By Amanda Morrall
KiwiSaver providers Tower and Fisher Funds believe National's proposed auto-enrolment exercise doesn't go far enough to address New Zealander's brewing retirement crisis which will leave non-savers financially bereft in old age.
Pending a projected return to surplus 2014/2015, National is planning a one-time auto-enrolment blitz that would sweep into KiwiSaver those employees who aren't already there. (Gareth Vaughan and Bernard Hickey highlight the details here.)
Carmel Fisher of Fisher Funds Management said while it was a "bold and necessary" move, the savings situation in New Zealand required more radical action; hard compulsion.
"We have a serious retirement problem in this country, we aren't going to be able to pay for the retirement of today's children...I know there's a lot of people who are going to say `We want choice,' but the reality is that New Zealanders are too reliant on Government," Fisher said.
"We're going to need national savings to increase as a whole so today's children can afford to retire and live the kind of lifestyle that they need.''
How much is enough?
Tower Investments CEO Stubbs said the savings situation was so acute that the debate about compulsion, both hard and soft options, overlooked the more important issue of contribution rates.
"The debate shouldn't be focussed on compulsion, it's how do we get contribution rates up to levels that will meet expectations for retirement. So I think the next debate is how much is enough and how do we get there.''
Stubbs believes that to adequately meet retirement expectations, KiwiSaver contributions need to be gradually notched up from the current 2% and 3% (effective April 2013) to between 9-12% in line with savings rates across the Tasman.
"You have to create a savings habit and we're in favour of a scheme that looks something like that of Australian's,'' said Stubbs.
Rates need to triple
To bridge the gap between where savers are at now and where they need to get, Stubbs wants contribution rates be slowly raised by between .25% and 1% a year over the coming decade.
"One way or another" Stubbs said the country would be forced to move toward hard compulsion on KiwiSaver.
David Ireland, chair of Workplace Savings agreed the savings rates and habits needed to change in New Zealand, but he questioned the effectiveness of auto-enrolment, estimated to cost NZ$500 million.
"We'll sweep up a few, but the question is whether the benefits outweigh the costs.''
The targeted audience of auto-enrolment is sometimes referred to by the industry as "late adopters" or "reluctant savers.''
Ireland said those who aren't already in KiwiSaver tend to be those abstaining for financial or philosophical reasons. In forcing them automatically into KiwiSaver through their employers, he said Government runs the risk of them turning around and jumping out again, all of which would be costly.
Further, he said any auto-enrolment exercise would have to be flanked with a vigorous education campaign explaining the ability to opt-out of it.
More education a fool's paradise?
Education initiatives aimed at increasing financial literacy generally and driving home the importance of self saving for retirement might be a more constructive and efficient use of time, money and effort, said Ireland.
Fisher said it was "utopia" to imagine more education would solve the savings problem.
"If we wait around for people to be educated and for them to have that Eureka moment where the realise `Oh, I'm going to have to pay for myself,' we'll be waiting for decades. We simply don't have the luxury of time, but it would be wonderful if we could all educate ourselves.''
Given that the proposed auto-enrolment, which would be subject to public consultation, is still three to four years away (and also contingent on Government returning to a surplus) Ireland said the whole issue was speculative.
"This might not happen and when you say that it reduces peoples' enthusiasm for it. There's a high risk it could all be wasted. 2014/15 is a long way away.''