Carter David: Government Superannuation Fund Amendment Bill — Second Reading Third Reading 
Carter David: Government Superannuation Fund Amendment Bill — Second Reading Third Reading 
[Volume:652;Page:1462] 
Hon DAVID CARTER (Minister of Agriculture) 
 on behalf of the  
Minister of Finance 
: I move  
That the Government Superannuation Fund Amendment Bill be now read a second and a third time 
. This bill seeks to ensure that all Government Superannuation Fund annuitants’ benefits are adjusted based on 100 percent of the changes in the CPI with effect from 1 April 2009. I acknowledge at the outset the bill’s widespread support across the House and the work of the previous Minister of Finance the Hon Dr Michael Cullen. 
The Government Superannuation Fund Amendment Bill seeks to ensure that all Government Superannuation Fund annuitants’ benefits are adjusted based on 100 percent of the changes in the consumer price index with effect from 1 April 2009. It also corrects an error made in the Government Superannuation Fund Amendment Act 1990. Currently there is inconsistent treatment of annual cost of living adjustments to Government Superannuation Fund and National Provident Fund annuitants’ benefits. Certain groups of annuitants already receive 100 percent annual cost of living adjustments including contributors under new Government Superannuation Fund schemes and those whose contributory service commenced after 15 June 1969. Those groups are unaffected by this bill. There is no backdating whatsoever and I need to point out that the increased payments will be made only from 1 April 2009 onwards. 
The previous Labour Government announced in Budget 2008 that all Government Superannuation Fund and National Provident Fund annuitants’— 
Hon Ruth Dyson 
: Just table it if you like. 
Hon DAVID CARTER 
: No it is important that Ms Dyson understands. The previous Labour Government announced in Budget 2008 that all Government Superannuation Fund and National Provident Fund annuitants’ benefits would be annually adjusted based on 100 percent of the changes in the consumer price index at a cost of $33.2 million for 2009-10 only. The changes will also—and this is important for members to understand—increase the value of the Government Superannuation Fund’s unfunded liability. The previous Labour Government in its 2005 Budget gave all Government Superannuation Fund annuitants at least 90 percent indexation and made permanent changes to how Government Superannuation Fund spousal annuities were calculated. 
Until this bill is passed people on fixed incomes such as those receiving annuities from the Government Superannuation Fund and National Provident Fund are missing out. The changes in this bill will ensure that all groups of annuitants receive a 100 percent adjustment based on CPI adjustments. That seems to me to be eminently fair and appropriate as this particular sector of the community—indeed together with everyone else in our community—is certainly feeling the effects of these extraordinarily hard times. 
I welcome the measures contained in this bill and I look forward to the bill receiving widespread support in the House this evening. I look forward to the alignment of benefit adjustments with consumer price index adjustments and to the clarification of a historical drafting anomaly. It is interesting of course that this particular drafting anomaly has only just been brought to the attention of the Government. 
In addition to the changes we are talking about tonight National’s tax cuts will result in a rise in New Zealand superannuation from 2011. That could well occur from 2010 if the floor in wage adjustment is reached as a result of wage growth in the economy—because of course New Zealand superannuation is currently linked to 60 percent of the net average wage. That is just another means by which National is determined to lift the incomes and living standards of all New Zealanders not only those in the workforce but also those on fixed superannuation incomes for whom the current times present quite a crisis situation. 
National will deliver on its election promises. We are absolutely committed in our determination to lift the income and living standards of all New Zealanders. Although Labour mischievously argues time and time again that tax cuts will be only for the rich this is a very good indication of how tax cuts will affect the net average wage of all New Zealanders and consequently will lift the incomes of this particular group of superannuitants in our community. 
I commend this legislation to the House this evening. I acknowledge the fine work of the Hon Bill English the Minister of Finance. Among the challenges of the world economic crisis and recession and of shepherding through this House all the legislation that we were determined to pass within 100 days we have found time also to progress this quite significant and very important legislation. I commend this bill to the House this evening. 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 One would scarcely have thought from listening to the last part of that speech that the Government Superannuation Fund Amendment Bill was actually introduced by the previous Labour Government. [ 
Interruption 
] The member mentioned it earlier in his speech but by the time he had gone through his ritual brown-nosing exercise in the last few minutes of his speech I think he had rather lost the plot. 
He also seemed to depart from his very carefully prepared speech notes in the last few minutes because I have to tell him that the net average wage has absolutely nothing to do with the defined benefits received by people under the Government Superannuation Fund scheme. The average wage determines the payment of New Zealand superannuation and Government superannuation is entirely different from New Zealand superannuation. New Zealand superannuation is based upon a 65 to 72.5 percent ratio of the net average ordinary-time weekly wage for a married couple. It is a taxable benefit-style payment. 
Government superannuation is a partially contributory superannuation scheme. When people have paid in a proportion of their income through their working lives as public servants they receive a defined-benefits scheme payment upon retirement. That scheme was closed off in 1992 and those particular defined-benefits schemes no longer exist for new entrants but it will be many years before people have finally retired out of the old defined-benefit Government superannuation scheme. Indeed if somebody joined the scheme in 1992 at say age 16 theoretically it could be as late as about 2080 before the last person in a defined-benefits Government superannuation scheme retires. 
