Treasury sees "modest" compulsory savings impact

Compulsory super would lead to ‘modest’ lift in savings, Treasury says

by Paul McBeth

Sept. 8 (BusinessDesk) – Introducing compulsory superannuation would lead to a “modest” lift in national savings, though the overall impact on the economy would depend on how it’s designed, according to The Treasury.

Compulsory super could increase national savings and bolster capital markets, the government adviser said in a discussion document on saving, though success is “heavily dependent on the nature of the design of the schemes.”

Treasury said introducing a compulsory savings scheme raised well-being and fairness issues, and could discourage low-income people from accepting work as they wouldn’t be able to afford it.

The document pointed out that if New Zealand introduced compulsory super, it would be unique in having such a saving scheme in conjunction with a “near-universal retirement income provision.”

Treasury ‘s discussion document is to help provide some guidance for submissions to the government-mandated Savings Working Group, which is looking to boost New Zealand’s overall savings rather than just retirement savings.

An ageing population has kept superannuation in the spotlight, and Secretary John Whitehead told a media conference in Wellington. The discussion document looked at issues beyond the group’s terms of reference, for completion’s sake.

Finance Minister Bill English specifically excluded super, including the Cullen Fund, which was set up to partially-provide for the ‘Baby Boomer’ generation.

Treasury looked at two taboos, the government super scheme and interest-free student loans, which it said would be areas most likely to reduce the need for household saving.

Interest free student loans discouraged people for saving for their children’s education, and the loans themselves stoked students’ appetite for debt, and acclimatised them for “consumption through debt rather than saving,” the department said.

Treasury, which has already flagged super as an area that needs an overhaul, said changing the age of eligibility and introducing means testing would encourage people to save for their retirement, and keep them in the labour force for longer.

A comprehensive capital gains tax, which was ruled out by Prime Minister John Key when the government rebalanced its tax system, would improve neutrality between debt, equity and property, and would help improve the integrity of the tax system, though it wouldn’t increase savings in and of itself, Treasury said.

Whitehead told a media conference in Wellington the housing boom had played a part in New Zealand’s deteriorating savings balance, as people were more inclined to take on debt as the value of their properties rose.

Though English wants the Savings Working Group to look at the fairness of KiwiSaver’s top-ups, Whitehead said the scheme’s “automatic enrolments are innovative,” though there wasn’t enough evidence this early in the scheme’s life to say whether it had lifted the nation’s savings.

“It takes advantage of people’s inertia to increase the savings total” and should help introduce a “habit of saving” in people, he said.

(BusinessDesk) 17:29:30