KEY POINTS:
Hammered again by the soaring value of the kiwi dollar, New Zealand's manufacturers are taking a different tack in their attempts to put their industry on a better footing - with compulsory superannuation now being touted as a possible solution.
John Walley, chief executive of the Manufacturers and
Exporters Association (MEA), says the idea of a compulsory superannuation savings scheme has never been welcomed by Kiwis, despite the fact we are not renowned as being good savers but well-known as borrowers.
The 1997 referendum on the Compulsory Retirement Savings Scheme was voted down by 97 per cent of those who had their say at the polls.
Walley says the proposal was opposed - leaving aside political considerations - on the grounds that compulsory saving would leave people worse off, limiting their ability to spend and consume in the present.
There was also the fact most people prefer to have the choice as to whether they do these things now, rather than later.
"A decade on from the referendum, with New Zealand's population ageing, promises from politicians for across-the-board tax cuts and strong inflationary pressure, and speculative pressure driving our currency, compulsory superannuation savings schemes might be the lesser of necessary evils," he says.
In 2005, New Zealand's saving rate, as a percentage of household disposable income, was - 14.8 per cent.
"When compared to - 2.6 per cent for Australia, - 0.4 per cent for the United States, 2.4 per cent for Japan and 11.6 per cent for France, New Zealand's saving record is seriously lagging behind," adds Walley.
A compulsory superannuation savings scheme will serve to boost New Zealand's saving rate, says Walley. Since the voluntary KiwiSaver scheme was introduced last year, most of the necessary infrastructure to support compulsory savings is already in place.
The MEA has been a long-time critic of the impact of the Reserve Bank's raising of interest rates on the value of the dollar. Government's policy settings have, they say, delivered the largest difference between the rate of inflation and interest rates necessary to keep inflation under control in the developed world.
"High interest rates can act as an incentive for increased saving, yet high lending rates on mortgages and other forms of borrowing can also result in people facing an increased, permanent loss in wealth," says Walley. "Interest payable on loans is money that is gone for good; it does not become available for spending or investing at some later date."
Under a variable rate regime, a compulsory savings scheme could be used as a lever of monetary policy to combat domestic inflationary pressure.
The MEA says the present approach "drives a wedge between the domestic and the external economies", a situation it refers to as the "two economies problem". Imports get cheaper, exports get more expensive, and while most people "feel happy that they are able to purchase more consumer goods, the economic pain falls on the productive sector".
It says speculative pressure from the globalised financial system drives the New Zealand dollar up to a point where exporters cannot compete.
Through superannuation savings, there would be a wider pool of funds available for productive investment, and a trade-driven exchange rate that would make the world a better place for the external sector and the economy would be unified.
"Compulsory saving schemes delay people's current consumption and yes, limit their spending power right now, but as an alternative to the current policies of buy now, pay later, individual New Zealanders and the economy as a whole would be better off if we save now and spend later," says Walley.
"The model provides New Zealand with the opportunity to reduce the difference between inflation rates and interest rates, see the strength of the NZ dollar reflect trade, not speculation, and put an end to the 'two economies problem' that could see us miss out on a First World future."
One KiwiSaver provider offering the most conservative kind of investments - where the capital invested is protected - says women appear to be taking a more cautious approach to their retirement savings than men.
Fiona Oliver, chief operating officer of BT Funds Management, which manages Westpac's KiwiSaver Scheme, says present market volatility should mean conservative options will become more popular.
Westpac runs a KiwiSaver fund where capital is protected, so an individual's account will not drop below the level of their own contributions. Just under 60 per cent of the investors in this fund are women.
Oliver says take up numbers in the other Westpac KiwiSaver investment funds are also showing a similar conservative approach by women, with 60 per cent of its "cash fund" investors being women, as are 58 per cent of those in its "conservative fund".
These funds are aimed at those people who want less risk and greater stability in their returns. Accepted wisdom is such funds are suitable only for those about to retire in the next few years, since the returns are lower.
The bank's capital protected investment was expected to appeal to women, although Oliver says she is "pleasantly surprised at how attractive it had been to this group". She says it does not mean women are missing out on higher returns, since the fund itself is 100 per cent invested in equities, making it an aggressive investment. It does have higher fees though.
BT is not one of the "default" providers that get assigned accounts from people automatically signed up to KiwiSaver when they start a new job and don't actively select a provider.
This, says Oliver, means there is no one with BT that didn't make an active decision to be there.
"Ours are saying they've made a choice to do it. It's interesting to see they've heard the story and thought about it a bit more.
"They are thinking long term but they are also being unbelievably sensible because they are protecting it [for the] long term."
Oliver says she would be uneasy if the proportion of women in the more conservative funds kept increasing. Younger women, for instance, should not be investing their KiwiSaver money in low growth, cash funds.