This bill applies to those people who retired from Government service before 1986. The standard provision before 1986 was 80 percent indexation. Those people who have retired since 1986 have received 100 percent indexation. In 2005 the then Labour Government lifted that 80 percent indexation to 90 percent indexation at an estimated total cost over the life of that cohort of people of $10 million. The cost of raising indexation from 90 percent to 100 percent for the remaining cohort which is smaller than it was in 2005 because a number of people have died—remember that we are talking about people with an average age of 60 in 1986 so they are well into their eighties now and many are well into their nineties—is estimated at $33 million. I have to say as the previous Minister of Finance that I found it slightly baffling that a smaller group of people moving from 90 to 100 percent indexation which is a one-ninth increase cost three times the amount of money estimated to move a one-eighth increase for a larger group of people in 2005. 
In reality that is a balance sheet impact. The impact in terms of annual flow of annual cash on the Government accounts is more like $2.5 million or so a year and that is a more realistic picture of the generosity that Mr David Carter was bravely claiming on behalf of the Minister of Finance. 
Hon Clayton Cosgrove 
: Because he read very slowly. 
Hon Dr MICHAEL CULLEN 
: It was because he read very slowly but I think he got himself rather thoroughly confused at the end of the day. 
There is another part of the bill that I found somewhat amusing when it was brought to my attention when I was Minister of Finance. From 1990 right through to the present day the good people of the Government Superannuation Fund who applied for a cash payment on surrender of a proportion of their annuity have been paid more than they should have been. 
In the 1990 legislation of course all superannuation schemes were adjusted as we moved from a taxable superannuation scheme—taxable on payment—to a “taxed/taxed/exempt” provision. That led to a one-off adjustment across the board of superannuation schemes. The gross was lowered but the net was increased in the initial move. It was something like a billion-dollar windfall for retired public servants at that time. 
In order to reflect that change it was intended that where people surrendered a portion of their annuity—and up to a quarter was available in the case of most Government superannuitants—then the cash payout would be raised from nine times the annual cash payout to 10.8 times that amount reflecting the fact that there had been a change in the taxation arrangement. Legislation published by many authorities since then has indicated that in fact that occurred and the Government Superannuation Fund has continued to pay out on a 10.8 times basis. In fact a mistake was made in the legislation and it still remains at 9 percent. The Labour Government in its great generosity and followed by the National Government decided not to claw back from those to whom the money was paid the excess in terms of the legal payment and quite rightly so of course. 
This rectifies that rather extraordinary error. It does make one wonder how many technical errors of that sort lie hidden in legislation and yet to be discovered until some bright spark somewhere suddenly wakes up looks up the Act and realises that something that has been done for donkey’s years should not have been done according to the legislation itself. This will put all Government superannuitants who are on the old Government Superannuation Fund defined-benefits scheme on the same basis for indexation. 
I have to raise one other area where I am afraid I have been “Mr Meanie” and continue to believe we have to be “Mr Meanie”. The Government Superannuitants Association an organisation that if the media are to be believed I will qualify to join within the not too distant future— 
Nathan Guy 
: How long? When? 
Hon Dr MICHAEL CULLEN 
: —it depends on the offer—continues to make a case that there should be regular adjustments to Government Superannuation Fund payouts on the basis of any change in taxation. It argues that when tax rates are lowered there should be an increased payout in terms of the benefit paid to people receiving Government superannuation. 
Of course that is a double-edged weapon. What happens if a Government increases taxation rates in some form? Would the Government Superannuitants Association accept that at that point there should be a reduction in the payment to Government superannuitants? I have a strong suspicion that it would be inclined to take a one-sided bet in that regard. 
I believe it is important that while it is a hard thing to say to the association the Government needs to hold its nerve on this one and say that the 1990 adjustment was a one-off adjustment and was not purely related to the tax rates that applied at the time. Indeed the adjustment should have been significantly lower if it actually reflected the current tax rates at that point. It would be very hard to make a readjustment according to any changes in the tax rates because of course the amount of money that each Government superannuitant receives is enormously different. 
There are current chief executives within the public sector—and I can think of one who is probably thinking about these matters at the present time except he is probably not part of this scheme—who are in line to receive extremely large payments from the Government Superannuation Fund. I am thinking of people who currently receive salaries of $400000 or more a year and who are probably still on the old defined-benefits scheme because they joined it long before all of this happened. They will qualify for a payout of $200000 to $250000 a year annually adjusted for inflation thereafter and tax-free and that is by no means an insignificant pension in anybody’s language. On the other hand there are people in the scheme now who are retired who were lower-paid public servants who perhaps received only 80 percent indexation from 1986 to 2005 who are receiving perhaps well under $10000 a year in superannuation. So how do we adjust at that point reflecting the current tax rates in any case? 
I think that is one area where the association is barking up a tree that is not a fair one. I might say I am relying in part on the very strong advice I always receive from my initial adviser Peter Harris who was a Public Service Association worker and therefore deeply involved in superannuation matters. 
This is a good bill. It is not hugely expensive in terms of its cash impact on the Budget each year. It will help a lot of people who are now on quite limited pensions in addition to their New Zealand superannuation. Most of the people we are talking about who are covered by this bill are not on large pensions at all. We wish them well and in these times no doubt it is helpful if they are able to have a little bit more money to spend.