Sir Michael Cullen reveals what comes next
KiwiSaver architect-in-chief, Sir Michael Cullen is justifiably proud of his grand design.
It’s been more than a decade since Cullen sketched out the blueprint of KiwiSaver during one summer break from his then day job as Finance Minister. Today KiwiSaver has grown to house around $40 billion on behalf of more than 2.7 million New Zealanders. “KiwiSaver was successful way beyond official projections – at
Future governments will undoubtedly face fiscal pressure as both NZ Super and healthcare costs mount.
least in terms of the number of people joining,” Cullen says. Despite the headline success, though, he says KiwiSaver has taken a few knocks on the way – not the least of which was a July 2007 launch date that coincided almost exactly with the onset of what would become known as the Global Financial Crisis (GFC). While KiwiSaver survived the GFC more or less intact, Cullen is disappointed that successive National governments have hacked away at some of the incentives that made the scheme more equitable for low-tomiddle income-earners. To date, post-Cullen governments have removed fee subsidies and employer contribution tax relief, halved the annual member tax credit, and dropped the $1,000 ‘kickstart’ payment – among other tinkerings. Nonetheless, he admits there were some kinks in the original design that have come back to bite such as the virtually openended contribution ‘holiday’ option, which almost 130,000 KiwiSaver members have currently exercised. But it’s what happens to KiwiSaver members after reaching the official permanent exit age of 65 that is currently occupying the former Deputy Prime Minister. Earlier this year Cullen joined the board of Lifetime Retirement Income, New Zealand’s first variable annuity provider, which helps people turn their retirement savings into an income that’s insured for life. Cullen joined as an independent director, partly to help fill a gap that he freely admits the original KiwiSaver plan did not account for. “One of the attractions for me in joining Lifetime Retirement Income was that clearly the missing link in it all is what happens to KiwiSaver members once they retire with, what will be in many cases, a reasonable nest egg. He says annuity-type options like that offered by Lifetime Retirement Income will be necessary as retirees seek to make their hard-earned KiwiSaver lump sums last as long as possible. “People see KiwiSaver as a form of security but they haven’t translated that security into the fact that the average person may be in retirement for 20 to 25 years,” Cullen says. And while the state pension is unlikely to disappear, he says future governments will undoubtedly face fiscal pressure as both NZ Super and healthcare costs mount. The recent move by the Bill English-led government to gradually bump up the pension age to 67 by 2040 hints at those future budget constraints. “We do need solutions,” Cullen says. “The bad one is to lower pensions, and almost as bad is means-testing. We have various forms of pre-funding – of which KiwiSaver is one – but we have to find other ways to take the pressure off.” And while Cullen may no longer be our Finance Minister, that certainly hasn’t stopped him thinking like one.