Super, still for all, but value to erode

Press, 28 July 1989, Page 1

Super, still for all, but value to erode

By

PETER LUKE

in Wellington

The Government has preserved the principle of universality but allowed an erosion of superannuation value in its guaranteed retirement income scheme, unveiled last evening. Key features of the G.R.1., to come into effect next April, are: • A progressive increase in the age of eligibility from 60 to 65 between 2006 and 2025. This will affect those aged 42 or under today. • A decrease in the real value of payments from about 76 per cent of the average wage (for couples) to no less than 65 per cent. This would be phased in over the next 15 years and introduce parity with other social welfare benefits. Present national superannuation rates (after tax) are about $l4 higher than income-tested benefits for couples. • A “retirement tax” will be separated out of the general tax

take. It will be 7.5 c in the dollar in 1990-91 and no rise above this level in the next 30 years. This will not be ah extra tax, but will make transparent the amount of tax needed to support retirement incomes. • Only half the pension income from registered superannuation schemes and life office annuities will be subject to the superannuation surcharge. • There will be partial overseas portability of the G.R.I. The Minister of Social Welfare, Dr Cullen, said the G.R.I. promised everyone an adequate income in their old age. The timing of the increase in eligibility age Would give those in the workforce time to modify their work and savings plans accordingly, he said. The announcement surprised those who had assumed the Government was looking at either a social insurance scheme or one based on compulsory contributions. Instead the Government has

adopted a two-fold approach to make a universal scheme affordable as the proportion of elderly to workers rises rapidly early next century, by lowering the value of payments relative to average wages and .gradually raising the age of eligibility. The Opposition said last evening the G.R.I. had three flaws that would be addressed by a National Government — it would abolish the surcharge and reintroduce tax concessions to encourage retirement savings, and it opposed the erosion in value of payments. Dr Cullen said the new surcharge regime on registered annuities and pensions recognised that only half such payments reflected interest earned, and it was this which should be subject to a surcharge. A single retired person can now get $14,404 (instead of $7202) from a pension scheme or annuity before paying any surcharge.