This article was published on 26 January 2013. Some information may be out of date.

Let’s not make KiwiSaver compulsory

The words “compulsory” and “KiwiSaver” seem to be appearing more and more often in the same sentence. I don’t like it — but I seem to be in the minority.

A recent survey found almost 59 per cent of New Zealanders support making all employees belong to KiwiSaver, while only 16 per cent oppose that, with the rest neutral or not sure, says the Financial Services Council.

Chief executive Peter Neilson says the Council “does not itself have a policy on whether KiwiSaver should be universal for employees”. But various financial people — no doubt including some Council members — are pushing for such a change.

Thus far, though, the government has said only that it plans to auto-enroll all employees in KiwiSaver, some time after 2014/15.

That means those who want to be in, but haven’t got around to joining, will be given a nudge. But — importantly — those who really don’t want to be in KiwiSaver can opt out after a few weeks.

I oppose compulsory KiwiSaver for several reasons:

  • A government shouldn’t make people do more than is necessary to run a country well — such as paying tax.
  • While KiwiSaver is hard to beat as an investment — because of the government and employer contributions — some people have more pressing things to do with their money, such as getting rid of high-interest debt and setting up or running a business.

    It’s usually worthwhile for such people to join KiwiSaver, to get the $1000 kick-start while it’s going. But they can then take a contributions holiday after a year, or straight away if they are not an employee, and get on with the debt repayment or business. Compulsion wouldn’t give them that choice.

    Other people simply can’t afford KiwiSaver. I’m sometimes disparaging about this argument, saying that 2 per cent of pay — 3 per cent from April 1 — is tiny. And it’s amazing who can afford a fancy cellphone or TV but not KiwiSaver.

    There are, though, people who really struggle to meet basic needs. This is often a timing issue. At some point later in their lives they will be able to save for retirement, but not now. Compulsion doesn’t let people time their saving.

  • Some people don’t need to save for retirement. They’ve got enough already. Why shouldn’t they be free to spend all their earnings?

Backers of compulsory KiwiSaver often point to Australia, where retirement saving is compulsory — although the money comes from employers rather than employees. “Look at the great savings people have to retire on,” they say.

But something interesting is happening in Australia.

“The problem is that many people don’t seem too happy about being compelled to save,” says Professor Susan Thorp of the University of Technology in Sydney.

“A report prepared by Simon Kelly for CPA Australia showed that the average pre-retiree appears to be neutralising their compulsory superannuation savings in two ways: first by adding to property-related debt and second, by decreasing savings in other areas.”

Forced to save more than they want to, many Australians are getting the money to spend anyway by adding to their mortgages. When they retire, they take a lump sum out of their compulsory savings to repay the mortgage.

No doubt, the same thing would happen here under compulsory KiwiSaver. People would find ways around it.

The decision on whether to make KiwiSaver compulsory shouldn’t be by popular vote. Even if 90 per cent of New Zealanders applauded the idea, the other 10 per cent might have really good reasons not to.

I hope the government continues to let New Zealanders save for retirement the way they think is best for them.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.