Kiwisaver should be made compulsory and there needs to be a gradual lift to the retirement age, former finance minister Sir Michael Cullen says.
This, as well as lifting contribution levels, will help the country avoid making a “very, very dangerous bet” on income taxes paying for superannuation in the future.
Cullen, who was behind Kiwisaver’s introduction nine years ago, spoke at the Workplace Savings New Zealand conference in Auckland on Monday.
Cullen said in those nine years Kiwisaver had grown to just over $35 billion and 2.7 million members.
But while he thought it had been a success, a couple of key changes needed to be made to make it an even bigger success.
This included the “controversial” choice to make the scheme compulsory, but also relied on a gradual lift in the retirement age, which he said would help grow Kiwisaver to a $100b industry.
I support increasing the retirement age but am wary about making KiwiSaver compulsory – that removes choice from people as to how best to save for their retirement. Some might want to invest in a business. Others might want to invest in property. Dictating a compulsory method of savings imposes one size fits all.
He said a compulsory scheme offered a “third pillar” to monetary and fiscal policy, both of which had side effects.
The Government could lower or raise somebody’s contribution rate to help stimulate the economy, he said.
“The foregone income remains the property of the individual, that’s its beautiful advantage compared with interest rates.
“You’re not redistributing from people trying to pay their mortgage to people who are elderly and have large surpluses with a bank.”
I like the idea of increasing or decreasing contribution rates as an additional monetary policy tool. Cullen makes a good case for it.
However you don’t need to have it compulsory for this to still be an effective tool.
Contributions should be raised from the “inadequate” 3 per cent to closer to 6 per cent over the next six years or so, which was more in line with Australia.
I’m contributing at 8% but again it is not one size fits all. Not all employees could afford a 6% employee contribution. Also if the intention was to have the Government match that, the fiscal cost would be large.