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 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 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 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 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 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 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 KiwiSaver introduced with widespread support although opposed by the National Opposition 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. 9