The Road to KiwiSaver: A Short History of
Retirement Income Policy in New Zealand
by
Peter Neilson,
Chief Executive
Financial Services Council
For Stakeholders, Policy Advisers and Media
October 2014
Toronto
Canada
1898
Old Age Pension introduced by the Liberal Government First in
the then British Empire
• Flat rate pension funded from general taxation not individual
contributions.
• Was both income and asset tested.
• For those of “good moral character” only.
• Required proof you were aged over 65 and had lived in New
Zealand for 25 years.
• At age 65 in 1898 life expectancy was 12.2. years for men and
13.3 years for women.
• Less than 2% of the population was then 65+.
• It is estimated that only about one third of those eligible
actually applied.
2
1938
Social Security Act passed by the First Labour Government
• After a rugged debate the Labour Caucus agrees on a
compromise. The Old Age Pension will be income tested from
age 60 to 65 and after that will be universal with no income or
assets test.
• A Social Security Tax of one shilling and sixpence in the pound
is introduced to fund both social security benefits and health
costs but is later merged into standard income tax rates.
1972
Royal Commission on Social Security reports and a general
consensus develops that the elderly had not participated fully in
the post war improvement in incomes as old age pensions were
linked to prices not incomes.
3
1972
Third Labour Government elected.
1974
The Third Labour Government passes the NZ Superannuation Act
to start a funded Tier 2 pension for all employees to be paid in
addition to the Old Age Pension at age 65, based on
contributions of 8% of income split between employees 4% and
employers 4%. The contributions were to start at 2% split
between employee and employer and stepping up each year to
reach 8%.
• The move to create a Government managed investment fund
proves controversial.
4
1974 continued…
The opposition National Party under a new leader Robert
Muldoon campaigns against the NZ Superannuation Scheme
saying:
• It would lead to Government domination of the economy
“dancing cossacks” TV advertisements.
• It was unfair to women because they would receive smaller
second tier pension on average.
The Opposition pledged to increase old age pensions by 30% and
tie them to average wages and abolish the NZ Superannuation
fund and return contributions.
5
1975
The National Party is elected by a landslide, the NZ
Superannuation Fund is abolished (a change 3 out of 4 NZers
now regret) and expenditure on old age pensions now named NZ
Super grows from 2.5% to near 6% of GDP over the next 15
years.
1984
The Fourth Labour Government is elected after having said that
those receiving substantial income in addition to NZ Super will
pay more tax. Labour introduces a tax surcharge on income in
addition to NZ Super which effectively income tests the top 20%
of income earners receiving NZ Super and totally removes the
value of NZ Super for the top 5% of earners receiving NZ Super.
All Superannuation tax concessions are removed and TTE is then
the regime for Superannuation Schemes.
6
1990
Entry to Government employees Defined Benefit Schemes is
closed off.
The Fourth National Government is elected committed to
abolishing the tax surcharge on NZ Super but then decides it
cannot afford to do so. It was decided also to move the age of
eligibility for NZ Super from 60 to 65 and discussed linking NZ
Super to prices rather than incomes to lower future increases.
These retirement policy changes and other changes splits the
Government almost costing it the 1993 election. Winston Peters
leaves National to form the NZ First Party.
1993
In 1993 a Cross Party Agreement is signed (“The Accord”) to
provide more stability to retirement income policy.
7
1993 continued…
In 1993 the referendum on the electoral system produces a
majority for a mixed member proportional (MMP) system
replacing first past the post (FPP) making multiparty coalitions
the most likely outcome of elections.
The change in the electoral system in part reflected the voters
revulsion at regular “surprises” and “broken promises” following
elections, in particular in relation to retirement income policy.
1996
A new coalition Government is formed between National and NZ
First with an agreement to hold a referendum on a compulsory
superannuation scheme.
8
1997
A referendum on the Compulsory Super Scheme saw it defected by a
91.8% vote against. As the scheme proposed merely replaced tax funded
benefits with a contribution funded pension for later generations at the
same level, there was no compelling benefit seen in supporting the
scheme which was opposed by many Ministers in the major government
party and most other stakeholders.
2007
KiwiSaver introduced with widespread support although opposed by the
National Opposition.
2014
In the 2014 Election Campaign, Labour says it wants KiwiSaver to become
Universal (compulsory for employees and increase to 9% split between
employee and employer). National promises to increase the KiwiSaver
first home drafts and allow KiwiSavers to also withdraw the Government
Tax Credit as well as their own contributions to fund a first home deposit.
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