Submission on the State Sector Retirement Savings Scheme Wider State Sector Working Party Consultation Paper

The New Zealand Council of Trade Unions Submission on the State Sector Retirement Savings Scheme Wider State Sector Working Party Consultation Paper

June 2006

Introduction

The New Zealand Council of Trade Unions – Te Kauae Kaimahi (CTU) is the internationally recognised central trade union centre in New Zealand representing 37 affiliated unions. With a membership of approximately 350,000 workers, the CTU is the country’s largest democratic and representative organisation.

There is a very low level of workplace savings arrangements in New Zealand, around 14% of the workforce, although boosted to 16% by the State Sector Retirement Savings Scheme (SSRSS). This means that although private/retail schemes have expanded, there remain a large proportion of workers with no dedicated retirement savings. At the same time, there has been a growing awareness among workers of the need for retirement savings.

The CTU is a strong advocate of workplace savings reform and has strongly supported the establishment of the SSRSS. The establishment of the SSRSS has lead to expectations that the scheme will be extended and flow on to the wider state sector workforce who are disadvantaged in being denied access to the SSRSS.

The CTU strongly supports the extension of the SSRSS to the wider state sector and views this as the key priority for improvement to the existing scheme. The state sector is heavily unionised with a collective bargaining density of 61%. The establishment of the SSRSS has been resoundingly successful in achieving the goal of enrolling 31,000 state sector workers into the scheme.

Definition of the State Sector

Many state sector workers felt aggrieved when they realised that the SSRSS was limited to the core state sector. The establishment of this Working Party averted industrial pressure in the health sector over this issue. The expectation of union members is an early extension of the existing scheme to the employees beyond the core state sector.

There are now widespread expectations in the wider state sector for access to an employer funded superannuation scheme.  The health sector and the education sector workforce who see themselves as providing public services have an expectation of equitable treatment with other state sector workers.

The CTU broadly supports the Working Party’s definition of the wider state sector. The CTU acknowledges the difficulties in defining the wider state sector because of the varying levels of closeness to Government and the need for some Crown entities to have distance form Government.  There are also significant differences within SOEs. Some have very little relationship with Government while others – those with a regulatory function – are closer to Government and are subject to a greater degree of Government control. 

The Benefits of Superannuation

The CTU believes, however, there is an unacceptably high risk that many workers are not saving adequately for retirement. The Government has a role in modelling good employment practices. As a very large employer the Government has both the opportunity and responsibility to lead the way in superannuation arrangements.

While some in the wider state sector have superannuation schemes there is significant variation in the sector and within the schemes themselves. Most workers have no access to an employer-subsidised scheme. It is the CTU goal that all workers have access to employer-subsidised superannuation schemes that match up to the realities and needs of a modern dynamic workforce. Workers now want schemes with portability and schemes that take account of changed working patterns.  The SSRSS provides for these needs.

The changed demographics and characteristics of the workforce - a higher proportion of women in the workforce and people having longer working lives – has resulted in access to a superannuation scheme becoming an increasingly important consideration for workers. Access to employer-subsidised superannuation is an important factor in employment choices, and an increasingly important retention and recruitment tool. The CTU believe retention of workers is an important factor in establishing higher productivity, a more satisfied workforce, and therefore quality public services.

The health and tertiary education sectors are areas of significant international recruitment.  New Zealand compares unfavourably with Australia and the United Kingdom in respect of superannuation arrangements and this is frequently identified as a factor that negatively affects overseas recruitment in the health and tertiary education sectors.

Options for Funding Employer Contributions

This Working Party was convened to examine how the scheme can be extended out. It is pleasing to note the very positive response to the SSRSS and also the results from the Working Party questionnaire which strongly supports the extension of the SSRSS. The CTU accept there may need to be some phasing in when the scheme is extended to the wider state sector.

The lack of progress to enhance the subsidy level for those currently in the SSRSS is a real concern for the CTU and state sector unions. The CTU have made some proposals about how to increase the employer subsidy beyond three percent and engagement on this issue remains a high priority. 

State sector entities are clearly not capable of delivering funding for superannuation within baseline funding. The extension of the scheme should be established on the basis of the original SSRSS with a central funding system. 

The CTU believes that different funding models for superannuation could be explored for entities with a commercial focus yet who are still considered an arm of the Crown – for example some SOEs.

