Since the inception of KiwiSaver in 2007, there has been wide ranging talk about whether this savings vehicle should be made compulsory for all working New Zealanders.
In the lead up to this year’s election this idea has resurfaced, with some discussion around the possibility of ‘soft compulsion’ for KiwiSaver. This would involve the enrolment of all those in work that have not yet joined up, but would provide the option for these people to opt out if they wished.
Those in favour of compulsory superannuation argue that it would significantly increase the level of New Zealanders household savings, and ultimately make the retirement of individuals more comfortable, with less reliance on the state. From a national perspective it is also argued that increasing our level of national savings would reduce our reliance on overseas borrowing, and put the economy on a much more stable and sustainable footing.
Although many people may not realise it, New Zealand has in fact had a form of compulsory superannuation in place for many years now, in the form of National Superannuation. Whether workers like it or not they are contributing, via their taxes, to this pool of savings that fund the current and future superannuation payments to those over 65. All individuals receive the same amount, regardless of their previous income level or social status. However, with the number of retirees expected to increase dramatically over the coming years, this form of superannuation is expected to come under huge pressure. Many commentators are saying that we need to start taking steps now to ensure the longevity of NZ Super into the future.
Those against compulsory superannuation suggest that it will limit choice for everyday investors, and potentially force them into an investment that doesn’t necessarily meet their needs or suit their stage of life. It is argued that many people would prefer to save in other ways, by paying down mortgage debt for example, as opposed to the traditional form of saving we think of such as putting money in the bank or other forms of investment.
One point that receives consensus from both sides of the debate, is that Kiwis need to have a greater understanding of their long-term savings situation, and that steps are taken now (either enforced or voluntary) to ensure all New Zealanders can maintain a reasonable standard of living in retirement.
We would be interested to hear your thoughts on the merits or otherwise of compulsory superannuation, or if you think there are any other suitable alternatives to compulsion. Based on the current retirement funding model in New Zealand, are you set up (or on track) for a comfortable standard of retirement living?