By Amanda Morrall
The government-appointed Savings Working Group (SWG) will announce on Tuesday it has ruled out the option of making KiwiSaver compulsory and is recommending instead "soft" ways of transforming a nation of spenders into savers.
Group member Mary Holm, a vocal proponent of KiwiSaver, confirmed the group's decision, but declined to discuss the details of what exactly the group was recommending pending the official release next week of its report to Government.
"I don’t think it’s a secret that we are not recommending compulsion. We’re recommending instead something that is halfway toward it and some other stuff,'' Holm told interest.co.nz
In an interim report released late last year, the SWG alluded to a "soft compulsion" policy where newcomers to the workforce would be aumotmatically enrolled in KiwiSaver but given the choice to opt out. The final report is due to be released in Wellington on Tuesday. Prime Minister John Key alluded to the report's conclusions in his state of the nation address this week where he argued for asset sales to reduce foreign debt.
Compulsory savings advocate KiwiBank, which made a submission to the Saving Working Group in support of mandatory enrollment, declined comment on the decision.
However, critics of compulsory savings applauded the move.
"If you look at compulsory savings regimes around the world, there isn’t a great deal of evidence that they actually increase savings,'' said Michael Littlewood, co-chair of the Retirement Research Center at the University of Auckland.
Littlewood further questioned the effectiveness of KiwiSaver as a means of promoting and stimulating saving in the absence of any proof of a "measurable impact'' it was having on national savings.
Although cummulative KiwiSavings (including Government, employer and employee contributions) have risen to $5.8 billion since the programme was introduced in 2007, Littlewood said that account in itself was not an meaningful way of judging its effectiveness as a savings tool.
"The counterfactual is what would have happened KiwiSaver apart?," quipped Littlewood. "And you can't tell that unless you look at a household's total balance sheet.''
According to Statistics New Zealand, the household saving rate - expressed as a percentage of household net disposable income - has been mostly negative since 1999 but has improved in recent years. At the end of March 2010 it was -2.2%.
To calculate household savings, Statistics New Zealand substracts expenditure from income received from salaries, wages, interest and dividends.
'Time to get real'
The Savings Working Group has repeatedly underscored the message that New Zealanders are not doing enough to save and that the country is at risk of following in the footsteps of European nations such as debt-ridden Portugual, Italy, Greece and Spain (what analysts have come to describe as the "PIGS" nations) because of towering foreign debt.
It suggest households and Government needed badly to curb consumption to right the ship.
"The bottom line is that New Zealanders have been spending too much and saving too little, using large amounts borrowed offshore to fund new investment. Its credit is maxed out. It's time to get real,'' the group warned in its interim report.
According to an ANZ submission to the Savings Working Group, household savings in New Zealand had improved since the global financial crisis, presumably a result of greater awareness about the need to reign in debt.
The bank’s report notes that national disposable income, which measures income available to New Zealand residents for current consumption on savings rose 4.3 % in the year ended March 2010. While opposed to compulsory savings, ANZ was widely supportive of the Savings Working Group's goal of boosting national savings. It proposed higher employer contributions as one way to achieve that outcome as well partially floating state-owned enterprises on the sharemarket.
Do we have a problem?
The Retirement Policy Research Center suggests New Zealand household savings situation has been greatly exagerrated.
In a 2010 pension briefing comparing New Zealand and Australia (where a compulsory savings regime has been in place for 18 years now) it found that Kiwis were no worse off than their counterparts across the Tasman in terms of the proportion of disposable financial assets that could help fund retirement.
It arrived at that conclusion by drawing on a 2006 report comparing household balance sheets in Australia and New Zealand which separated assets into "lifestyle" and "cashable or financial assets."
Lifestyle assets were defined as things like the family home, car, and household effects and financial assets were everything that could be "sold, cashed in, or used in some way to support people in retirement.''
While more recent data has been gathered New Zealand Treasury has yet to release a report on it. A 2008 version of the report was due out later this year, Littlewood, noted.
Until such time, Littlewood argued: "We shouldn’t even be thinking about radically changing public policies."
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