Government Superannuation Fund Amendment Bill — Second Reading Third Reading 
Government Superannuation Fund Amendment Bill — Second Reading Third Reading 
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Government Superannuation Fund Amendment Bill 
Second Reading 
Third Reading 
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. 
CRAIG FOSS (National—Tukituki) 
: 
 Mr Speaker— 
Hon Ruth Dyson 
: This will be better than David Carter’s speech. 
CRAIG FOSS 
: It may be better than the speech made by the previous speaker. I would like to acknowledge Dr Michael Cullen. The speech we have just heard actually summed up the issues very very well. I acknowledge in particular the points made about the very contentious issue of moving from “exempt/taxed/taxed” status to “taxed/taxed/exempt” status. If members want to learn about that they should go back and look at the particular  
Hansard 
 because in this case it is exactly that argument as well. No doubt that will be coming before various members as the year progresses. 
I am speaking on the combined second and third readings of the Government Superannuation Fund Amendment Bill. As the previous speaker noted this is the Government Superannuation Fund which is not to be confused with the New Zealand Superannuation Fund or New Zealand superannuation which are entirely different matters. Again the member explained quite well why people are in this scheme and how it works as opposed to New Zealand superannuation. I thank the member for that. 
A few thanks are needed here if the House would bear with me for a moment. First of all I acknowledge the previous Minister of Finance for getting this measure off the ground in the last Budget. It seemed to disappear around election time. It is a tribute to all members involved that this bill managed to cross the election cycle and a change of Government but all parties did pick up on the importance of particularly the 1 April kick-off date in the bill here and also on the fairness of the issue. Mr David Thorp and the Government Superannuitants Association have been avid campaigners for this particular issue. I acknowledge the work that Mr Thorp and his board have done. I also acknowledge their suggestions in various forms at their annual conference where I spoke last year. I think the previous speaker spoke at the conference last year as well. I am quite sure that various members will be invited to speak there again this year. The main issues are raised at the association’s annual conference—in particular the one the previous speaker alluded to. That is the association’s biggie and it is an ongoing issue. But is very good to have the issue that this bill addresses satisfied. 
Prior to the election National committed itself to following on the intent of this bill and we are here in the Chamber tonight not only following that intent but enacting the bill. I acknowledge all of those involved. I acknowledge the officials for helping to get this bill to this point. I particularly acknowledge the members of the Finance and Expenditure Committee. This bill went through the committee relatively quickly but that was driven by the urgency to put the matter into place and for no other reason than that. I acknowledge for the public record for  
Hansard 
 the full and total cooperation of all members of that committee from all parties in the House in getting this bill to the point it is at here tonight in the second and third readings. I also acknowledge the various officials who got us to this point. It would have been very easy for this bill to get lost but those people pushed the right buttons to make sure that it came to this point. I acknowledge all members across the House for their cooperation—perhaps we could see more of it. 
A particular point was alluded to by the previous speaker. I think I might have mentioned it in my first reading speech on this bill but I cannot quite remember. He pointed out that the CPI adjustment for a certain group—he and members of other parties said this—had moved from 80 percent to 90 percent in 2005 and that a move from 90 percent to 100 percent was announced in 2008. Those happened to be election years. When the various speakers went to the association’s annual conferences in between the election years that measure did not seem to be announced or changed but it was delivered. Having said that I am not a cynical chap and I say this measure is good and fair. The total—the quantum—here is about $34 million. That is over the life as well as the liability of the fund in the future. This measure is all very good. We are moving to 100 percent on 1 April 2009 with the will of the House if this bill goes through its third reading tonight. 
I have one final thankyou. The House gave leave for the second and third readings of the bill to be combined so I acknowledge and thank the House for that. Many many pressing matters are facing New Zealand—there is the standard politics of course—but the House saw the urgency fairness and necessity of getting this bill through. Again I acknowledge the other members across the House and previous Ministers. I thank them very much. 
