Inside Money: Should KiwiSaver be run by obsessive compulsives?

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Did Guyon Espiner really say that? I wasn't sure, I was drifting off and his TVNZ report on the now-reignited debate on compulsory superannuation floated through my consciousness.

But I just checked online and there it was, Espiner claiming that Australians contribute 9 per cent to superannuation, a figure that is matched by a further 9 per cent employer contribution.

As much as Australia's fund managers would like this to be true, it isn't. Currently, Australian employers are compelled to contribute an extra 9 per cent of their workers ordinary time earnings to superannuation.

If Australian individuals want to contribute more than 9 per cent they can take advantage of certain tax incentives.

And while the compulsory element of Australia's super scheme is referred to as an 'employer contribution', the distinction comes down to semantics, history and tax rather than a meaningful description of who bears the cost.

Australia's compulsory super system began in 1992 when the powerful unions agreed to it in lieu of a pay rise. It's best to view Australian wages and salaries as a total 'package' - super is not an extra benefit conjured up by employers but income set aside that workers otherwise would have received directly in pay increases over the years.

Just as Espiner doubled Australia's superannuation contribution rate, there are many fund managers (and other compulsion freaks) in New Zealand who tend to overestimate its effectiveness.

Yes, there are more than A$1 trillion in Australian superannuation funds - which may or may not have added to the overall savings rate - and probably has lifted Australia's financial literacy levels.

But, as the recent 'Cooper Review' highlighted, Australia's compulsory super system has been glaringly inefficient - compulsion without careful design can do that.

The final Cooper report, published this July, reveals that "short-term annual system savings of about $1.55B and long term annual system savings of around $2.7B" could be achieved if some recommended efficiency measures were introduced.

KiwiSaver, by contrast, is relatively efficient and amazingly flexible.

Over 1.5 million New Zealanders have either chosen to join KiwiSaver or not elected out of it after being compulsorily enrolled. There are great incentives for joining KiwiSaver but also excellent opt-out and holiday mechanisms if you can't, for now, afford it.

If the intention in putting compulsion on the KiwiSaver agenda is to deliver those financial incentives on an equitable basis to all those who can afford to join but are too slow or pigheaded to sign up - then it might be justified.

But if compulsion means losing, or reducing, those incentives while removing all elements of flexibility then KiwiSavers will be worse off.

Compulsion should not be aimed at soothing a funds management industry suffering from Aussie-envy.


David Chaplin