pensions from 2025. On average it will pay for 10 per cent of the cost of superannuation over the life of the fund.

Mr English said National would stop paying into the fund when it took office.

No decision had been taken on what it would do with the nest-egg, set to reach $617 million in 2002 and $7 billion in 2005, but it would be carefully managed.

"It will be hard-won savings. There is no question of blowing it on a spending spree."

National would aim to preserve it in trust, pay off debt or use it for capital expenditure. It would not be used for operating spending, he said.

National is two or three months from finalising its own superannuation policy, but is looking at tax incentives to encourage savings over and above the state-funded pension.

It has also floated moving to individual accounts, a move favoured by Act and New Zealand First.

Mr English said National had rejected the idea of the Government saving now to part-fund future pension costs because it locked the country into a low-growth path. Forecast surpluses were not big enough, so the Government would need to borrow to make contributions to the fund, and 90 per cent of its capital would be invested overseas.

He said it would provide just a fraction of the money needed when baby-boomers started retiring. Meanwhile, other essential services, such as health and education, were already being squeezed.

"Future Governments will have their hands tied by their financial commitment to the fund, so they will not be able to use tools such as investment in tertiary education or tax cuts to stimulate the economy," National said in a press release, "The seven deadly sins of Dr Cullen's scheme."

Mr English said National had more policy options now than the Coalition, and it would be better able to maintain the current pension rate.

But Dr Cullen said National's approach was "jam now [hoping] we may be able to avoid having crumbs tomorrow."

The only credible way to pay for future pension costs was to save and invest now. The real National agenda was to use the money to cut taxes.

That would lead to lower budget surpluses, higher interest rates and a bigger balance of payments deficit.

Dr Cullen said that when the fund was well established it would be politically dangerous to scrap it. He expected it to last beyond its planned 100-year lifetime.

The New Zealand Superannuation Bill, locking in current entitlements and setting up the super fund, will be debated in Parliament next Tuesday and should be law by early next month. With the backing of New Zealand First and United Future, the Coalition has the numbers to pass all its provisions.