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SUPERANNUATION FOR SENIOR DOCTORS IN DISTRICT HEALTH BOARDS
ISSUE 4 APRIL 2002
PREFACE
The Health Dialogue is an occasional discussion paper published by the Association of Salaried Medical Specialists to stimulate debate and policy discussion on health sector issues. The National President of the Association approves each Health Dialogue prior to publication.
This issue of the Health Dialogue discusses superannuation specifically as it affects senior doctors.
The Association would like to thank those who contributed their time, ideas, knowledge, and editing skills to the production of this Health Dialogue.
INTRODUCTION
Concern about the ageing of the work force and the demands that this will make on social services in the future has become a commonplace of political discourse internationally and in New Zealand. Because of the unique path that New Zealand has taken in making provision for the old age of its citizens the issues surrounding provision of retirement income are particular to New Zealand and are often both divisive and unresolved. This Health Dialogue is aimed at addressing a particular aspect of saving for retirement that has almost dropped off the agenda in New Zealand: employer subsidised superannuation. This has direct relevance to senior doctors as citizens, as family members and as employees.
In most Organisation of Economic Co-operation and Development (OECD) member countries, employer contributions form a major part of retirement savings mostly through a social insurance scheme or compulsory contribution schemes 1 . In New Zealand reliance has been on state provision, not through the social insurance or investment schemes that have been the pattern in the great state bureaucracies of Europe, but through direct current tax contribution. Even the schemes set up for state servants, though similar to other OECD schemes in their construction differed markedly in their funding. The misnamed Government Superannuation Fund was not an investment fund but funded retirement benefits from current contributions or even, putatively, from taxation.
The structural reforms during the 1980s and 1990s resulted in a low wage economy and a buyer's market for most forms of labour. This coupled with the removal of tax incentives meant employer contributions to superannuation dropped off the bargaining agenda in both the public and private sector. Employer run schemes declined by 45% between 1990 and 1995 2. About 14.9% of the workforce were in schemes in 2000 compared to 22.6% in 1990 3 .
The Association of Salaried Medical Specialists was formed in 1989 as a union registered under the Labour Relations Act. It negotiated a national (multi-employer) award covering senior doctors in area health boards. Under the Employment Contracts Act 1991 it negotiated single employer collective contracts with the crown health enterprises/hospital and health services. Now under the Employment Relations Act 2000 it is negotiating collective agreements with district health boards. Collective bargaining has become the means to achieving subsidised superannuation.
ASMS and other unions are trying to ensure that the agenda is rewritten so that, as in most other developed countries, provision for retirement becomes part of the remuneration for a working life.
This Health Dialogue explores the issue of superannuation and in particular employer subsidised superannuation for senior doctors 4. The following Section briefly outlines the history of retirement savings in New Zealand in general and analyses the state of the play and the place of the debate on superannuation at present. The next Section examines superannuation for senior doctors in Australia and the United Kingdom and New Zealand. and conclude by looking at future developments in superannuation in particular for senior doctors.
1-Preston (1999)
2-Lidgett
3-Report of the Government Actuary for the Year ended 30 June 2001
4-In the context of this publication the term senior doctor is used for ease and convenience and also to differentiate from resident medical officers ("junior doctors"). It includes medical and dental specialists along with other doctors/dentists known as medical and dental officers of special scale (MOSS/DOSS). They are also commonly known within public hospitals as the senior medical staff or senior medical and dental officers.
SUPERANNUATION IN NEW ZEALAND
Before 1990: The Pension, Universal Superannuation, The New Zealand Superannuation Fund, National Superannuation and Guaranteed Retirement Income.
Internationally the main type of financial provision for the elderly is social insurance. This is usually a compulsory contribution from earnings to social insurance funds that are invested in income-earning assets and are built up to finance pension payments 5. New Zealand is unusual in its reliance on taxation funding and its focus on universal benefits. This reflects New Zealand's social and political history since the 19th century 6.
New Zealand had its first public pension provision for the elderly in the old age pension introduced in 1898. Eligibility was at age of 65 years and on evidence of good character. The pension was means tested on income and assets and was one-third of the average working wage. Early in the 1900s tax concessions on private superannuation savings were also introduced.
The Social Security Act 1938 provided for an enhanced non-taxed but means tested pension called the age benefit. The entitlement age dropped to 60. The age benefit was more generous than the old age pension. Those not entitled to the age benefit received a small universal superannuation of ten pounds when they were 65. This gradually increased over time to match the amount provided by the age benefit. In 1960 asset testing on the age benefit was abolished. From 1935 New Zealand had a national dedicated fund for retirement income-the social security tax. This was never actuarially based and was abolished in 1964 and absorbed into the consolidated account 7. The social security tax figured often in the furore over the super surtax and offers a useful illustration of the longevity in the public mind of any perceived breaches of faith by governments on this issue.
The 1972 Royal Commission on Social Security recommended an increase to a number of benefits including the age benefit and universal superannuation. By 1976 the level of the age benefit had increased to 72% of net ordinary time wages 8.
