Please don’t force me to save

According to a Horizon poll, commissioned by the Financial Services Council (FSC), 41% of us feel we need to be forced to save.  Isn’t it great then that we have a scheme like KiwiSaver which effectively compels us to save once enrolled?  But many want to go further, forcing people like myself who have made a conscious decision not to be in KiwiSaver to join anyway.

The Horizon poll suggested significant support for compulsory KiwiSaver.  35% of respondents fully supported making KiwiSaver compulsory.  Adding people who don’t know but “lean towards” supporting it, or support it with “some reservations” you get 70% of respondents expressing some level of support for compulsory KiwiSaver– which makes for impressive headlines.

Given over 2 million of us have enrolled in KiwiSaver, it is plausible the support for compulsory KiwiSaver comes almost exclusively from current members.  The published results contain some breakdown (for example by age and income) but there doesn’t appear to be any distinction between current KiwiSaver members and non-members.  There is a big difference between saying “force me to save” as discussed at the beginning of this article, and saying “force everybody else to be in KiwiSaver”.

One interesting point to note is that support for compulsory KiwiSaver was significantly higher for respondents over 65 years old (44% fully support) compared to under 65 year olds (34%).  It seems reasonable that people not directly affected by a policy are more likely to support the idea of it, and the same could be said for people already in KiwiSaver.

Something else gleaned from the published results is that support for a compulsory retirement savings scheme increases significantly with income.  You may expect this to be the case, because lower-income people are less able to afford saving than higher-income people.  For those on average and above-average incomes, enrolling in KiwiSaver usually means diverting existing savings into the scheme to take advantage of tax breaks.

It could it also be however, that higher-income people are already saving and want to force lower-income people to do the same.  The outcome of this policy would be that poorer people are forced to save for their own retirement and the burden on the tax system, which is primarily met by those on higher incomes, is reduced.

Whether or not New Zealand has a savings “problem” is outside the scope of this article, and there are plenty of well-meaning people on both sides of the debate.  Reading the FSC’s media release that accompanied the poll, it would be easy to be left with the impression it is a problem for which people are crying out for a solution.  But there are still a significant number of people that don’t want to be forced to save through the KiwiSaver vehicle.

What we should be considering is whether there is a justification for forcing the remaining hold-outs to be part of a scheme that they have made a conscious decision to stay out of. The people who want to be compelled to save already have the option of being in KiwiSaver, and these days it is easier be in the scheme than stay out of it. 

 

Personally I choose not to be in KiwiSaver right now.  I believe my decision is rational decision, that I will be adequately set up by the time I retire through other savings vehicles, and I would oppose any government move to take that decision out of my hands.

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