KEY POINTS:
I understand why Hugh Burrett wants KiwiSaver to be a success and thinks it worthy of tax breaks and support. His employer, the ASB, is one of six default providers appointed by the Government and will probably be spending a lot of money building the infrastructure to cope
with the new regime.
However, whether New Zealand needs KiwiSaver is a rather different matter.
A lot of local and international evidence suggests KiwiSaver, especially the way it is developing, is unnecessary and, even if needed, probably won't increase saving. To summarise this evidence:
Treasury analysis suggests that New Zealanders are, on average, already slightly over-saving for retirement. In any case so-called "household saving rates" say nothing useful about New Zealanders' financial preparations for retirement.
Current retirees have significantly the lowest levels of hardship of any group in New Zealand. Families with young children are in a much poorer state.
On average, New Zealand's superannuitants are remarkably contented with their financial lot. By contrast, pensioner poverty is a major problem throughout Europe and looks set to worsen over coming decades. We have been doing something right with retirement policy and that suggests greater care is needed when changing the model.
Governments around the world seem to have little influence on the saving decisions of individuals, even when retirement saving is made compulsory. Offsets in saving simply mean shifts from one form to another.
Compulsory private provision (recommended by Burrett) seems not to be effective in raising national or household saving in other countries (the jury is out on that issue in Australia). Tax incentives (also recommended by Burrett) seem not to raise national saving and may even reduce it. Besides that, they are grossly inequitable, expensive and difficult to administer.
Forcing workers to save more might not increase growth in the long run for a developed country like New Zealand. Saving and productive investment are not necessarily connected and increased saving may reduce consumption in the short term.
Burrett suggests that New Zealanders should not be sentenced to retirement survival on just superannuation. But the evidence shows that most are not, enjoying lower housing costs, for example, than do working age people.
And, even if someone arrived at retirement with no other income than just superannuation, might they have been too poor to save for retirement? If so, how will making saving compulsory help them to live while they are working?
And how will increasing taxes for all to subsidise the retirement savings of largely better-off workers help?
Based on the evidence, KiwiSaver seems to be a solution to an as yet unidentified problem. The hundreds of thousands of New Zealanders who join KiwiSaver to collect the tax-funded subsidies will contribute for a year and then stop.
They will return to concentrate on the things that are likely to be better for them and for New Zealand - like paying for an education, building a business, paying off debt or saving in ways that are more relevant to their financial needs than KiwiSaver.
Is making KiwiSaver compulsory or tax-subsidised really the "answer" to this lack of enthusiasm? It would actually be more sensible to force all New Zealanders to buy their own homes because the evidence suggests that a debt-free home is key to the financial welfare of older people. That insupportable proposition simply illustrates that forced retirement savings is a low-quality idea.
I hope that ASB's investment in KiwiSaver produces an acceptable return to its shareholders though I wonder whether that is likely. If we are to have default providers (another low-quality idea), ASB deserves its appointment as one of the six.
The trouble is that New Zealand doesn't deserve KiwiSaver, especially with the refinements suggested by Burrett.
* Michael Littlewood is co-director of the Retirement Policy & Research Centre, University of Auckland.