The third Labour government established a short-lived compulsory contributory superannuation scheme in 1975. Central to the election of a National government in 1975 was the contributory scheme's abolition and its replacement with a taxable universal pension set at 60% of the average after tax wage for a single person from age 60 and 80% for a couple. There were no income or asset tests. It became and remains the single largest item of government expenditure and by 1979 the proportion of GDP that was dedicated to pensions rose from 4.1% in 1972 to 6.9%. The scheme led to a rapid increase in the number of those receiving a public pension: between 1975 and 1977 the number of those receiving a public pension increased by 28% and costs increased by 69% (though this was offset by tax) 9. It is this scheme, unique internationally in its universality and generosity, which has shaped the debate in New Zealand.
Though the inflation of the period meant there was no actual reduction in the amount paid, cut backs began in 1979: the rate was changed to 80% of net ordinary time wages after tax for a married couple rather than gross wages.
In 1985 the fourth Labour government (1984-90) introduced a tax surcharge onto the universal pension (now called guaranteed retirement income or the GRI) and in 1989 suspended the 80% link between superannuation and wages. Instead national super would move by either wage or price movements (whichever was lowest)and was to move between 65% and 72.55 of wages. They also announced a graduated future rise in the age of entitlement to 65 10.
As part of a programme of deregulation and change, tax concessions on private or occupational pensions or superannuation schemes were abolished in 1988. Despite a consensus by economists, that tax concessions on superannuation.
· favour the affluent,
· do not have an appreciable effect on overall savings and
· are costly to the overall tax-take
the New Zealand no taxation concession regime remains almost unique in the developed world 11.
5-Preston (1999)
6-Preston (1999)
7-Littlewood
8-Preston(May 1999 updated January 2001)
9-Preston(May 1999 updated January 2001)
10-Preston (May 1999 updated January 2001)
11-Goss and Duncan
FROM GUARANTEED RETIREMENT INCOME TO NEW ZEALAND SUPERANNUATION 1990-2001
In 1991 the new National government increased the age of entitlement to the universal pension (now called national superannuation again), increased the tax surcharge and reduced the income exemption.
A 'Taskforce on Private Provision for Retirement' was established in 1991 and became known as the Todd Taskforce after its Chair Jeff Todd. It was intended to encourage greater self-reliance and put in place long-term policies on private provision of superannuation. In the event the Taskforce was unable to consider the private provision of superannuation without considering links to public provision concluding that stability in the public provision of superannuation was critical to increasing private planning for retirement.
Resulting in some part from this plea for stability the Multi-Party Accord on Retirement Income Policies was signed in August 1993. National, Labour and the Alliance signed up to the Accord with United signing up two years later. The accord achieved some of its architects' aims including resolving problems with overseas pensions, initiating and overseeing the disclosures legislation, reviews of the Banking and Insurance and Savings Ombudsmen and the establishment of a "Periodic Report Group". The Accord parties also supported the Retirement Income Act 1993 and the establishment of the Office of the Retirement Commissioner. The Commissioner had the role of educating, monitoring and advising on retirement income policies. The Accord also endorsed a floor for pensions of 65% of net wages. Nevertheless the primary aim of the Accord, the preservation of stability was not achieved.
In 1996 the National Government announced it would introduce the surcharge at a higher income level and the New Zealand First Party promised the abolition of the surcharge and a referendum. The 1996 election saw these two parties in coalition and in 1997 a referendum was held on the New Zealand First concept of a compulsory contributory superannuation scheme with individualised accounts. Voters overwhelmingly rejected the concept. On 1 April 1998 the superannuation surcharge was removed in line with the policy of New Zealand First.
Preston comments that 'for the second time in its history New Zealand had a universal pension with no form of targeting. However compared with its predecessor from 1975-1985 the pension was set at a much lower level in relation to wages…'12 Tax cuts had meant that the 65% of net wages floor was about to be activated. On 1 April 1999 indexing of New Zealand Superannuation was moved from 65% to 60% of the average wage for a couple.
In December 1998 the National-led government established yet another taskforce, the Super 2000 Taskforce which had responsibility for developing a retirement income strategy capable of forming the basis for a consensus. It was abolished by the Labour-Alliance Coalition in 2000. In 1999 the Labour Alliance Government increased New Zealand Superannuation back to 65% of the average after tax wage for a married couple. In October 2000 they introduced a pre-funding scheme which was to set aside a specific amount out of government surpluses to partially fund the future bulge in the numbers that will be receiving superannuation.
Successive breaches of faith on the superannuation issue by the two main political parties have been suggested as a major factor in the adoption of MMP and were certainly a factor in the rise of at least one of the "third" parties. An enduring political legacy has developed that too much overt meddling with New Zealand Superannuation (NZS) (or Guaranteed Retirement Income, Government Superannuation or National Superannuation) is a likely recipe for electoral defeat. The universal benefit has moved from an entitlement age of 60 to 65 and from 80% of the average wage to 65%. Recently released research argues that this level of income maybe sufficient to give a good quality of life to many older people 13. Policy makers believe that the principle of a universal benefit funded from taxation is now embedded as a part of the New Zealand system and that the growing numbers of elderly will root it ever more firmly. The relative simplicity of a pension paid directly from taxation without a means test has support from commentators 14. Debate has moved on to whether it is affordable and how to pay for it.
