Every worker should have a KiwiSaver-linked personal redundancy account

Wednesday, 20 November 2019

The government should consider providing every worker with a KiwiSaver-like personal redundancy account.

The proposal comes in a draft report from the Productivity Commission into how technology will reshape the workforce.

'With portable individual redundancy accounts, each worker contributes to their own account throughout their working life,' the commission said, pointing to their adoption in Austria.

New Zealand was an international outlier when it came to providing income support for people who lost their jobs, the commission said.

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Politicians should consider policies designed to create 'flexicurity'- a Scandinavian term for a flexible, mobile labour market, but one in which workers didn't live in constant fear of ruin should they lose their jobs.

Productivity commissioner Andrew Sweet said personal redundancy accounts, unemployment insurance and changes to benefits should all be considered by the government.

The commission dismissed the idea of a universal basic income, deciding it would be too costly.

'In Northern Europe they have shifted from the idea of job security to income security,' Sweet said.

Unemployment insurance, for example, existed in every other OECD country except Australia, and could provide additional support the New Zealand benefit system was not providing.

New Zealanders faced low rates of income replacement in their first 6-24 months of unemployment compared to most OECD countries, the commission said.

The commission's proposed schemes would be designed to supplement the current benefits system, not replace it, Sweet said.

Jobseeker benefits were income-tested, and people with working partners often found they did not qualify, and the majority of New Zealand workers did not have redundancy packages.

The commission did not say whether it expected employers, or employees, or both, to pay into its proposed personal redundancy accounts, but envisioned people being able to withdraw money to replace a portion of their incomes should they be made redundant.

But, it said: 'A system of portable individual redundancy accounts would require a higher level of savings (and hence higher employer or employee contributions),' it said. 'Such contributions increase the cost of labour.'

In New Zealand, balances in individual redundancy accounts could be transferred to a KiwiSaver account on retirement, the commission said.

'The system could be more fully integrated with KiwiSaver. For example, a person's individual redundancy account could sit alongside their KiwiSaver account, managed by their KiwiSaver fund.'

In Austria, personal redundancy accounts were brought in replacing requirements for employers to provide minimum redundancy to employees, and evidence suggested it had improved employment mobility, with people no longer fearing to take a new job because they would lose redundancy packages linked to how long they had been with their current employer.

Unemployment insurance was a more common policy in OECD countries, and in New Zealand it could be run in a similar fashion to ACC, funded by contributions from workers, and/or employers. Or it could create a market for private insurers to provide unemployment insurance.

'There is a case to improve income security for displaced workers with income smoothing policies that cushion the financial shock of job loss,' the commission said.

Adopting 'flexicurity' policies would be a big shift, the commission said.

'New Zealand follows a broader 'Anglosphere' model, characterised by medium levels of job security with low-to-medium income security for workers. A move from the New Zealand model to flexicurity is attractive on many fronts, including its potential to increase technology adoption and thus improve productivity and living standards.'

'Such a move would require parties with bargaining power to reconsider long-held positions.'

But it could improve the lives of workers. Redundancy could have a long-lasting impact on people's lives, including leaving them with 'income-scarring', a term for unemployed people feeling forced to accept lower-paid jobs, and never being able to get their incomes back to their pre-redundancy levels.

'A system of portable individual redundancy accounts would require a higher level of savings (and hence higher employer or employee contributions),' it said. 'Such contributions increase the cost of labour.'

Technological change was key to lifting productivity, the commission said, but governments needed to find ways to promote technological change while providing security and support to people adversely affected by such change.