Interrelationships with Existing Superannuation Arrangements

This is an issue of complexity especially given that there are now a plethora of superannuation schemes in operation. The CTU believes that there may need to be some case-by-case delineation of superannuation schemes to ensure that those who have set up schemes are not negatively affected by the extension of the SSRSS and that workers are not punished for pursuing saving behaviours that should in fact be rewarded.

As the SSRSS is extended to the wider state sector there will be more anomalies and complexities with interrelationships with existing schemes.

The CTU supports that the same rules in relation to double dipping, developed when the SSRSS was established, still apply.

Consultation Paper Questions

Q1. How does “closeness to the Government” make a difference in terms of determining whether an entity should be a participating employer in a standard superannuation arrangement for State sector employees?

Closeness to Government is a factor in determining whether an entity should be a participating employer, but it is only one of a number of factors. Some state sector entities have to be at an arms length distance from Government because of the specific functions they perform. This should not disadvantage their accessing the scheme.

With many Crown entities there is no other way of providing for superannuation other than by Government provision. CTU accepts there may need to be a hierarchy decided in respect to rollout but with the goal being the universal provision of employer-subsidised superannuation to all workers in the wider state sector.

Q.2 Are the key indicators and other common features used to identify State sector organisations in Section 5 the appropriate considerations?

The CTU agrees that it is reasonable that an entity should have to meet five of the six key indicators to be considered part of the wider state sector

Q.3 In defining the State sector are there entities that appear to have been overlooked?

Though it was not the expectation that this Working Party would consider those with a more distant relationship to the Government, at some point there has to be discussion, as part of the Government’s commitment to workplace savings, and because of the expectation regarding provision for vulnerable workers in the Employment Relations Act, about superannuation for workers who are employed as a result of Government entities contracting out. Some of the NGO sector also fits into this category.

The CTU notes and appreciates the PSA’s concerns that local government is excluded from the list of entities being considered for rollout.

Q.4 Are there organisations incorrectly included in Groups 1 to 4 in Section 5?

The CTU supports that all organisations included in groups 1-4 are in the wider state sector.

Q.5 What are your views on the inclusion of organisations within Group 3 in Section 5 in the wider State sector for the purpose of this exercise?

The CTU agrees that all these organisations are part of the wider state sector Group 3 is an unusual grouping with entities that have very direct Crown responsibilities and relationships, e.g. Offices of Parliament, being grouped with SOEs.

Q.7 Does the definition of “eligible employee” in Section 6 exclude permanent employees within your organisation who you believe should have access to an employer-sponsored retirement savings scheme? If so, please describe these categories of your employees.

The CTU notes the comments from NZNO that there are workers in the state sector who have regular patterns of employment but are classified as casual workers. The CTU supports some definitions as to how these workers who may have periods of four months employment over a year, and every year for a number of years, could access the SSRSS.

Workers on fixed term agreements should also have access to the scheme. In the tertiary sector there are many thousands of workers on fixed term agreements. 

Q.8 Are there other categories of people connected to your organisation other than those covered by the definition of “eligible employee” in Section 6 (e.g. commissioners, statutory officers, contractors, relieving staff) who you consider should be covered by an employer-sponsored retirement savings scheme? If so, please describe these categories of people connected to your organisation.

No Comment

Q.9 Is the definition of “salary” in Section 6 appropriate for your organisation for employees whom you would consider should be eligible to join an employer-sponsored retirement savings scheme?

There is an argument for some allowances that have a permanent nature, and are ongoing, to be part of total salary.

Q.10 In SSRSS the employer subsidy contributions are paid on top of total remuneration and are not tradeable for cash. Should employer subsidy contributions be paid on top of total remuneration? Please explain your response.

The CTU is opposed to subsidy contributions being tradeable for cash. This runs against the goal of establishing a workplace savings culture. Employer contributions should be paid on top of total remuneration. The element of choice should apply only to the decision about whether or not to join the SSRSS and access the employer subsidy and not whether to choose total remuneration or superannuation.

Q.11 Should employer subsidy contributions be “not tradeable for cash”? Please explain your response.

The goal in establishing the SSRSS was not to boost current income but to promote workplace savings for retirement, both for its own employees and, through demonstrating good practice, for the employees in the wider economy.  The evidence is that given choice employees are more likely to take the cash if offered it, rather than save for the future, which does not encourage a savings culture and undermines the intent of the scheme.