12-p 21 Preston (May 1999 updated January 2001)
13-Fergusson et al
14-Else and St John
TAXATION
In almost all developed economies retirement saving attracts some tax incentive. New Zealand between 1988 and 2001 was an exception. Economists argue that tax incentives on retirement income merely shift savings from one type of investment to another and that they benefit richer rather than poorer citizens and therefore have no macro economic benefit 15. Most countries have difficulty in removing these incentives. Some theoretical justification for this may be found in the value that long-term "tied in" savings may have in contrast to investment of a more short- term speculative nature.
In 1915 in New Zealand personal contributions became tax deductible, investment income from superannuation scheme became tax free in 1916 and employer contributions became deductible in 1921 16. This EEE (or tax exempt at contribution, tax exempt at investment and tax exempt at withdrawal or payment) system endured until 1982 when tax was changed to ETE (exempt at contribution, taxed at investment and exempt at withdrawal or payment.)
The Labour government introduced the surcharge on the basic national superannuation in April 1985. In the same year all investment restrictions were lifted from superannuation funds. In December 1987 all tax incentives were removed from superannuation moving New Zealand to a TTT (tax on contributions, tax on investment and tax on payments or withdrawals). In 1990 this became TTE (contributions taxed, investment taxed and payments and withdrawals exempt).
The appropriate level for taxation of superannuation remains an issue. The Labour-Alliance coalition was elected on a policy of increasing the top tax rate from 33 cents in the dollar to 39 cents. When this policy was implemented the level of withholding tax for superannuation was left at 33 cents in the dollar. This effectively introduces a tax incentive for employer contributions to superannuation schemes for those earning over $60,000 a year. Curiously employer contributions to superannuation schemes for those whose marginal tax rate is 33 cents in the dollar or lower are still subject to a withholding tax of 33% offering a tax disincentive. One of the changes that the Council of Trade Unions (CTU) recommends is to at least eliminate this disincentive and hopefully to introduce an incentive for lower paid workers as well. The government has given the case for a tax incentive for superannuation savings and help for employer subsidised schemes a sympathetic hearing but has indicated that the money is simply not available in the 2002/3 financial year for any change in taxation. The Minister of Finance has commented that a better option than the current TTE system was a system where fund contributions were taxed at a reduced rate, investments were taxed and superannuation paid out was exempt from tax (tTE) 17.
15-Goss and Duncan
16-Littlewood
17-"Govt Still Exploring Private Super incentives -Cullen" Press release by New Zealand Government 24 January 2002
SAVINGS
The level and type of saving in New Zealand has been the subject of debate. The argument has gone that New Zealand has an insufficient level of national savings because households don't save enough to provide a satisfactory level of investment. Moreover New Zealanders save in an unproductive way preferring to invest in owning their own homes rather than in more productive endeavours. An additional factor may be the decline or a stasis in real incomes for all but the higher income deciles during the 90s.
An alternative view suggests that low household saving in New Zealand (4% compared to Japan's 18%) has not affected GDP growth because foreign investment has replaced local savings 18. The attachment of this investment to the New Zealand economy through the economic cycle is yet to be explored.
There is empirical evidence that the level of savings in New Zealand has declined in recent years (a decline has also been experienced in other countries) 19. Research done for the PRG has suggested that reasons that individuals don't save include:
· individuals only get one opportunity at creating enough savings for their retirement and do not have the opportunity to adapt and learn how to maximise their retirement savings 20.
· the significant amount of uncertainty that is present in future retirement income 21. There have been no fewer than 10 major retirement income initiatives or changes in policy since 1975 22.
· Individuals do not always have full and complete information of the need for retirement savings or the quality of retirement savings products.
· social and psychological influences that impact on their ability to save for their retirement 23. Most common among these were a belief that saving for retirement was not important and considering themselves too young or too old to start saving.
18-Claus et al
19-p16 Claus et al
20-Booth et al
21-Birks
22-Grimes & Smith
23-Booth et al
OCCUPATIONAL SUPERANNUATION
The first superannuation scheme in New Zealand was an employer run scheme for the staff of the then private Bank of New Zealand and was established in 1887 24. Membership of occupational schemes is believed to have approached but never exceeded 30% of the working population during the period 1938-1972 25.
Surveys in New Zealand have consistently shown a lower proportion of the retired receiving occupational or private pensions compared to the proportion of the working population contributing to occupational schemes. This suggests a proportion of these schemes have consistently been lump-sum schemes or have been cashed up before retirement 26.
During the 1990s some employers moved to a 'total remuneration' approach to paying their employees. The argument went that it was each individual's choice as to how they distributed their remuneration. The prudent might invest in superannuation schemes but this was not the employer's business. The approach fitted in well with the prevailing individualistic ideology and the consolidation of benefits that came from the introduction of fringe benefit tax.
Decreasing real wages for the majority of the work force led to other pressures on incomes. For instance when Radio New Zealand imposed wage cuts in the late 1980s many employees agreed to cut the superannuation contribution rather than salary.
