KEY POINTS:
KiwiSaver's incentives should be scrapped to make the scheme more equitable and financially viable, a policy think-tank group says.
The recommendation is the main message to come out of a new report from the Centre for Independent Studies.
CIS analyst Phil Rennie said last-minute incentives for KiwiSaver announced in last year's budget had made the scheme expensive, distortionary and unsustainable.
"The original KiwiSaver scheme was fine. It was quite a clever model with the opt-out model overcoming natural apathy.
"But the cost of the new subsidies is going to hit $2 billion a year - and that's a conservative estimate - a lot more people have joined KiwiSaver than what was first expected."
Rennie said the incentives meant people were being encouraged to save in one way when there were many ways people could save.
"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. People should not join up and save just because of the subsidies."
Rennie said KiwiSaver also benefited the wealthy or those who could afford to save more while burdening younger generations who must save and pay for a large part of their own retirement while also paying for today's retired.
But Rennie said his biggest concern was its impact on superannuation.
"Our biggest worry is they will cut New Zealand Super."
Finance Minister Michael Cullen has previously said KiwiSaver would not affect New Zealand Superannuation.
But Rennie said the full weight of the costs of subsidising KiwiSaver would not become apparent until 10 or 20 years' time when the Government of the day looked at whether it could continue to pay for superannuation, the New Zealand Super Fund and KiwiSaver.
KiwiSaver's incentives include a $1000 start-up when people join the scheme, a matched contribution of up to $1040 per year and an employer subsidy of up to $1040 per year.
