Stemming the surge in superannuation costs

The cost of providing universal superannuation has been contentious for decades. As the 65+ population grows, so does the already considerable costs.

Attempts have been made in the past to make changes.

UnitedFuture tried to nudge National towards ‘flexi-super’ where people could choose the age they started to get super (with varying rates) a couple of terms ago. National fobbed this off by allowing an investigation that was always going to achieve nothing under John Key’s leadership.

In 2013 Labour proposed an increase in the age of eligibility to 67 but got hammered by the left so dropped their proposal. With NZ First holding the balance of power there seems no way that the age will be increased this term.

But a NZ First MP has proposed a change that will cut the costs.

ODT: Cutting cost of superannuation

Last month, a New Zealand First private members’ Bill in the name of MP Mark Patterson, who is based in Clutha-Southland, was put forward. It proposes increasing the minimum residency requirement from 10 to 20 years after the age of 20, so a childhood in New Zealand would not count. The current 10-year law only stipulates five of those must be after the age of 50.

Given the last National-led government proposed an increase to 20 years, there should be sufficient support for a Bill to pass. Mr Patterson cites Berl research which says the change to 20 years could save $4.4 billion over 10 years.

That will only reduce the ongoing costs slightly.

And it’s fair to ask why NZ First staunchly defend the age of eligibility for non-immigrants while they want to toughen things up for immigrants.

But is even 20 years enough? The 2016 policy review by retirement commissioner Diane Maxwell recommended 25 years, noting an average in the OECD of 26. Any change would not apply to those living in New Zealand now. She calls for action now in part because of the time lag. Superannuation cost $30 million a day and that would rise to $98 million in 20 years’ time, she said.

The 10-year rule goes back to 1972. Most migrants were from Britain and the UK state pension could be taken off NZ Super. But these days many come from the likes of China where there is no state pension. There is a clear monetary incentive for Chinese residents to try to bring out their parents under family reunification. After only 10 years they can be receiving this country’s state pension, as well as public healthcare.

It may look racist trying to double the residency requirement now there are proportionally a lot more Asian immigrants, but a lot of other things have changed since the 1970s. The age of eligibility was increased from 60 to 65 in the 1990s.

Twenty years is still a long time. To be eligible for super at 65 you would have to be resident in New Zealand by age 45.

How else can the increasing cost of superannuation be limited? Or should it?

The MMP threshold

The Spinoff marked twenty years of MMP with an evaluation by various people – ‘It was New Zealand’s Brexit’ – weighing up MMP on its 20th birthday.

No system of democracy will be perfect, but our system of MMP is probably amongst the best, providing a more representative Parliament.

Systems of democracy aren’t usually a problem, it is the way in which they are misused and abused by political parties that is a concern.

The biggest flaw with our MMP is a ridiculously high threshold of 5%, something decided on by the large parties it benefits and left unchanged despite reviews criticising it by the parties who want to minimise competition.

Metiria Turei supports a lower threshold but she also illustrated the self interest of established parties:

We can tidy it up, lower the 5% Party vote threshold to 4% increase representation. We can get rid of the coat tailing rule so that all parties have to meet the same threshold of voter support to be in parliament.

A 4% threshold and no coat tailing will suit the Greens, but if we get rid of coat tailing then the threshold needs to be much lower to be fair to smaller and new parties.

Andrew Little:

We’re reviewing policy in this area but our position at the last election was to adopt the Electoral Commission’s recommendations: get rid of coat-tailing, which causes so much game-playing, and lower the threshold to 4%, to make parliament more representative.

All political campaigning is game playing. Labour also favoured maintaining an uneven playing field that favours the larger parties, and would unfairly treat small parties that get an electorate MP or two or three.

Judith Collins has a more extreme large party view:

I did not support lowering the threshold of votes required to get parliamentary representation. That threshold is either winning an electorate seat or winning 5% of the party vote. We already have eight parties represented in parliament. My view is that if we can’t get 5% of the country to support us or at least an electorate seat, then as a party, we probably don’t have a lot to offer. That 5 % threshold tends to keep out the truly fringe element and standing and winning an electorate seat, means quite a lot of voters in an area have confidence in you.

Fringe elements have never got 1% so that’s just scaremongering in trying to justify a 5% threshold.

Incumbent large parties have a huge advantage over small and start-up parties. Wasn’t Collins involved as Minister of something when the recent recommendations to reduce the threshold were ignored?

Richard Prebble lays the blame where it should be.

The Commission advocated a 4% threshold and no threshold for minority parities. The two old parties combined to reject these features for party political reasons.

Laila Harre

Eliminating the threshold or lowering it to 2% (the latest review cowered around 3-4% but couldn’t explain why even those heights were needed) and at the same time abolishing the coat-tails rule might help.

If the threshold is lower enough the coat tail rule becomes irrelevant.

Ben Thomas:

The 5% threshold is generally agreed to be undemocratic and arbitrary. We’ve consistently seen, for example, that there is a constituency of about 4% who would support a conservative Christian based party in NZ. So, careful what you wish for and all that, but that seems a fairer threshold in terms of achieving what was intended for MMP.

But why set the threshold to suit just once constituency? That’s also arbitrary, albeit a slight improvement. Surely it’s fairer to remove rather than tweak an undemocratic feature of our system.

Politically independent Andrew Geddis:

We know what needs changed about MMP, because the Electoral Commission undertook extensive public engagement and produced a very good report on this issue back in 2012. Get rid of the “electorate lifeboat” rule. Cut the party vote threshold to at least 4% (and I’d go lower to 2.5%).

And Graeme Edgeler:

The 5% threshold is far too high. 120,000 voters could vote for a party, and get no representation at all, yet, if they’d voted for a different party, it would get six more seats. If we think a party’s policies, or candidates are wrong for the country, we should try to persuade other voters why that is so, not rely on a law which tells them that all voters are equal, but some are more equal than others.

I’d probably just get rid of the threshold altogether, but even if I can’t convince enough of you of that, it doesn’t need to be nearly as high as it is. Many arguments are advanced in favour of having a threshold, which could be met with a threshold no higher than 2.5%. Even then, a party would need to convince more than 60,000 people to vote for them to get into Parliament.

If we are to have a threshold, we should decide what we want it to achieve, and set it as low as possible consistent with that aim. And one of the things we should aim for is a voting system where one of the things that can happen is that new political forces can emerge. Even staunch partisans should support this, as the threat of it, should keep the parties they support true to their beliefs.

Lastly Annette King demonstrates the political self interest of the larger parties:

I’d like to see changed the loophole that lets parties like ACT win a seat and bring in extra MPs.

Would she prefer that loopholes allowing NZ First, Greens and National to get in closed as well?

MMP has given us a more representative Parliament, but by rigging things in favour of stale old parties and making it practically impossible for fresh new parties with fresh ideas to join the mix it still has a serious flaw that is becoming more flawed as time goes on.

We now have a Parliament dominated by one party, and that party has entrenched a rigged system of MMP. It’s not MP that’s the problem, it’s the abuse of power of large parties that needs to be addressed.

Substantially reducing the threshold is one of the best ways of doing this.