By Amanda Morrall
The government-appointed Savings Working Group (SWG) will announce on Tuesday it has ruled out the option of making KiwiSaver compulsory and is recommending instead "soft" ways of transforming a nation of spenders into savers.
Group member Mary Holm, a vocal proponent of KiwiSaver, confirmed the group's decision, but declined to discuss the details of what exactly the group was recommending pending the official release next week of its report to Government.
"I don’t think it’s a secret that we are not recommending compulsion. We’re recommending instead something that is halfway toward it and some other stuff,'' Holm told interest.co.nz
In an interim report released late last year, the SWG alluded to a "soft compulsion" policy where newcomers to the workforce would be aumotmatically enrolled in KiwiSaver but given the choice to opt out. The final report is due to be released in Wellington on Tuesday. Prime Minister John Key alluded to the report's conclusions in his state of the nation address this week where he argued for asset sales to reduce foreign debt.
Compulsory savings advocate KiwiBank, which made a submission to the Saving Working Group in support of mandatory enrollment, declined comment on the decision.
However, critics of compulsory savings applauded the move.
"If you look at compulsory savings regimes around the world, there isn’t a great deal of evidence that they actually increase savings,'' said Michael Littlewood, co-chair of the Retirement Research Center at the University of Auckland.
Littlewood further questioned the effectiveness of KiwiSaver as a means of promoting and stimulating saving in the absence of any proof of a "measurable impact'' it was having on national savings.
Although cummulative KiwiSavings (including Government, employer and employee contributions) have risen to $5.8 billion since the programme was introduced in 2007, Littlewood said that account in itself was not an meaningful way of judging its effectiveness as a savings tool.
"The counterfactual is what would have happened KiwiSaver apart?," quipped Littlewood. "And you can't tell that unless you look at a household's total balance sheet.''
According to Statistics New Zealand, the household saving rate - expressed as a percentage of household net disposable income - has been mostly negative since 1999 but has improved in recent years. At the end of March 2010 it was -2.2%.
To calculate household savings, Statistics New Zealand substracts expenditure from income received from salaries, wages, interest and dividends.
'Time to get real'
The Savings Working Group has repeatedly underscored the message that New Zealanders are not doing enough to save and that the country is at risk of following in the footsteps of European nations such as debt-ridden Portugual, Italy, Greece and Spain (what analysts have come to describe as the "PIGS" nations) because of towering foreign debt.
It suggest households and Government needed badly to curb consumption to right the ship.
"The bottom line is that New Zealanders have been spending too much and saving too little, using large amounts borrowed offshore to fund new investment. Its credit is maxed out. It's time to get real,'' the group warned in its interim report.
According to an ANZ submission to the Savings Working Group, household savings in New Zealand had improved since the global financial crisis, presumably a result of greater awareness about the need to reign in debt.
The bank’s report notes that national disposable income, which measures income available to New Zealand residents for current consumption on savings rose 4.3 % in the year ended March 2010. While opposed to compulsory savings, ANZ was widely supportive of the Savings Working Group's goal of boosting national savings. It proposed higher employer contributions as one way to achieve that outcome as well partially floating state-owned enterprises on the sharemarket.
Do we have a problem?
The Retirement Policy Research Center suggests New Zealand household savings situation has been greatly exagerrated.
In a 2010 pension briefing comparing New Zealand and Australia (where a compulsory savings regime has been in place for 18 years now) it found that Kiwis were no worse off than their counterparts across the Tasman in terms of the proportion of disposable financial assets that could help fund retirement.
It arrived at that conclusion by drawing on a 2006 report comparing household balance sheets in Australia and New Zealand which separated assets into "lifestyle" and "cashable or financial assets."
Lifestyle assets were defined as things like the family home, car, and household effects and financial assets were everything that could be "sold, cashed in, or used in some way to support people in retirement.''
While more recent data has been gathered New Zealand Treasury has yet to release a report on it. A 2008 version of the report was due out later this year, Littlewood, noted.
Until such time, Littlewood argued: "We shouldn’t even be thinking about radically changing public policies."
* This article was first published in our email for paid subscribers earlier today. See here for more details and to subscribe.
20 Comments
Same old - same old - here we go again ...
It will be an absolute tragedy if in our parlous situation we once again pass on the chance to introduce compulsory super.
Not half pregnant super !
The facts are that is has changed Australian, Chilean and Singaporean attitudes to saving - something not considered by all the academic nonsense as to why we need to " do nothing "
After years and years of the current approach not working - we have to do something else.
