Published on 01/11/2023
By Sam Stubbs
KiwiSaver has been a huge success. New Zealanders have already saved close to $100 billion, but that’s not as good as it seems, because Australia has over NZD $3.8 trillion saved. That’s right. Australia has five times our population, but over 38 times our retirement savings. And it continues to romp ahead, because Australians already save 11% of their salary and wages (which will be 12% in 2025), and it’s compulsory.
By contrast, KiwiSaver contributions are usually 6% and are voluntary. To show the economic power of this, a 5% average return on Australia’s $3.8 trillion means NZD $190 billion a year in interest and investment gains. That’s almost 44% of New Zealand’s GDP. That’s right, the average retirement savings gains in Aussie each year are the same as 44% of New Zealand’s entire economic activity. And that’s why, when you go to Brisbane, the buildings are taller than Auckland, the infrastructure is better, and the people are richer.
And it is also why our nurses and prison guards are easily lured away by Aussie employers. Anywhere in Australia pays more than Auckland because it’s richer, and it’s richer because they’ve saved more. This is not rocket science. Save more, and you can spend more. So any government that isn’t focused on New Zealand saving more is cashing in on our future.
Yet even Labour, the party that founded KiwiSaver, has yet to float any policy focussed on raising KiwiSaver contributions or compulsion. They made a great start, but they haven’t finished the job. And National has been equally silent. They appear more focused on returning to the good old days of encouraging excessive property investment, one of the very things that perpetuates our low productivity.
So why have politicians on both sides of the aisle done nothing, when it’s so obvious that they have to? Sadly, the answer lies in short-termism and the politics of sound bites. Very few politicians seem to be prepared to step up and admit that New Zealanders will have to save a little more now, in order to be a lot better off in the future. That’s advice our grandmothers would give us.
But politicians are deaf on this one because delayed gratification of any sort is seen as political poison. And politicians realise that election victory relies on maintaining the illusion that prosperity is just around the corner, and requires no real sacrifice whatsoever. Evidence of how shy political parties are of admitting that any sacrifice is required is that a hot political potato in this campaign was bringing back paying $5 for a prescription. Really?
So it’s time for politicians to put their big boy and girl pants on, make KiwiSaver compulsory, and raise contributions to at least 12% of salary or wages, slowly, over time. Almost every actuary will agree that this is the level of savings required for a dignified retirement. But 12% is far more than most KiwiSavers currently contribute, so changes clearly need to be made over time. For example, a rise of 1/2% a year would get us to 12% in a little over a decade. That’s long enough for the rises to be built into salary and wage rises in as painless a way as possible.
And if any government passed the legislation, I doubt that any subsequent one would reverse it. Why? Because it makes common sense, and everyone would get used to the rises.
This article was originally written for and published by The Post.
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