WELLINGTON, July 1 — The case for making KiwiSaver compulsory is weaker than most people assume, according to a new analysis that warns of serious risks if the Government gains too much control over private retirement savings. National has promised that, if re-elected, it will make KiwiSaver compulsory. But Eric Crampton argues that even those who favour compulsion should fix a fundamental problem first — before the change happens, not after.
The worry is straightforward. If a future Government decides that your savings are its pool of capital to direct, your retirement can be put at risk.
The savings in your account are yours. The Government’s contribution is generally small relative to your payments. Crampton points out that a low-income, part-time worker earning less now than they would get on NZ Superannuation would be forced to save in the years they can least afford it.
Someone borrowing to build a business might sensibly prefer to invest in that business rather than in a KiwiSaver share portfolio. Compulsion might even push them to take on more debt simply to make the KiwiSaver payment.
Today, your money is somewhat protected by the option to opt out. If a Government decided to interfere with savers’ portfolios, you could decide not to join KiwiSaver or to stop contributing when you next change jobs — and invest elsewhere. Only already-invested savings are at risk.
Compulsion removes that exit option entirely. A pool of savings that people can neither leave nor stop feeding can be enormously tempting to Governments, Crampton warns. If the Government thinks its $260.72 annual contribution makes the account less than yours, you should have the freedom to decline its contribution and ensuing entanglements.
And your employer’s half of the contribution comes out of your wages over time. It is your money.
The debate over how Governments should regulate or direct those funds continues, but the analysis suggests that guardrails need to be in place before any move to compulsion — not after the fact, when savers have no way out.