Why don't we just do what we know works - as demonstrated by long periods of time in 3 of the world's most successful economies ?
There is an absolute agreement in these 3 countries that they would not dispense with their super schemes.
Doesn't that tell us something.
Aussie super savings now at A$1.2 trillion - http://www.nzx.com/news/managed-funds/4560467/Australias-super-savings-…
Dont conflate "would not dispense with" and "could not dispense with". Even if Australia wanted to get rid of compulsory super, they couldnt do it. Even if it was proven that it was detrimental to the country, they couldnt do a thing about it.
So the fact that they still persist with their scheme doesnt prove anything.
How on earth is it possible for compulsory savings not to increase our national saving rate???
That runs counter to all logic.
Although I don't like the idea of having my choice restricted, it's pretty darn obvious that if we made it compulsory we'd all be better off.
You would be well advised to routinely question things that are "pretty darn obvious".
Look into the studies mentioned above. They arent in German, Spanish, or French. They are in English. Read them. Answer your own question with your own research.
Dont just assume you know better.
Because the huge majority of the money put into the compulsory savings accounts would be money moved from one savings account to another savings account, with no overall increase in saving. It may even be money diverted from a more profitable investment and thus actively reduce saving.
We would not "all" be better off if we were forced to save money. Not everybody needs to save all the time. People just starting a family, people at the beginning of their careers who are expecting higher incomes later, people who have come into a tidy bequest, people who already have substantial savings and now want to enjoy the benefits of that - there are many individuals for whom spending takes priority over saving.
Remember also that KiwiSaver costs the Government a great deal of money in subsidies - money that the nation as a whole might be better off not borrowing in the first place.
Savings theory vs practice ....
The problem is that the majority of individuals don't save and end up on the Government's door step when they turn 65 looking for ever higher super payments.
Look at the latest Stats NZ survey - median 65 year old retiree's investment income is ~ $ 12 / week if I recall correctly.
Apologies Muzza ..
ex Stats NZ
Investment income
Investment income includes, but is not restricted to, interest from banks and other financial
institutions, dividends from shares, and income received from stocks, managed funds, non-
business related building rent, and leased land.
Between the June 2009 and the June 2010 quarters, median weekly income from investments,
for those receiving investment income dropped significantly by $3 to $12. Since the June 2008
quarter, income from this source has fallen from its highest recorded level of $19 to $12
(investment data collection began in the June 2002 quarter). For males this source of income
has decreased by $4 to $13 since the June 2009 quarter. For females it decreased by $3 to $10.
The $ 12 / week is median for all age groups.
For 65+ it's ~ $ 28 / week - still not a large number and totally insignificant as a revenue stream.
Can't find the 65 age group cohort data I referred to but agree will be over $ 12 / week
Agree $28/week extra for the elderly is not too flash, but that's part of the problem, there is a whole sector of our population that has made little personal provision because they have this sense of entitlement once they hit 65 years. And they expect us younger ones to keep paying for their retirement entitlements, and some moan like hell that they don't get enough!
Not everyone needs compulsion to save or plan for their future. I know a number of people that have a saving strategy that would GREATLY resent the government telling them what to invest, with who, and when they can access it to their advantage.
It removes the 'free market' value of investments on offer and distorts fees and innumerable unforeseen distortions that only advantage the industry.
I think with the current economic climate, that people will need to be more flexible in accessing and placing capital to NOT be disadvantaged by inflation and demographics.
Making and encouraging people too save is SO EASY!
1: remove all RWT on savings accounts
2: make owning 2+ properties an absolute financial and tax nightmare
3: make Super unavailable to anyone owning more than 1 property
Job done! simple. They then have three choices,
1:put savings into a savings account
2: invest in REAL businesses
3: leave the country
The problem is that some people who have a business try to have a rental property or two as a form of 'superannuation' for later on. It's not these poor souls you should be berating but the useless ones who can't be bothered to have a business or make some more major provision for their retirement. Hoe you are not in that category.
Just on another matter of 'compulsory". It would appear that "inflation" (the killer of all currencies) is technically "compulsory" (under our current lame capitalist system) , so..........shouldn't saving be also?
We have a RBNZ the actually thinks 3% inflation is great! when the reality is there should be NO inflation!
The govt should stop throwing $1050 in to every Kiwisaver account per year and get the employers to cover it. Put the employer contribution to say 12%. All it means is tiny reduction of the dividend paid to the shareholders of multinational corporations. The benifits for Kiwi workers should be paid before dividends are sent off shore.
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