A word about compulsion.

Some commentators criticize act's policy because it would make saving for retirement compulsory.

Point One:

It's compulsory now. The average worker pays $4,500 to support the elderly every year. I for one would rather have to save 7 per cent in my own name than pay twice that (or more) to the government as now happens.

Point Two:

Without compulsion we would never be able to move to a savings based scheme.

The reason?

We must top-up people's savings in the early years. In the absence of any compulsion people won't have the incentive to save because the government will top them up. As a result no transition will be effected.

Who would bother to save if the State was guaranteeing a top-up to $155,000? And without that top-up there is no security in retirement.

Maybe in a generation, when the need for top-ups is greatly reduced the issue of compulsion will be revisited. But in the meantime it's simply a question of whether we stay with the status quo or move to a savings-based scheme.

How It's Paid For, Who Pays For It, And What It Does To The Tax Structure.

Once a 20-year budget is established you can see how to fund the transition period in ways other than with income tax. And it is vitally important to do so - because only by reducing income tax is it possible for working people to save for their own retirement.

The cost during the transition period of young carrying the existing retired and the top ups is very large ($170 million). We use the forecast surpluses to get people saving and we help fill the resulting gap by a temporary company levy (in lieu of company tax) which raises about 40 per cent of what company tax raises now.

In addition we will be tendering 5,000 places for new immigrants a year. This is an entirely new category of immigration in addition to meeting existing treaty and humanitarian obligations.

In using the forecast surpluses to address the long-term problem of care for the elderly we can go to zero income tax immediately. This will make New Zealand a very desirable country in which to invest and to live.

We can't take everyone who wants to come, so among the wealthy we will require they pay an upfront settlement fee in lieu of the income tax they'd otherwise pay, and as compensation for the infrastructure that past generations have built up in their new country of residence.

That is only fair.

Act's 20 year budget has been independently and professionally reviewed by five of the country's leading financial institutions, Price Waterhouse, Coopers & Lybrand, Banker's Trust, Infometrics, Ord Minnett.

Here's what such a scheme would mean for individual New Zealanders.

Existing Retired :

They would for the first time have total security. Their pension and health care needs for the rest of their lives would be budgeted for. It would be on the books.

As well, the surcharge would go. There'd be no asset testing. Pensions would be increased $200 real a year (to $20,000 for couples and $12,000 for singles), so increasing the retired's spending power 25 percent over the years.

On top of that, all other income they receive will be tax free. Only ACT can afford this promise because only ACT offers a savings-based scheme to fund the vast numbers coming up for retirement.

Under ACT pension and healthcare liabilities to the elderly go down rather than up.

A Married Couple Aged 50 :

These people 10 -15 years out from retirement are most at risk from the present scheme. Today, they have no opportunity to save enough to look after themselves.

The 7 per cent that they save will go into the private fund of their own choice - and the fund will be theirs, with their name on it, not the Government's.

Their 7 per cent savings upon retirement will be topped-up to $310,000 in today's dollars (a tidy sum). That's sufficient to buy them both a modest pension of $10,000 a year and health care for the rest of their days.

As well as saving the 7 per cent they will also have the opportunity to accumulate other tax savings in their own separate fund. Assuming they're on the average wage and their children are off their hands they'd be able to save $4,500 a year, the amount of the tax savings, without any drop in their current disposable income.

However, $4,500 for 15 years at 5 percent would give them an additional retirement fund of $155,000 in today's dollars. Under ACT this couple could retire with over

$450,000 in the bank without any loss of spending power between now and the age of retirement.

Young people will get the full benefit of a savings-based scheme. They won't have to carry the existing retired throughout their entire working life.

They will get the full power of compound interest working in their favour. They'll be the first generation in New Zealand's history that will be able to do so.

Hitherto, working people have suffered the equivalent of paying for their houses three or four times over. Under ACT they'll be able to use their tax savings to multiply their savings three or four times over.

Their savings target will be $155,000 upon retirement. A person aged 22 earning $30,000 a year would have saved enough at 7 per cent within 9 years. At that point, interest would just carry them through and all savings would be voluntary.

They may choose to retire millionaires - they will continue to save a modest sum each year. Should they die before age 65 the money will form part of their estate