Editorial: Savers want the freedom to choose

Opinion

Compulsion and savings are words that never sit together well. In 1997, when Winston Peters, then the Treasurer, proposed compulsory superannuation, it was resoundingly defeated at a referendum. New Zealanders, preached the virtues of self-reliance throughout a decade of economic restructuring, found the proposition unpalatable. Not, of course, that their overwhelming rejection made the country's savings problem go away.

Now, the debate has been reopened thanks to a compulsory savings scheme advanced by the New Zealand Institute. It would see individual savings accounts set up automatically at birth, into which the Government would put $500, followed by another $500 at ages 5 and 10. Additionally, a 2 per cent across-the-board income tax cut would go into the accounts, which could be accessed only for education, to repay a student loan, to finance a first-home deposit, or for retirement.

Individual accounts are often considered a key to successful savings schemes, and any proposal aimed at making it easier for people to save is welcome. But this one will not gain momentum. Both the Government and the National Party have dismissed it as unaffordable because it would mean diverting up to $4 billion a year of Government revenue. They might also have added that the effect of the tax cut would be contrary, with far more money being diverted into the accounts of those already wealthy and well able to save.

Interestingly, however, there was no highlighting of the scheme's compulsory element. This, in itself, could reflect an increasing unease about the consequences of New Zealanders' doleful savings habits, not least a falling rate of home ownership.

Certainly, the results of a Herald-Digipoll survey published at the same time suggested that might be the case. Encouragingly, 71 per cent of those surveyed supported a plan floated last year for a workplace retirement savings scheme that still allows workers to opt out. Significantly, those polled were less enthusiastic about the prospect of the money being locked in for retirement. Fifty-one per cent said that the money should be able to drawn on for a house deposit or tertiary education.

That jibbing suggested there is an ongoing measure of distaste for schemes featuring a high degree of compulsion. The version of the workplace savings scheme to be announced in the Budget will have to supply employees with substantial incentives to lock in their savings if it is to be successful.

The New Zealand Institute suggested the Herald-Digipoll finding indicated people understood that being committed to savings was important. But, it added, not too many worked-up proposals had been put on the table. The institute is right on both counts. Other surveys have also indicated that a clear majority of New Zealanders acknowledge the need to take greater responsibility for their retirement.

That confirms a mounting concern about the national savings rate. At least one poll has suggested this may be leading to a switch in attitude. A people weaned off regulation and compulsion could be changing their minds about that, and the notion of specified taxes. The introduction of Michael Cullen's New Zealand Superannuation Fund attracted little opposition, albeit that its element of compulsion is at a considerable arm's length.

That, however, should not been seen as a sanction for schemes that boast a high degree of prescription. Compulsion is, in principle, inherently undesirable, as is tying private savings into forms of investment tightly dictated by the state. The Herald-Digipoll survey suggests that support for that view remains uppermost.

The time is ripe for proposals for boosting asset ownership and implanting a savings culture. The NZ Superannuation Fund is designed only to partly pre-fund future costs, and a time of low unemployment offers the chance to develop a new mindset. Any savings scheme, however, must offer a fair degree of freedom and choice.