$278b - our lost pot of superannuation gold

Research suggests axed super scheme would have been a bonanza for everyone.

New Zealand could have had a superannuation pot of gold worth $278 billion by next year had it kept a compulsory savings scheme set up in 1974, a financial industry body claims.

The Financial Services Council, which represents New Zealand's large banks and insurance companies, commissioned research on the scheme, which would have been 40 years old in April next year - had it not been canned by Robert Muldoon's National Government in 1975.

Read its report here.

Infometrics research based on all employees joining the scheme and 60 per cent of self-employed people (it was compulsory for employees but voluntary for the self-employed) found it would have reached about $278 billion.

A person on the average wage saving over those 40 years would have had around $256,000 by 65, giving them about $234 a week extra on top of the current $282 a week for each person in a married, civil or de facto relationship.

Infometrics also estimated the amount of money invested in the New Zealand sharemarket through the scheme would be $139 billion - more than the current size of the market at $87 billion.

Financial Services Council chief executive Peter Neilson said 1974 super fund investors would own a substantial proportion of New Zealand's listed companies.

"We would also have a lower dollar and more New Zealanders on higher wages, and fewer fast-growing companies would have to sell equity to foreigners to be able to grow."

The FSC would like KiwiSaver to be made compulsory for employees. The National-led Government has shot down that idea but it has the backing of Labour.

Jonathan Eriksen, an actuary whose firm helped advise the former Labour Government develop the 1974 scheme, said not proceeding with it had been a "tragedy" for the development of New Zealand.

"The FSC is right in this case. KiwiSaver is now $20 billion and has made an enormous difference to New Zealand markets."

But not everyone sees a pot of gold at the end of the rainbow.

The co-director of the Retirement Policy and Research Centre at Auckland University, Michael Littlewood, said the figures were calculated in a vacuum that assumed contributions made by employees did not change people's behaviour and assumed a positive rate of return.

"You only need to look at Australia to see how a scheme like this changes behaviour."

Mr Littlewood said that in Australia people tended to retire earlier. But they retired with more debt because they incurred it knowing they would be able to access that savings pool to pay it off in the future.

"There are a whole bunch of distortions."

It was also a big assumption to say that the amount of money would be good for New Zealand's capital markets.

There was no evidence of a capital shortage and putting extra money into the sharemarket might have resulted only in prices going up.

"The calculations are totally notional."

Mr Littlewood said more savings did not necessarily generate more growth.

"You just need to look at Japan. They have oodles of savings but have had negative growth for years."

Mr Littlewood said forcing people to save could introduce distortions such as people not saving in other areas.

Australians had 19 per cent of their wealth in superannuation savings, but only 9 per cent of their money was in business investment.

In New Zealand 4 per cent was in superannuation savings and 22 per cent was in business investment.

"If I had to take a bet as to what was better for the country in the long term, I would take more business investment than financial services businesses."

He said governments should concentrate on doing things that only they could do, including ensuring older people did not live in poverty.

New Zealand had a better track record for that than Australia.

"Australia is a richer country than New Zealand. But not because of its superannuation scheme ..."