Another reason this bill is here is that the original report-back date for the bill crossed—or came very close to—1 April. The problem for members of the fund was that they are sent a mail-out of what they will receive: a schedule of payments etc. I think it is mailed out in March; it is about to go out. That mail-out costs about $30000. If this bill is not passed in time by the House then another mail-out will have to go to members costing the taxpayer and the fund another $30000. So there is a dollar reason to put beside the fairness and eminent common sense of getting this bill through. I acknowledge all those concerned. 
Another issue is of interest to the members of the fund and Mr Thorp and his board raise it occasionally. Perhaps they will raise it again when this bill goes through. They talk about the timing of their payments—the actual timing of the new index payment. That is a component of inflation; it is indexation. We all understand that. To be fair with inflation being quite aggressive for in particular the last 6-odd years that has been quite an issue for the members of the fund. 
Hon Dr Michael Cullen 
: The last year or so; not the last 6-odd years. 
CRAIG FOSS 
: The member says the last year or so. Well let us say the previous 4 or 5 years but inflation is currently heading south. It has been an issue for them; it still is an issue for them. But the cost of that for them is going down as inflation heads down. As the National Government has come in and as inflation is heading towards below 3 percent—back inside the range set for the Reserve Bank which is wonderful for these people and for all of New Zealand—inflation is not quite the issue that it was when the rate was 4.5 or 5 percent. I think it was heading towards 6 percent actually—I stand to be corrected—in one forecast I saw along the way. That rate is important to those who are receiving annuities; as the previous speaker noted some people are on quite low incomes from their annuities from the fund. 
I will just put the issue in context. What used to happen is that the December quarter’s CPI was published sometime in March and the adjusted annuities were paid in April. As information exchanges have become better and as the Reserve Bank and Statistics New Zealand have measured inflation quicker and been able to report back faster the December quarter’s CPI is known about in mid to late January but members of the fund are still paid the adjusted rate in April. Some of the members thought that that was an issue and they should have gained their payment a month or so earlier when the report on inflation came out. On the face of it maybe that is a fair issue and maybe there needs to be a little more work done on it. But if one looks at the numbers—unless I am mistaken—one sees that the difference in those 2 months is really only the annual CPI divided by 12 months times 2 for the 2 extra months times the interest rate—the funding rate—which is 7 percent or something like that. Although on the face of it that could be significant and maybe seems unfair actually when the numbers are crunched on that part of the payment and indexation I do not think it is very significant. 
I will touch on the drafting error that the bill corrects because again the previous speaker raised it. It is very curious and somewhat worrying to be honest that the error sat on the books for about 19 years. Yes payments were made as intended. Yes other documentation under the legislation was made available as intended. But still for 19 years the statutes of this House were wrong. That is a very good case I guess for introducing the ongoing testing of various pieces of legislation and particularly of older legislation with perhaps some kind of warrant of fitness 15 or 20 years after its enactment. For goodness’ sake—this error was there for 19 years! 
I make one final point. The previous speaker alluded to and pointed out correctly the difference between the superannuation schemes but he kind of shied away—his colours showed through again there—from saying National’s ongoing programme of personal tax cuts will help those who are on New Zealand superannuation. Many of the people in the Government Superannuation Fund are probably or most likely also on New Zealand superannuation so as the ongoing programme of tax cuts kicks in their incomes will increase. As the superannuation rate is 66 percent of the average wage the married couple’s superannuation payment rate will actually increase. Perhaps the previous speaker’s true colours are coming through and that tax cut denial is still coming through—I am not quite sure whether that is the case. Having said that I do not want to finish on a note like that. Again as I started I thank the member. 
DAVID BENNETT (National—Hamilton East) 
: 
 I thank Mr Foss for that very enlightening speech. It is also time I think to thank the previous Minister of Finance Dr Cullen for a very illustrious speech about some of the financial implications of this legislation of the Government Superannuation Fund and of any amendments that are required through this bill. 
