Forced savings come at a cost

Photo / The Aucklander

Forcing people to save for their retirement will reduce the amount of money they have available to pay off debt or invest in businesses, a retirement policy expert has warned.

Compulsory KiwiSaver will likely be one of the areas considered by a Savings Working Group the Government is setting up to help address the national saving rate.

But Michael Littlewood, co-director of Auckland University's Retirement Policy and Research Centre, said a taskforce put together in 1992 had rejected the idea of compulsory saving and little had changed since then.

"If you revived the group and asked them 'do they still stand by their recommendations' I am confident the recommendations would be confirmed.

"You would have to ask what the Government is intending to achieve by this."

A spokesman for Finance Minister Bill English confirmed the Government was looking into a savings working group similar to that set up for the Tax Working Group.

But he said it was premature to go into the scope of what it would cover.

Yesterday Prime Minister John Key ruled out any changes to national superannuation or the age of eligibility or the entitlement level of super.

The focus of the working group is expected to be on the national savings rate rather than retirement savings.

But Littlewood said it was ridiculous to look at compulsory KiwiSaver without also taking into account national superannuation.

"To put it to the side is to ignore the elephant in the room."

Many supporters of compulsory superannuation looked to Australia as a success story but it came at a price to other savings.

A recent report showed the average Australian saved only $6 a week in the four years to 2009, Littlewood said.

New Zealanders should have the choice to use the money to pay off debt if they wanted to or put into a business.

Capital Markets Development Taskforce chairman Rob Cameron said it had looked at the pattern of savings as part of its report and the issues were complex.

Many in the fund management industry believed compulsion would be a silver bullet but it was not, he said.

"The evidence on compulsory saving isn't straightforward. You do tend to get substitution. It isn't clear what it does to the level of savings."

Australia's strong capital markets were often linked to its compulsory super system but Cameron said it was not that easy.

David Ireland, chairman of superannuation industry body Workplace Savings, welcomed a debate on compulsory super.

"It does need to be thrashed out, we just don't want to see a knee-jerk reaction or political positions taken. It would be good to have cross-party support."

While Australia appeared to be a success it was hard to know how people who were already struggling could spare anything.