Fresh from removing the sign-on bonus for new KiwiSaver members, Bill English is now talking about compulsorily enrolling everyone (well, all employees I assume) in KIwiSaver. This was National Party policy to do at some stage, when the government’s books were in surplus, but it has now got cheaper to do because people could now be forced to join, at no upfront cost to the government.
It is far from clear what problem the Minister of Finance thinks he would be addressing. Everyone who has started a new job since 2007 has already been auto-enrolled, and many others have chosen to enrol. My guess would be that at least half of those who were in labour force in 2007 have changed job since then, and a large number have entered the labour force for the first time. All those people were auto-enrolled. Most of those who have never joined, or have opted out, or subsequently taken a contribution holiday, have presumably made a considered choice. Perhaps they can’t afford to be in the scheme now. Perhaps paying off the mortgage is a higher priority. Perhaps they are among that large group for whom NZS will already more or less maintain their pre-retirement standard of living.
I had hoped that the government might now leave KiwiSaver to wither on the vine. After all, there is not much evidence that the scheme so far has boosted national savings, and there isn’t an elderly poverty problem. Enhancing the retirement income of the relatively comfortable doesn’t seem like an obvious public policy priority.
The Minister did once regard New Zealand’s relatively low rate of national savings as a problem, but Google throws up no references along those lines in the last 3-4 years. If he no longer regards national savings as a policy problem, I happen to agree with him (I’ll get to savings as I carry on discussing the reasons behind NZ’s high interest rates).
Surely provision for retirement savings can’t be the problem either? After all, this government has ruled out any change to the age of eligibility to NZS, and if they have not ruled out lowering the rate or means-testing they have certainly shown no appetite for doing anything. And, as is well-known, New Zealand’s rate of poverty among the elderly is low, absolutely and by comparison with other countries. Of course, high house prices may make that picture less rosy in a few decades’ time, but the government knows that freeing-up housing supply is the answer to that one.
And, in any case, although it is proposed to auto-enrol all employees, they could still choose to opt out. Indeed, given that it is almost exclusively people now over 25 who have not been auto-enrolled already, one might reasonably assume that a large proportion of those who would be compulsorily enrolled if the Minister’s proposal went ahead might choose to opt out. Yes, I know all the “nudge” literature, but recall that this experiment would not be on the population as a whole, but on a self-selected group of whom many had already deliberately chosen not to join.
And if income adequacy in retirement were really the concern, surely (a) compulsory contributory membership (not just initial enrolment), and (b) something that encompassed the whole population (business owners, welfare beneficiaries, stay-at-home parents) not just employees, would be the way to go. But, fortunately, that doesn’t seem in prospect.
The National Party’s website says that it believes as follows:
The National Party seeks a safe, prosperous, and successful New Zealand that creates opportunities for all New Zealanders to reach their personal goals and dreams.
We believe this will be achieved by building a society based on the following values:
- Loyalty to our country, its democratic principles, and our Sovereign as Head of State
- National and personal security
- Equal citizenship and equal opportunity
- Individual freedom and choice
- Personal responsibility
- Competitive enterprise and reward for achievement
- Limited government
- Strong families and caring communities
- Sustainable development of our environment
At least three of those values – “individual freedom and choice”, “personal responsibility”, and “limited government” look inconsistent with auto-enrolling everyone in KiwiSaver. Perhaps they might justify it under “personal security”, but I’d assumed that has to do with crime, and anyway, as noted already, elderly poverty just is not a major problem in New Zealand.
Compulsory enrolment of all employees in KiwiSaver smacks of something from The Treasury, and its “living standards framework”. But last time I looked, that framework put no independent value on things like individual freedom and choice, except insofar as they served some other end.
The Minister also appears to be using the dubious argument that Kiwisaver is an excellent investment. If it were really so, you would think that after eight years most people might have got the idea. But in fact, it is true only on very shaky assumptions. Certainly, for the time being there is an annual government subsidy of up to about $500. That is worth having, but it is hardly transformative. In fact, for most people with a mortgage and contributing to Kiwisaver, it won’t even cover the tax wedge. So the Minister’s claim is true only if the employer’s contribution to Kiwisaver would not otherwise be paid to the employee. In the short-term, for any particular job or employee that might be true – that (and the subsidies) was the main reason I joined Kiwisaver. But in the medium to long-term surely the Minister of Finance does not believe that returns to labour will be materially affected by whether people take their income in the form of Kiwisaver contributions or in straight wages and salaries?
So New Zealand
- Does not have a national savings policy problem (although the national savings rate does raise some interesting questions)
- Has little or no evidence that KiwiSaver so far has made any material difference to national savings anyway
- Does not have an elderly poverty problem
- Has a government which is firmly committed to the current NZS system.
- Has most people already in KiwiSaver, while those in the workforce who aren’t in KiwiSaver will already mostly have made an active choice to stay outside.
- Has a governing party that proclaims commitment to personal responsibility and individual freedom and choice.
And for most people in their middle years, Kiwisaver involves a very nasty tax wedge.
So quite why would the Minister of Finance think it was good policy to compulsorily enrol the rest of the employees in the country in KiwiSaver?