David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money: Do you want to super size that?

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Photo / Thinkstock
Photo / Thinkstock

Across the Tasman the argument about the proposed increase in the compulsory super contribution rate from 9 per cent to 12 per cent has taken an interesting turn with the publication of an article by academic Bruce Bradbury.

Bradbury's paper, in fact, has been one of the few points for the negative in a debate that is usually framed around the proposition '9 per cent good, 12 per cent better'.

According to Bradbury, higher super contribution rates are wasted on the young (defined as people in their 30s and 40s with children).

"Those aged under 30 are high savers, but this drops dramatically when people reach their 30s and start taking time off work to care for children, purchase goods for children and purchase housing," he says.

"This is despite the substantial cash and service transfers that governments make to people with children in their household. Using this saving measure, saving capacity only increases again once people reach their 50s. Even in retirement, it is not as low as in the 30s and 40s."

Rather than imposing a flat super contribution rate, Bradbury says the system should be flexible enough to accommodate the asymmetric financial pressures principally caused by raising children, a responsibility that is difficult to outsource (I've tried).

The comments posted after Bradbury's article feature some well-known names within the Australian super industry, including Professor Ron Bird, who offered these insights: "We have to recognise that there has been a huge industry created that lives off the spoils of the ever-increasing pool of money that is directed towards superannuation.

These people want nothing more than higher contribution rates and they will be very vocal in putting down any proposals that have negative implications for the size of this pool. It is about time that we stopped listening to those motivated by self-interest and start doing some genuine research with the objective of designing a superannuation system consistent with achieving optimal life cycle consumption patterns."

New Zealand's KiwiSaver scheme is much more flexible on that score due to the 'contribution holiday' option, the lack of full compulsion and features such as the first home-buyers subsidy.

And, of course, KiwiSaver compulsory contribution rates are set low - currently at 4 per cent (split evenly between employer and employee) but rising to 6 per cent in 2013 (this year for state sector employees).

Even at half the level of Australia's proposed contribution rate, however, the coming higher KiwiSaver contribution levels will probably start to have an effect on real incomes soon, according to this briefing note to employers published by legal firm Buddle Findlay last year.

"... we expect employers will factor in the cost increases [of higher KiwiSaver rates] when negotiating wage and salary increases in the intervening period - particularly in the State Sector in the year ahead."

David Chaplin

A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. David has edited magazines and websites for the financial advice, investment and superannuation industries. Today, he contributes to various publications in Australia as well as his bi-weekly blog for the NZ Herald under the 'Inside Money' banner.

Read more by David Chaplin

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