Government superannuation is always a bit of a flogged horse for the public in some regards in the sense that politicians are seen as getting superannuation schemes of some note that are too generous. That is often something that comes up in the public eye. The advent of MMP removed that kind of issue from the reality of the lifestyle but it is something that is still in the public eye and public perception. 
The previous Minister made a very good point about the public sector. He was talking about public sector executives who are on substantial salaries at this time but who will also get substantial annuities over the time of their retirement. That may seem like a very substantial payback for those public servants but it is also somewhat of a reward I guess for public service. To get to the stage of actually being at that level of the Public Service executives would probably have had to have gone through a lifetime within that service of taking lower wages than they would have earned in the private sector. It is also a measure of their contribution to their country through those years of service that there is some reward at that time. 
Let us look at the issue of salaries which is very topical in the current world environment where we see that top executives around the world are earning million-dollar salaries. When we look at salaries we see that public servants run businesses that are the size of some corporates yet those public servants working in the Public Service do not get those kinds of corporate salaries. So the kind of return they are getting from their annuities is actually a reflection of the income they have lost out on through their income-earning life. 
It is important that as a Government we reward and recognise the contribution that the Public Service makes to our country. It is not on if a Government passes legislation that technically tries to reward those services but does not provide a fair return because of drafting mistakes made some 19 years ago—and we have been made very much aware of that by the great contribution of Mr Foss. 
So with that said I think we need to look at the policy behind this legislation and at why it is important that we have a sense of the contribution the public sector makes. You know I think we often look at public sector work as not being as sexy as some of the private sector jobs. When we come to the situation we have now where people are looking at job security as their big issue we know that the Public Service is becoming more and more relevant. Professions such as teaching nursing and policing those professions in the Public Service that provide front-end service levels are the jobs that will stay in the community whereas some of the private sector jobs which have been a bit more flashy and more highly paid over the last couple of years may not be still there in a year’s time as we go through these tougher economic times. 
Another aspect of the Public Service and the payment of public servants is job security in some of those front-end services. It is very important and it is part of the nature of those careers. Those careers often entail a lot of training and a lot of contribution but they do not give a lot of options for changing one’s career halfway through. In modern times people change their careers every 7 or 8 years and move on to something else but a teacher or a nurse—people in those kinds of fields—typically spends 30 or 40 years working in his or her community. Those people make an investment in that career and in that public service for our community. So it is quite right that we as the Government of the day carry out that fair treatment and make sure that the legislation matches what public servants expect. This legislation does do that. 
Essentially this bill is to cover off a few drafting errors and a few mistakes that were made in previous times. It is somewhat complicated I guess for the naked eye to look at it because it is the result of mistakes made in 1990. But the reality is that just quite a simple amendment is required here today to bring us to a situation where we have the fairness and equity that we would expect for public servants in this situation. 
I want to draw attention to another issue that the previous Minister raised and that is that the effect of this bill will mainly be felt by former public servants who are not earning huge annuities. Former public servants on fixed incomes who are struggling or will struggle in an environment that is very difficult are the ones for whom the Government is trying to provide the best environment to get through these tough times. 
We want a situation where they can have a top-up of their normal superannuation payment to reflect their services. They will have given many years of long service in jobs that did not pay very much and they deserve to get the full amount that the Government is intending to pay and this legislation does that through the CPI adjustment. 
We also have to look at the nature of what is happening to those superannuitants. A lot of those superannuitants are finding it very difficult to live because their savings which have been invested in banks for example are at very low interest rates at the moment. They are finding that it is a real struggle to achieve the standard of living they would expect. They are looking at every dollar that comes their way and when superannuitants are in that position they want to make sure that they get their full contributions. They do not have that discretion in their disposable income. Senior citizens and especially those who have given to our community through the Public Service require and demand that they get that fairness that the National Government is now giving to them in this legislation. 
The National Party is based on fairness and that is one of the things the Government is pushing and wants to see happen. This bill has cross-party support in terms of fairness in the sense that the Labour Government set up this legislation and we have carried it on and are passing it. We look forward to the progression of this bill 
Bill read a second and a third time.