Coupled with the closure of access to the large state schemes, membership of employer based schemes fell by 45% between 1990 and 1995 to 17 % of employees. By 1994 employer-based schemes held 69% of assets in superannuation schemes compared to 86% in 1990 27. The decline in membership of employer subsidised schemes has continued. In 1999 private sector employer sponsored schemes had 252,336 members compared to 310,741 in 1990 28. Defined benefit schemes have become a decreasing proportion of this total. Between 1990 and 1999 the assets of employer sponsored defined benefit schemes dropped by 13% and membership dropped by 30% 29.
The significance of employer sponsored schemes in the overall picture can be illustrated by the relative level of assets. Assets per member are $43,598 in employer-sponsored schemes and $17,862 in retail schemes 30. This figure suggests that the contribution made by retail schemes to addressing any shortfall between government provision and income maintenance on a population wide basis is limited.
Up to 1992 the big state employer schemes were the most significant of the employer-subsidised schemes.
24-Littlewood
25-Littlewood
26-Preston (May 1999, updated 2001)
27-Lidgett p 25
28-Report of the Government Actuary for the year ended 30 June 2000
29-Preston (May 1999 updated January 2001)
30-Report of the Government Actuary for the year ended 30 June 2000
STATE SECTOR SUPERANNUATION
The rise and fall of the state sector employer schemes mirrors changes in the ruling paradigm of the role of the public sector. Prior to the mid-1980s superannuation schemes were regarded as an important guard against corruption and a normal adjunct to the employment relationship. A stable workforce over the long-term was regarded as desirable and the expectation was that those in the public sector would stay in the public sector and be rewarded with long-term security.
Broadly there were two employer contribution schemes for public employees. These were the National Provident Fund (NPF) and the Government Superannuation Fund (GSF).
NATIONAL PROVIDENT FUND
The Local Authorities Superannuation Act 1908 enabled local authorities to provide employer superannuation contributions to a superannuation fund. In 1910 the government wanted to further encourage private provision of superannuation and established the National Provident Fund (NPF) Act 1910 for those who were employed in local authorities.
In 1929 the NPF Board accepted applications from hospitals or other charitable institutions. The NPF annual report for 1953 records that about half of the eligible employees joined the NPF. The pension could not be converted into a lump sum, which was viewed as one reason for a low uptake. In 1969 membership started to slow. In 1973-74 the NPF introduced a scheme allowing a lump sum conversion.
In 1991 legislation passed by the newly elected National government closed the NPF schemes to new members apparently because of concern over the commercial risk of the schemes to the government 31.
The employee contribution for the NPF Defined Benefit Scheme is 6.5% of the employee's salary. From time to time the employer does not need to make any contributions if the scheme is assessed as performing at a level that does not require employer contributions. If the scheme were performing badly, the employer contribution would increase to whatever amount was required to maintain the defined benefit. Employees, however, are required to contribute in any case.
The defined benefit pension is calculated using the salary received over the last five years of contribution and length of contribution. Individuals receive the pension until they die.
The contributions from employees for the NPF Pension National Scheme (previously the National Superannuation Scheme) can be no less than 1% of the employee's salary or $10.00 per week whichever is the lesser. The employer subsidy is at a rate determined between the employee and the employer. On retirement up to 25% of a member's total credit may be taken as a lump sum, with the balance payable as a pension, or as a full lump sum.
31-Alan Langford, Chief Executive, National Provident (5 October 2000). Personal Communication to ASMS
GOVERNMENT SUPERANNUATION FUND (GSF)
The GSF was established to provide a retirement income to Government employees. The Government Superannuation Fund Act 1956 provided for employees to contribute from their salary. The government, as an employer would meet the balance of the cost of a defined benefit 'pay as you go' scheme when the contributor retired.
Salaried medical and dental practitioners could enter the scheme as employees of medical schools at universities, as employees of mental hospitals, while they were still run by the Department of Health (until 1962 or later in the case of Lake Alice), or as employees of the Department of Health (public health and school dental health continued as a government function until the late 1980s). The Area Health Boards Act 1983 led to the establishment of area health boards which took over all the remaining direct health provision functions of the Department. All area health board employees became eligible for the Government Superannuation Fund.
Access to the general scheme was closed off to new members in 1992. Reasons offered (officially and unofficially) for the closure were:
· The unfunded liability. The GSF is a partially funded scheme, with employees paying a fixed proportion of salary into the Fund, but the Government as employer meeting its share of the defined benefits as they fall due for payment. This had resulted in the accrual of a large liability to the Fund from the Crown, which the government wished to contain.
· The lack of portability of the scheme that did not fit in with the needs of groups such as women.
· An overall attitude to public sector employment which favoured movement between the private and public sector and between public sector employers rather than long-term stable public service careers.
· The scheme constituted a "moral hazard". The scheme could be manipulated so that, for instance, earnings were purposely boosted by employers in the last five years of employment in order to inflate the pension.
The GSF is a defined benefit scheme and provides CPI indexed pensions on retirement. The employee contribution is 6.5%. Non core- government employers, (such as SOEs, former SOEs, CRIs, and various Crown Entities), pay an employer contribution into the Fund which is calculated to meet the cost of the accruing benefit which cannot be met from the employee contributions. Government departments, the Police, the Armed forces and public schools pay notional contributions in respect of the GSF. These are returned to the Crown, rather than paid into the Fund.
