David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money: Keep KiwiSaver tidy - why it doesn't need messing with

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Photo / Thinkstock
Photo / Thinkstock

Labour's proposal to transform KiwiSaver into a direct instrument of monetary policy has generated acres of comment.

And perhaps that was the point.

David Parker's KiwiSaver policy announcement was a brilliant political differentiator; the policy itself was less shiny.

As Fran O'Sullivan and others have noted in the NZ Herald there are some serious questions to be answered about the realistic effectiveness of the Labour proposal - nevermind the 'technical difficulties' of implementing it.

Most of the objections centred on the potential hardship low-to-middle income earners would face if the KiwiSaver contribution rate ratcheted up to counter inflation/high currency etc. (Labour's plan does allow for some hardship opt-out here but that brings its own issues.)

But how far could things swing the other way if the Reserve Bank of the day wished to stimulate the economy? Should KiwiSaver contribution rates drop to zero to fight deflation?

Of course, if Labour ever got in the position to turn the policy into practice these are the kind of details that would need to be worked through. These are also the kind of details that would add complexity (and costs) to a system that requires as much simplicity as possible.

For all its faults, KiwiSaver is reasonably simple and cheapish to operate. (Unlike the Australian system, which Labour, inexplicably, name-checks as a role model in its KiwiSaver policy.)

Labour says it would have to amend the Reserve Bank Act to activate its new policy but, although it wasn't mentioned, it would also have to tinker with the KiwiSaver Act too.
KiwiSaver is targeted at improving the financial position of individuals; any boost the scheme may bring to the broader economy was always of secondary consideration.

According to the opening paragraphs of the KiwiSaver legislation: "The purpose of this Act is to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement.

"The Act aims to increase individuals' well-being and financial independence, particularly in retirement, and to provide retirement benefits."

Which is not a bad policy.

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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