KiwiSaver or KiwiSucker? A Critical View - The Centre for Independent Studies
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KiwiSaver or KiwiSucker? A Critical View

The promised benefits of KiwiSaver do not match the high cost of the taxpayer subsidies.

  • KiwiSaver is a pointless and hugely expensive straitjacket on the New Zealand economy.
  • The incentives added last year have made the scheme expensive, distorting, regressive, unfair, unstable, and unsustainable.
  • KiwiSaver represents a fundamental change to New Zealand’s retirement system, which now combines one of the most generous pensions in the world with a heavily subsidised saving scheme. It represents a major shift in how people allocate money over their lives.
  • The best available research shows that most people were already saving enough for retirement, with 80% of couples saving enough to maintain a level of consumption similar to or better than in pre-retirement. Savings are notoriously difficult to measure, and most attempts end up vastly underestimating the true level.
  • With KiwiSaver and New Zealand Super combined, it is now possible for a young person on the average wage to retire on a higher income than they enjoy during their working life. It is a complete overload to have a subsidised saving scheme on top of an age pension that is the highest in the OECD.
  • KiwiSaver largely benefits the wealthy, who can afford to save more, and burdens younger generations, who must now save and pay for a large part of their own retirement while also paying for today’s retired generation.
  • KiwiSaver politically and economically threatens the future of New Zealand Super. It adds to the cost of an aging population and makes means testing more likely in the future.
  • Evidence from around the world suggests that subsidies for savings schemes do little to actually increase overall savings. Instead, people tend to shuffle around existing savings to take advantage of the subsidies.
  • The link between savings and growth is weak, especially in a small, open economy like New Zealand. Higher savings will not necessarily guarantee higher investment, and in any event, what matters is the quality of investment rather than the quantity or the source of funding.
  • People save in many different ways, not just by putting money in the bank. Yet it is now more rewarding for people to join KiwiSaver than it is to pay off debt or a mortgage, or to invest in business or an education. This is a major distortion, which could make New Zealand worse off.
  • The requirement for employers to contribute 4% of a worker’s salary will put downward pressure on wages and job growth.
  • KiwiSaver is hugely expensive. The total cost will rise to $2 billion a year, which is more than New Zealand spends on its entire defence force. If used for tax cuts, it could provide a significant boost to incomes and economic growth.
  • The easiest way to fix KiwiSaver is to scrap the generous incentives to contribute, and return it to its original incarnation as a simple and modest savings scheme.

Phil Rennie is a Policy Analyst with the New Zealand Policy Unit of The Centre for Independent Studies.