An amendment to the Government Superannuation Fund Act has recently been passed setting up a new GSF Authority and changing the rules for investment of the fund. Contributors are not represented on the Authority. As at 30 June 2001 GSF had assets of $3,495 million but an unfunded liability of $8,481 million 32.
At the time of the closure of the scheme independent actuaries assessed GSF as the best scheme for those looking for an income on retirement (rather than an investment) available or likely to be available. Members of the scheme are however experiencing difficulties moving between employers and maintaining their status as contributors. Recently the GSF reversed an interpretation of the legislation and will now allow contributors to GSF who shift from one DHB to another to remain in the scheme 33.
The climate for state sector superannuation changed abruptly with the major restructuring that took place in the public sector from 1986 and continuing into the 1990s. NPF and GSF were both closed in 1992. Some pragmatic reasons were given for this. Financial constrictions on state spending also played a role. However probably more influential than this was the new climate of economic individualism where old age was held increasingly by policy makers to be something that was an individual's responsibility rather than an employer's.
The Public Finance Act and State Sector Act were written to exclude the possibility of a defined benefit scheme being subsidised by state employers because such a benefit is defined in terms of neo-classical economic theory as a "moral hazard". A moral hazard is said to exist when the aims of a particular policy are in danger of being subverted because its implementation induces people to behave in a way that is at odds with the aims of the policy.
Since 2 October 2001 NPF and GSF have been managed through a joint venture company "Annuitas" though investment and scheme management have been contracted out.
The closure of the state sector schemes left any state sector employees who had either failed to join the schemes before they closed or who had joined state sector organisations after the schemes closure without access to an employer subsidy or an employer scheme. In theory state sector employers were able to sponsor defined contribution schemes if they chose. A defined contribution scheme, the Global Retirement Trust was set up specifically for this purpose in 1992. The 1990s were a period when salaries for most state sector employees were kept low and employee related costs were severely constricted. Employers did not support the scheme by offering subsidies as a rule, though some subsidised administration costs.
There were some exceptions. Judges and MPs still had access to subsidised schemes. Other employees tried to negotiate schemes as part of employment contracts but with only one significant success discussed below.
32-Personal Comments Annuitas
33-Some Collective Agreements negotiated by ASMS also specifically allow for this
THE NEW ZEALAND UNIVERSITIES SUPERANNUATION SCHEME
The New Zealand Universities' Superannuation Scheme was negotiated by the Association of University Staff and established in 1993 shortly after the closure of GSF. It is a defined contribution scheme registered under the Superannuation Schemes Act 1989. Each year the trustees of the scheme allocate an interest rate to the account of each member. Benefits are paid as a lump sum. There is a facility for both subsidised and unsubsidised members. Normally unsubsidised members are members of another scheme where the employer is paying a subsidy. Minimum employee contributions are 2% of salary for unsubsidised members and 3% of salary for subsidised. The employer subsidy at a rate of 1.35times of employee contribution up to a maximum of 6.75% of salary before withholding tax which is deducted from the employer contribution. The scheme is designed to be paid on retirement so members cannot be paid out while they are still an employee of a university.
THE PRIMARY TEACHERS SCHEME
The settlement of the primary teachers collective employment agreement reached in July 2001 includes a commitment by the parties to an employee superannuation scheme. A working group is to be set up to make a recommendation to the Minister by the end of 2001. The employer is to subsidise the scheme initially to the extent 0.5% of the total salary budget for teachers and principals commencing in July 2002.
Some advances have been made by ASMS since 1994 (and in particular since 1998) in the negotiation of employer subsidies for superannuation with DHBs that are dealt with in detail in section 3.4. Recent commitments by the government to the development of a scheme for primary teachers and discussion of an employer subsidy for other state servants suggest that the climate for state sector employees may be changing.
SUPERANNUATION IN THE MARKET PLACE
Until 1997 rapid growth in retail schemes offset the decline in employer sponsored schemes though there is doubt about whether this was real growth or confined to those already retired. Total scheme membership appears to have plateaued in
1999 34.
Superannuation Schemes by membership type 35
|
1990 |
1999 | |
| Private Schemes |
550 |
111 |
| Private Employers and National Provident Fund |
310,741 |
252,336 |
| Public Sector Employers |
|
4,897 |
| Retail Schemes |
236,062 |
470,457 |
| TOTAL |
547,353 |
737,801 |
The legislative framework in New Zealand is set out in the Superannuation Schemes Act 1989. On the abolition of tax incentives, the legislation still provided that in order to be registered some standards had to be met but there was no particular role for registration under the Act in itself. The situation changed a little when the tax rate for income over $60,000 went up to 39 cents in the dollar and withholding tax remained at 33 cents. IRD defines withholding tax as applying to those schemes registered under the Act. The possibility of added tax incentives for superannuation will add to the importance of registration in the future.
