Greater urgency required to improve long term savings
Wednesday 19 Oct 11 3:15pm
The Investment Savings and Insurance Association (ISI) says delaying the automatic enrolment of employees into KiwiSaver until 2014 ignores the longer term savings issues New Zealand is facing from an aging population.
As was widely expected, the Government earlier this week signalled its intention to automatically enrol every employee in KiwiSaver in 2014, with each person then having the ability to “opt out” of the scheme.
While the ISI says the proposal is a step in the right direction, the change needs to be implemented much sooner than the proposed 2014 date.
ISI also believes that now is the time to have a much broader national debate about the future of KiwiSaver in order to create a sustainable scheme that provides employees with greater certainty about the future, and removes the risk of successive Governments tinkering with it.
ISI CEO Peter Neilson says that automatic enrolment is only one possible idea to improve the level of national savings, and that all ideas need to be discussed and considered, such as compulsory savings, increasing contribution rates over time to match the levels in Australia, and raising the age of entitlement for Government superannuation.
“Our preliminary analysis suggests that, in order to provide greater security of future retirement income, there needs to be a much greater reliance on savings rather than taxation,” explains Mr Neilson. “Not only is our population aging, it is also living longer. It is these two factors that mean our current retirement income model, that is largely dependent on tax revenue, is going to be unable to meet future requirements.”
Mr Neilson says that New Zealanders seem to be coming to the realisation that changes are needed. “Polling we conducted immediately following the May Budget announcement indicated widespread public support for a compulsory superannuation scheme for employees, paid for by both employers and employees,” says Mr Neilson. “This growing awareness of the issues indicates we are ready to engage in more public debate about the future of retirement incomes and savings.”
Mr Neilson says ISI would welcome cross-party discussions to address the long term issues New Zealand faces from an aging population, and to develop a scheme that will become a predominant source of income for retirement for those now entering the workforce. The Association believes the best time to address this would be in the period immediately following the November general election.
“There is still time to introduce a defined series of small but predictable changes over an extended period that will allow employers and employees time to plan for the changes with confidence, and allow New Zealanders to increase their level of savings as the economy improves and real incomes increase,” says Mr Neilson. “But we need to act now, not in 2014. The longer we wait to take action, the further behind Australia we will fall.”