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Retirement Commission rules out compulsory KiwiSaver

News the Retirement Commission has ruled out making KiwiSaver compulsory has been welcomed by Institute of Financial Advisers chief executive Peter Lee, who favours other methods over “the blunt instrument of compulsion.”

Tuesday, December 14th 2010, 6:57AM 5 Comments

by Benn Bathgate

However, Tower Investments CEO Sam Stubbs believes arguments against compulsion are flawed and it would help the country be "considerably" better off.

According to its 2010 Review of Retirement Income Policy, the Retirement Commission said evidence to the effectiveness of compulsory saving is mixed and it "does not support changes to make KiwiSaver compulsory."

Lee said with KiwiSaver requiring employees to actively opt-out, he believes the scheme has struck the right balance between being voluntary or compulsory.

He also said compulsion wouldn't necessarily raise the amount of money saved - also an issue highlighted by the Commission - and that it should be "very much a last resort."

Also in common with the Commission Lee  said there would be a danger compulsion could detrimentally affect the current NZS - "a very efficient system" - as cash would have to be diverted from other savings and investments towards KiwiSaver.

Lee also said he is "yet to be convinced we have a savings issue."

He believes the real issue is how current retirement savings are invested and spent, and that growing the overall economy would provide a more significant boost to retirement provision.

The Commission did recommend raising the retirement age from 65 to 67 by 2033 - a move ruled out by both National and Labour - but failed to back making KiwiSaver, or any other type of savings, compulsory.

In stating its opposition to compulsion the Review cited concerns administration and compliance costs would rise. Compulsion would also limit the choices of individuals to save through a particular means and "would not allow for differences in circumstances, preferences or stages of life. It might also open the door to undermining the universality of NZS."

Sam Stubbs takes the opposing view to Lee.

He believes the arguments against compulsion are fundamentally flawed as "the debate around compulsion uses academic models."

He believes the models used "assume perfect human behavior" with regard to financial management, which he regards as unrealistic.

Also he believes the current system of allowing an opt-out actually discriminates against the less well off as they have less spare capacity financially for savings.

Looking at the Australian model in particular, Stubbs said he had no reason not to believe countries that adopt compulsory savings won't be "considerably better off in 20 years time."

The Review also raised the concern that compulsion, while changing the composition of saving, might not necessarily change the overall amount saved.

"Despite its generous incentives and automatic enrolment of new employees, KiwiSaver has currently achieved less than 40% coverage among the eligible population. While introducing compulsion would raise participation, would it increase the amount saved?"

The Review did make several recommendations surrounding KiwiSaver however.

It suggests KiwiSaver default funds should continue to be based on products with a conservative risk profile and that providers be encouraged to "provide members with information to help them to make a more active choice of investment."

A standardised approach to the calculation of KiwiSaver fees and performance is also recommended, a measure the Ministry of Economic Development (MED) is currently seeking submissions on.

The Commission also recommended the Retirement Commissioner's 2013 Review of Retirement Income Policy include "a thorough assessment of KiwiSaver, including the emerging pattern of withdrawals and reinvestments by people aged over 65."

It also recommends Statistics New Zealand include KiwiSaver questions in appropriate household surveys "in order that the impact and effectiveness of KiwiSaver can be assessed and informed decisions made about adjustments to the scheme beyond 2012/13."


Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to

« News Round Up: December 13KiwiSaver mismatch a 'huge challenge' for advisers »

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Comments from our readers

On 14 December 2010 at 9:17 am Mac said:
I didn't realise that the Retirement Commissioner had carte blanche to determine if KiwiSaver was to be made compulsory.
On 14 December 2010 at 3:06 pm Regan said:
What is really affecting NZ Super is more people getting older, living longer and not saving enough. Economic growth wont make people work longer or die younger.

Savings didn't boom during the great times pre 2008, but debt did. So Lee's and the Commission's academic theories are (respectfully) complete junk. Typical alternative-reality academia.

Stubbs says their assumptions are unrealistic (he would, mind) but he's right. The opt-out does discriminate against the poor, and the tax incentives do favour the higher earners etc.

It is also bollocks to assert that people substituting compulsory KS for other types of saving is bad. Saving is saving, so these people were going to do some investing anyway - so no downside for them. Compulsory KS will get people who should be saving, saving - IE the other 60% who so far have not.

No-one would be so bold to suggest that the 60% not in KS are all paying off home loans (and cars, computers, upside-down-negatively-geared rental houses, beds, tellies and ab machines) extra quick. They certainly arent't all investing direct, winning lotto, enjoying generous workplace schemes either and no-one would say that those 60% are not likely to benefit from the kickstart the tax credits and the employer subsidies.

Unless they are an academic type with a particular axe to grind...

On 14 December 2010 at 4:51 pm w k said:
The Kiwisaver is a good concept, but poorly structured.
As for compulsory savings, if that had worked well in the few countries that adopted it, why would it not work in NZ? If structured properly we will all be definately be better off.
I know how the structure works, and it will work in NZ, but for whatever reasons, policy makers don't seem at all interested.
On 15 December 2010 at 6:15 am Murray Chong said:
I personaly think Kiwisaver should be compulsory, however we all know this may never happen which is very unfortunate.
Maybe the Government should make a compromise.
Most people that i talk to that have opted out did so because they were given a choice to do so.
Most of these people start Kiwisaver again for 2 main reasons,
Taking time to get the correct advice from an Adviser or Talking to a friend or fellow workmate who started 3 years ago and did not opt out.

Most young people will find out in years to come that opting out of Kiwisaver was the wrong thing to do.

It maybe years before Kiwisaver is compulsory for all, However why not make it compulsory for anyone under 25 or anyone that is not yet a home owner as Kiwisaver is designed to benefit these type of people the most.
On 15 December 2010 at 12:27 pm Johnny Adviser said:
KS most benefits those on the average wage, which just happens to presently be a tick under $50K. At that level, the saver, the employer and the state are all going exact thirdsies (excluding the kick-start even).

What the average person doesn't understand about 200% return before the money is even invested astounds me, so yes, for the average person I agree that it should be compulsory, to save people from themselves, and from the other taxpayers who'll be subbing them later.
Commenting is closed



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