Registration requires that a copy of the Trust Deed be lodged with the Government actuary, accounts must conform to generally accepted accounting practice and annual reports must be done and lodged with the Government Actuary within 28 days of completion. In most circumstances members have to be notified or informed of any changes to the scheme. Scheme administrators, actuaries and auditors are under duty to disclose any problems with a scheme to the government actuary. In the case of a scheme being wound up there is a requirement on a receiver to appoint an independent person to the board. Unlike the situation in other countries there are no requirements on where or how funds are invested. The Government Actuary (the person with statutory responsibility for implementing the Superannuation Schemes Act 1989) has reported on several deficiencies in the Act- no penalties for non-compliance with the Act, the lack of standards for adequate funding for defined benefit schemes and no requirement for an elected or independent trustee 36.
There is no doubt that superannuation is big business. Performance is another issue. A 1999 survey by Consumer discovered (in examining 200 schemes available to the general public) "an industry characterised by small, under performing funds with investment managers scurrying from one place to another" 37.
34-Preston (May 1999 updated January 2001)
35-p 32 Preston (May 1999 updated, January 2001)
36-Report of the Government Actuary for the year ended 30 June 2001
37-Consumer 185 September 1999
SENIOR DOCTORS AND SUPERANNUATION THE LABOUR MARKET
The Labour Market
The labour market for senior doctors has some special characteristics:
* The market for well-trained senior doctors is global. As working hours and conditions improve internationally positions overseas become comparatively more desirable. For example the National Health Service Plan in Britain combined with the application of the European working hours initiative has resulted in commitment to increase NHS staff. By 2004, it is expected that there will be 7,500 more consultants (specialists) and 2,000 more general practitioners 38.
* New Zealand trained doctors, in general, have world class training and are in demand internationally.
* Only highly skilled and expert doctors with qualifications comparable to a New Zealand trained practitioner are allowed to practice in New Zealand.
* Medical care in New Zealand at the tertiary and secondary level is organised around the expertise of senior doctors. A very few senior doctors are the critical variable in most areas of health care. The absence of even 1 or 2 senior doctors can close down entire areas of care for large areas of the country either directly or by rendering rosters intolerable for the specialists that remain.
* The supply of senior doctors does not easily respond to market signals because training is long and costly due to its highly specialised nature.
* Senior doctors cannot easily be substituted for with cheaper or more readily available labour.
* Senior doctors in some specialties have the choice of working in the private or the public sector.
* Increasing proportions of senior doctors have gained their primary qualification overseas (39% of doctors active in New Zealand as at 31 March 2001 39). New Zealand trained specialists are likely to have spent some time training overseas. A proportion of their working lives will have been spent in other countries with other countries' superannuation arrangements.
* There is a skills shortage in New Zealand and this is especially so with senior doctors where there is also an international shortage.
* Senior doctors are likely to have a choice as to whether to work in New Zealand or not and if they don't like the work or the conditions they will leave.
* The overwhelming majority of salaried senior doctors are employed in the public sector dispersed among only 21 employers (DHBs). Consistent with this environment they are highly unionised.
* Some additional factors have a more general application but impact on senior doctors.
* Health sector staff experience increased stress on account of the quality of their working conditions and their emotional involvement as a result of health sector reforms 40, which may result in increased turnover and reduced participation in the health workforce.
* The 1998 amendments to the Human Rights Act 1993 mean that employees in general may now stay in employment with no fixed age for retirement. This risks competency issues arising toward the end of one's working life.
38-NHS (2000)
39-p 21 from the Annual Report 2001: Medical Council Of New Zealand Table 8 as corrected by personal communication from Sean Hill
40-ILO
AUSTRALIA
In 1989 the National Arbitration Commission awarded 3% employer superannuation contribution instead of a wage rise to all Australian employees. There was a cap on the amount for high wage employees. In 1992 the Australian federal government legislated for a Superannuation Guarantee Charge (SGC) which required all employers to pay an additional amount of superannuation into an approved fund. This also applied to contractors who were primarily providing services (labour and expertise). The levy started at 5% of salary and is to rise progressively to 9% by 2002.
Coverage of all workers (including the self employed) is around 80%. Between 1984 and 1995 superannuation coverage of Australian employees has more than doubled to 89%. There are estimated to be 8.8 million fund members. Assets in the sector have increased by about $250 billion since the SGC was introduced reaching $415.1 billion in 1999.
The taxation system in Australia provides for employer and self- employed contributions to be deductible but they are taxed in the fund at 15% or 30%. Fund income can be used to shelter tax on other income. Withdrawals are taxable as either a lump sum or pension but at less than full rates 41. The tax regime still offers advantages to senior doctors who are on the 48.5% marginal tax rate 42.
Australia's federal and state governments all ran superannuation funds for their employees many of which were unfunded. During the 1990s most of these were closed off to new employees leaving employees (including senior doctors) with the SGC and posing a similar equity problem between existing and new employees as that in New Zealand.
41-Goss and Duncan
42-Mick Saunders AMA to ASMS September 2000
UNITED KINGDOM
Britain has a compulsory social insurance scheme that requires employer contributions to superannuation. Salaried doctors employed by the National Health Service (NHS) are eligible to join the NHS Pension Scheme. Since 1988 membership of this scheme has been voluntary. The British Medical Association recommends that doctors should not opt out of this scheme as it contains valuable benefits, including an index-linked pension 43. Members pay a contribution of 6% of superannuable income and these contributions attract a full tax relief. Employer contributions range from 4-5% currently and a staggered increase to 7% by 1 April 2001-1 April 2003. The Government meets the cost of index linking. Recent discussion by British consultants about leaving the direct employment of NHS has included a requirement that they retain access to the pension system.
