Claire Matthews: Time is right for compulsory KiwiSaver

Massey University's Dr Claire Matthews says the time is right for compulsory KiwiSaver.

Opinion

Massey University's Claire Matthews argues that compulsory KiwiSaver is needed, but low-income earners should not be excluded.

Labour's announcement of a new KiwiSaver policy is to be commended for including some positive elements.

While tinkering with the scheme should generally be discouraged, the proposal to introduce compulsory membership and to increase contributions are appropriate changes that are needed at some point, and the earlier these changes are made, the sooner the benefits will be enjoyed.

Compulsory membership has always been likely at some stage, and with roughly two-thirds of New Zealand's working age population already being KiwiSaver members, it is reasonable to look at doing so now.

However, there is a question as to how many current non-members would actually be captured with compulsory membership.

The policy excludes students, beneficiaries, and those on low incomes, which is designed to make the policy more palatable to the public but restricts its true value.

A common reason for having not joined KiwiSaver is lack of affordability, and these excluded groups are likely to be over represented among the non-members.

Excluding low-income earners is a simplistic approach, because not all low-income earners are in the same situation.

For example, young people in their first job are likely to be on low incomes but are unlikely to have the same commitments so can actually afford to make KiwiSaver contributions if they sacrifice some discretionary spending, such as entertainment.

The policy also excludes the self-employed, probably for reasons of practicality, as they do not receive the regular income payments from which contributions can be deducted.

But the self-employed stand to gain the same benefits of membership as others, and there are options, such as the annual tax return, that could be used to simplify the process of collecting regular contributions with a minimum contribution threshold.

Another positive element is the proposed increase in contributions, with the additional contributions being made equally by both the employee and the employer.

It has been acknowledged that the existing rates are lower than they need to be, with the proposed 9 per cent commonly seen as the minimum level.

The proposal for small annual increases to reach the 4.5 per cent target for both parties is a sensible approach, which will reduce the financial pain of the increased contributions for members.

Retaining the existing kick-start and annual subsidy means that the most popular elements of the scheme are retained, and lessens the tinkering that is being undertaken, but it is concerning to see the policy includes a change to how the kick-start is paid.

It is also disappointing to see the retention of the policy introduced earlier this year for KiwiSaver contribution rates to be used as a monetary policy tool.

Using KiwiSaver to achieve multiple, unrelated objectives is poor policy, creating conflicting aims and potentially preventing KiwiSaver from meeting its primary purpose of helping Kiwis have a better retirement.

So, Labour should be congratulated for having the courage to implement compulsory membership and increased minimum contributions, but I urge the party to reconsider and remove the other aspects of its KiwiSaver policy.

Dr Claire Matthews is a KiwiSaver specialist from Massey University.