Economist says Government savings plan flawed

1.00pm

A local economist says features of a new proposal being considered by the Government to improve the savings habits of New Zealand workers could undermine the very job they set out to do.

Rozanna Wozniak, the chief economic adviser for funds managers, Spicers Wealth Management, told National Radio a chief concern is that an employer contribution was left off the agenda for the Savings Product Working Group (SPWG) -- set up at the Government's request in May -- which will lead to some features which will undermine membership rates.

"Without an enticement from the employer, why would they (employees) want to stay in -- there's no real incentive for them?

"Automatic enrolment will help membership rates. However, after 30 days a lot of people will say they no longer want to be part of it."

Workers could opt out of the proposed the scheme if they chose to.

Ms Wozniak said if the boss was seen to be putting in some money, employers would be more inclined to join up.

"(The proposal should) have a minimum employer contribution (and) have the Government have a look at offsetting the costs with something like a cut in the company tax rate."

Under the present proposal, employees are allowed to withdraw up to 50 per cent of their savings after five years -- That's "a huge temptation", said Ms Wozniak."

She said the group had to insert this clause to cope with the moral dilemma of keeping people's money locked away for a long period of time.

By introducing an employer contribution, they could lock up that moral right to withdraw, she said.

The SPWG yesterday unveiled its report on encouraging workers to save for their retirement.

The group has developed a so-called "pathway" of government intervention to improve savings, and offered a generic savings structure.

Revenue Minister Michael Cullen told NZPA yesterday the Government had yet to consider the SPWG's proposals.

Dr Cullen said he was committed to seeing progress made on workplace savings in the 2005 Budget, but it was unlikely a savings scheme could be introduced before April 1, 2007.

The SPWG had "come back with what I think is a very practical set of proposals for the Government's consideration and for the public's consideration".

In response, Diana Crossan, the Retirement Commisioner, who sat on the working group, said that government had said that it did not want to go as far as forcing employers to make contributions.

"(The Government) wanted to make compliance and issues for the employers as minimal as possible, and the working group worked at that," she told National Radio.

Ms Crossan said that she personally liked the idea of employer contributions, but wasn't sure about the idea of compulsion.

"If the employer makes contributions, it's almost a 'no-brainer' for people to take it on -- It's like getting a pay-rise, really," she said.

"But making it compulsory for employers, I'm not quite sure."

Ms Crossan said that the idea to let savers withdraw 50 per cent of their savings was "because 55 years was a long time for some people", and people could pull the money out for "hardships, debts, or a child's education".

"I think that the climate at the moment would be to take one step first, and that is to make it (the proposal) accessible for everybody," she said.

- NZPA