43-BMA
NEW ZEALAND
When the National Provident Fund (NPF) and the Government Superannuation Fund (GSF) were closed off to new members area health boards or their successors could have provided new employees with an employer superannuation subsidy within a wider remuneration strategy for recruitment and retention or as a 'good employer'. This did not occur. The effect was inequity in the remuneration that senior doctors received based on whether they were employed prior to or after the closure of the schemes.
While this may have only affected a few senior doctors in 1993, the number of senior doctors without employer superannuation contributions has been steadily increasing. Obtaining employer superannuation contributions for those who were denied access to the NPF and GSF schemes has become a priority for ASMS. The Association has conducted a survey of employer superannuation contributions amongst the public hospitals as at July 2000. These results are summarised in Table One below.
Table One 44
Public Hospital Employer Superannuation Contributions as at July 2000
| Superannuation Scheme |
No.of Senior doctors |
| NPF- Defined Contribution Scheme |
312 |
| NPF- Defined Benefit Scheme |
175 |
| Government Superannuation Fund |
218 |
| Employer subsidy to other super schemes as per ASMS CEC or CEA |
216 |
| Total |
921 |
The ASMS has sought to include subsidised superannuation into its collective contracts for senior doctors.
The first Lakeland Health collective contract that came into force in 1995 provided for "upon request from employees who are not members of the Government or National Provident Superannuation Fund the employer shall pay to that employee a superannuation allowance equivalent to 5% of base salary." There was no requirement to pay the allowance into a superannuation scheme. The Collective Employment Contract that came into force on 1 December 1999 changed this provision into 5% of gross taxable salary to be paid into a superannuation scheme.
The 1998 Nelson-Marlborough collective employment contract was the first settlement with a full subsidy. This was set at 6% on base salary and was enhanced to 6% of gross salary in the subsequent settlement in 1999.
In1999 the South Auckland collective contract was negotiated. It included a recruitment and retention allowance entitling those not eligible for the closed schemes to a graduated subsidy beginning with a maximum of 3.5% of gross taxable salary and progressing to a 4.5% subsidy in July 2001 and increasing to 5.5% on 1July 2002. The settlement for 2001 to 2002 lifts this percentage to 6 % from 2003.
During 2000 Eastbay, Wairarapa and Waikato followed the pattern with interim movements progressing to a ceiling.
There has been a flurry of activity since these developments and at present 20 out of 21 DHBs have agreed to an employer subsidy on senior doctors' superannuation.
In late 2001 the Association's attention was drawn to a little known section of the State Sector Act (section 84) which sets out the criteria a superannuation scheme has to meet before a state sector employer may contribute on behalf of their employees. The aim of the section appears to be to limit the liability of the Crown to fund any future short fall in superannuation funds and relates to the contents of schemes trust deeds. It is expected that trustees of schemes will take steps to ensure they meet the criteria although the situation of existing contributors is not affected in the short term 45.
Employer subsidies available to senior doctors (in addition to those to doctors in the closed schemes) as at 1 July 2001 are set out in Table 2.
Table Two
Employer Superannuation Contributions for Senior doctors
| DHB | Employer Superannuation Contribution |
| Northland | 4% on gross taxable salary from 1/1/02 increasing to 6% on 1/10/02 |
| Waitemata | 2% gross taxable earnings 15 February 2001 increasing to 4% on 15 February 2002 and 6% at 14 February 2003 |
| Auckland | 3% on gross taxable salary from 1 July 2001and 5% on 1 July 2002 |
| Counties Manukau | 4.5% on gross taxable salary increasing to 5.5% on 1/7/02 and 6% on 1 July 2003 |
| Waikato | 4 % on base salary increasing to 5% on July 2002 and 6% on 1 July 2003 |
| Bay of Plenty | 3% on gross taxable salary increasing to 4% on 1January 02 |
| Tairawhiti | 3% of gross taxable salary from 1 July 2001 increasing to 5% on 1 July 2002 |
| Lakes | 5% on gross taxable salary from 31 May 2000 |
| Taranaki | 2% of salary from 1 September 2001.Increasing to 4% of salary from September 2002 |
| Hawkes Bay | 2% on base salary increasing to 4% on 1/7/01, 5% on 1/7/02 and 6% on 1/7/03 |
| Wanganui | 2% on base salary from 1/9/00 increasing to 4% on 1/9/01, and 6% on 1/9/02 |
| MidCentral | 2% of base salary from 19 February 2001 increasing to 4% on 1 January 2002 and to 6% on 1 January 2003 |
| Wairarapa | 3% on base salary from 1 October 1999 for those commencing with the employer after 1 October 1999. Increasing to 4% on base salary on 1 January 2001 and 5% on 1January 2002 |
| Hutt Valley | 2% of base salary from 1 July 2001,4% base salary July 2002,6% base salary from 1 July 2003 |
| Capital and Coast | 2% of base salary from 1January 2002,increasing to 4% of gross salary from 1 July2002and 6% of gross salary from 1 July 2003 |
| Nelson-Marlborough | 6% on gross taxable salary from 1 March 2001 |
| West Coast | 2% of base salary from 1 July 2001, 4% of base salary from 1 July 2002, 6% of gross salary from 2003 |
| Canterbury | None. Negotiations taking place at time of writing |
| South Canterbury | 4% of base salary from 1January 2001 and 6% on 1 January 2002 |
| Otago | 3% on gross taxable salary increasing to 4% on 1/7/02 and 6% on 1/7/03 |
| Southland | 1.5% on gross taxable salary from 1/1/01,4% on 1 July 2002 |
Unless DHBs provide a 6% employer subsidy based on total gross salary they will find it increasingly difficult to recruit and retain.
