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Salient. Victoria University Student Newspaper. Vol. 37 No. 3. March 20, 1974

The Not-So-Super Scheme

page 9

The Not-So-Super Scheme

In Doug Wilson's article on the new National Superannuation in Salient of .March 13, the Labour Government's proposal is depicted as a far sighted social measure which is part of what he calls a 'logical and well developed economic plan'. His claim that it will .provide improved and more widespread retirement benefits is true — but he has failed to appreciate some aspects of the scheme which make this an uncertain, delayed and inequitable form of superannuation with principles vastly inferior to those of the first Labour administration.

His thoughts about what will be done with the large fund of money collected by the Government are no more than guesses. Past experience shows there is no guarantee that the fund will end up by benefiting the New Zealand worker.

Labour's Failed Principles

The first Labour Government aimed at a living rate of superannuation for all, irrespective of money earned during a worker's lifetime. The current Labour Government is proposing to set up an account in the name of each worker which will comprise the money that has been deducted from his wages and paid by his boss over his working life. Too bad if you have been sick all your life, or have been a housewife for much of it. The money won't be in your account, and your pension will be small Only the money paid to your account will matter, plus iterest earned over the years.

All the costs of running the scheme will be deducted from the accounts. The taxpayer will pay virtually nothing from general taxation. When you reach 65 your lot will be the amount in your name plus the present universal benefit which will be paid to all. The well paid, long working person will do best. The lesser paid, the sick person, the housewife will get the scrag end of the joint. This is Labour in the 1970s.

The Worker Pays All

It is a fallacy to say that a worker will pay 4% and his boss 4%. The boss will pass on his 4% in prices, and the worker/consumer will meet the bulk of the 8%. This is not called taxation, since Labour has promised not to increase taxes, but it is taxes under another name. The work-force will pay the 8% as a 4% wage cut plus a price rise equivalent to 4% of the total wage bill. In this respect the scheme is as inequitable as our society is in general. Nothing of the bosses' profits will be touched.

Fifty Years On

In the Government's White Paper on this scheme various examples were given of the pension which might be received after 40, 45 or 50 years of working life. This indicates that for the next 40, or 50 years the scheme will be gradually getting into gear, and will reach full flower in the year 2015 or 2025.

As a scheme to provide most people working now with a decent income in retirement this is an insult. You can't join if you are over 55 and if you are between 30 and 55 you will only get a part of a pension. It's a long time to wait until the scheme comes into full effect, and the waiting is unnecessary. A full pension scheme is possible in a year or two, if Labour really wanted to bring it in.

No Certainty In What You Get

The money that goes into the individual accounts year by year will lose value as inflation continues. No one knows whether the interest earned by the Fund will be big enough to combat the loss in money value. Nobody knows when large doses of inflation will occur, but if they arrive just before a person retires, then the value of his individual account will be much less than it might have been. His pension will depend on what has been put in over his whole working life, and not on the value of money when he retires.

Another important fact overlooked by Doug Wilson is that there will be a deduction when a person retires, to provide for inflation after retirement. This will be assessed according to how much inflation is expected over the years a person can expect to live. The idea is that he should not draw out of the fund anything more than he has in his account. That is the fundamental principle of this scheme — the individual account. Take the following hypothetical case:— "A" has in his account an amount which is equivalent to $10,000 when he retires at age 65. Suppose inflation is 5% a year, or is expected to be that. Suppose too he is expected to be alive for 10 years after he retires, on the average life expectancy. If you pay him $1000 per year (which would use up his $10,000) it would not account for inflation of 5%. If you give him an extra 5% per year on $1000, he will draw $12,556 — i.e more than he has in his account.

Photo of an elderly man from side-on

To keep him within the money in his account the scheme proposes that he have a lower pension, so that he will get less to begin with. He would thus start off on about $790 per year, in order to pay for the rises he will probably have to get to counter inflation.

This is a severe reduction, and one that can only underline the uncertain future for a contributor to the fund. If inflation is more than 5% (as in recent years) the deduction would have to be larger than in the example above.

Labour and Foreign Control

Doug Wilson makes a strong point of the money in the Fund being used to fight foreign control of companies operating in New Zealand. He indicates how money collected from New Zealanders by foreign financial interests, like the insurance companies, has been used in the past to build up other assets for these foreign interests. As he states, the existence of a state run superannuation scheme should cut down the money that has been flowing to these companies. To that extent they may not expand at the same rate in this country, and will not be able to continue to buy up the country at the same merry pace.

But insurance companies and the like are not the main overseas penetration. This comes most nowadays from the intervention of multinationals like Kraft, who want raw materials, and threaten to tie up some overseas markets which they have in their pockets. Or from Shell BP Todd, who bring their expertise to the Maui Gas Field at the price of $2,500 million profit for themselves in 20 years. Labour is not standing up against these two recent examples of foreign intervention in NZ industry.

How likely is the Labour Government to take a stronger stand to future foreign companies that use the blackmail of markets or knowhow to get a piece of the action in this country? Labour can do this now. Money is not the obstacle, but the will and ability to take on the multinationals. How likely is Labour to use the money to buy out the insurance companies, or the freezing works or Comalco? Doug Wilson must have an optimistic view of Labour's courage to suggest without any hint from the Government, that this is in fact their intention. He has a more likely argument when he suggests that new enterprises in New Zealand could be set up with heavy Government financial interest or full state control.

Will the Scheme buy Socialism ?

If the $250 million that will go into the scheme annually is used to develop New Zealand industry, then it will be simply a subsidy for local capitalists. This may have minor side benefits for New Zealand workers, but their money will be going to increase the power of the owning class, and this is not usually considered a socialist strategy. Some of the money could go to building adequate health services and more schools. If so it would be a diversion of expenditure away from what the insurance companies would do with the money and so might bring welcome social improvements. But these social services do not earn money to pay the interest on contributions in the fund, and there would thus be less in the individual accounts.

Even if the money were used to buy ships, or build state industry there is no guarantee that these assets would not be sold at bargain prices by some member of a future National Government. Only an essential change of control in society can guarantee that state enterprises of this kind will continue to benefit the people. Labour has no such policy for essential social change. Any attempts to use the money for socialist ends are thus unpredictable, to say the least.

What is the Alternative?

Given the will, Labour could bring in a much better scheme. This would not rely on individual accounts, but would pay a decent retirement pension, derived from the money coming into the scheme from people now employed. That is, the 8% paid by the working population would meet the outgoings in the pensions. This has been just about what has happened for public servants in their scheme over recent years. This scheme could be brought into full effect in a year of two.

From the Labour Government's point of view such a scheme would not give $250 million a year for them to use in whatever way they intend. But it would bring in a decent standard of living for pensioners quickly and would enable pensions to be based on real wages at the time people retire.

As proposed, the scheme is concealed taxation of the work force, for some immediate benefit of someone unspecified, but not for the pensioner of today or of 20 or 30 years hence. It is a sad distortion of Labour principles to deprive the old because you are afraid to come out in the open and tax those who have plenty now.