44-No return was received from the Otago DHB
45-The Medical Assurance Society (MAS) has made changes to its trust deed in order to comply with the Act's requirements. Schemes run by the Global Retirement trust, AMP and Tower have also complied with the Act's requirements. Nevertheless confirmation should be obtained on a case by case basis
FUTURE DEVELOPMENTS
There is a consensus that stability in superannuation policy is desirable: people need the ability to plan over the long term. commentators have seen the solution to instability in superannuation policy as lying in insulation from the democratic process by entrenching legislation to do with superannuation or building in a time lag of a parliamentary term 46. Ultimately stability is better achieved by building a popular and political consensus. There are signs that some aspects of superannuation at least are being put into the consensus basket. Every political party except ACT has " signed up" to part one of the New Zealand Superannuation Act which guarantees that couples over age 65 will be paid 65% of the average wage and that single people over 65 will be paid a fixed proportion of that amount 47.
As some areas achieve consensus others come back out of it. Tax incentives for superannuation disappeared overnight during the years when neo-classical economics ruled. They have recently re-emerged as an issue with the government consulting the savings industry on the tax treatment of long-term savings. The CTU has expressed support for a system which removes the tax disincentive to saving on those on incomes under $38,000 who pay tax on employer contributions to super at a higher rate than on the rest of their income. It supports a TE t (savings taxed on the way in, earnings exempt and somewhat lower tax on the way out) or a t ET (a rebate on the way in, earnings exempt and taxation on the way out) method of taxation.
There is by no means a political consensus on the pre-funding of New Zealand superannuation. On the right National and ACT argue that the fund will meet only part of future requirements and that it is being funded from borrowing. On the left the Greens believe that investing in education, social welfare and health will provide for future retirement needs better than putting money in a fund. Whether the fund will survive a change of government is problematic at this stage. However, it is a reasonable assumption that the longer it stays in place the more likely it is to survive changes of government.
46-Grimes and Smith
47-"Key parties sign up to pension rates "Dominion 7 July, 2001
SENIOR DOCTORS
A superannuation subsidy has become an important part of the remuneration of senior doctors and dentists. It is already a factor in the decision of overseas doctors as to where they go for employment. Subsidies for superannuation are regarded as a normal part of employment conditions by doctors that have worked in Australia, Canada and the United Kingdom.
Several important issues will remain a factor in the future shape of these provisions.
· Some DHBs have not yet reached the 6% level of subsidy. Those that fall short of the 6% maximum are uncompetitive when recruiting senior doctors.
· The salary that the subsidy is calculated on remains at issue. Senior doctors normally work more than a 40-hour week but some DHBs only calculate the subsidy on the base salary which is for a 40 hour week (pro-rata for part-time senior doctors). This discriminates against those who work on average more than 40 hours per week. Ironically these are precisely the doctors that management affirm from time to time that they value and want to specifically reward. Those DHBs that calculate the subsidy on the 40-hour base rather than the total salary are uncompetitive with those that calculate the subsidy on the later.
· The tax on the employer subsidy, though levied at a level lower than most senior doctors marginal tax rate, considerably diminishes the value of the subsidy in dollar terms. This is a financial burden that employers, to date, have been able to shift onto the employee.
CONCLUSION
In New Zealand a universal pension paid out of general taxation, without a means test and fixed at around 65% of the average wage for a couple appears to have general public support. Any substantially different arrangement incurs public disapproval and becomes politically unsustainable. Age of entitlement has proved somewhat more politically flexible. Funding the pension means a temporary problem will occur as the baby boomers retire between 2011 and 2030. A social insurance approach is unlikely to be introduced in New Zealand. Alternative provision of some sort or another is desirable both from the individual and public policy point of view. Recent government and National Party support, in principle, for tax incentives for superannuation will give added impetus to these developments.
New Zealand is part of an international labour market for senior doctors. Employer superannuation contributions are an important recruitment and retention tool and form a significant factor in the labour market internationally. Recent taxation changes in New Zealand mean a dollar of employer subsidy to an employee's superannuation is more valuable than a dollar extra in salary. In New Zealand employer subsidies to the superannuation of senior doctors are becoming a normal feature of employment agreements and will shortly be universal. Widespread employer subsidised occupational superannuation of this sort offers the prospect of ameliorating, if not solving, the problem of retirement provision for the population bulge.
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