Editorial: Compulsory super best way forward

Photo / The Aucklander

So compelling is the case for compulsory superannuation that it is a mystery why the Government is setting up yet another working group.

It needs only look across the Tasman, where the concept has proved so successful over the past two decades that almost two-thirds of Australians now support an increase in contributions to their compulsory scheme from 9 to 12 per cent.

Trekking down the same path here will address a number of pressing issues. In reality, it is not a question of whether there should be compulsory superannuation but when and how it should be introduced.

The core issue is the sustainability problems of NZ Superannuation as the baby boomers move into retirement. The Government's response to this has been sharply constrained by two acts.

The first was the Prime Minister's unfortunate remark that he would resign if his administration ever changed the entitlements for national super. The second was the Government's suspension of Cullen Fund contributions. Another road that pays for retirement needs will have to be carved out.

Importantly, compulsory superannuation would provide the added benefit of building a much-needed savings base and reducing the country's reliance on borrowing from overseas. This has been the thrust of John Key's comments.

"I want to see national savings rise so we are less reliant on foreign borrowing," he said this week. "The global crisis showed that if you rely very heavily on foreign borrowing, as New Zealand is doing, eventually it catches up on you."

The impact has, in fact, been apparent rather longer, spurred in large part by the $1.4 trillion pool of capital created by compulsory superannuation in Australia.

It is evident in the large number of New Zealand businesses that now answer to owners in Sydney or Melbourne.

This country has, of course, toyed with compulsory superannuation before. Most recently, in 1997, a scheme proposed by NZ First leader Winston Peters was rejected by 92 per cent of those who voted in a referendum.

Mr Key suggests there has been a shift in opinion since then as people ponder the implications of longer lifespans. Assisting that process has undoubtedly been the voluntary KiwiSaver scheme. It has attracted almost half the working population. Making it compulsory is the next most logical step.

Imposing compulsion on those already in employment would be problematic, however. Many would have chosen not to take up KiwiSaver because they had made their own superannuation arrangements or invested in rental property or suchlike.

Any government that sought to burden them with a further impost would be walking into trouble. It would be far easier politically, and somewhat fairer, if compulsory KiwiSaver became a fact of life as people entered the workforce.

So far, KiwiSaver has amassed only $5 billion, a factor not helped by the Government's scaling back of minimum employer contributions. It is unrealistic to expect a compulsory scheme to ever mimic the scale of that in Australia. But nor need it, at least in terms of the superannuation equation.

Mr Key's entitlements pledge does not bind those who will follow him. After his departure, changes will, inevitably, be made. Among the options are a lower rate, a lifting of the age of entitlement, or means testing.

The Government working group will also look at other ways to increase private savings. On the table will be the likes of tax breaks and other incentives, or a further lowering of taxes.

But whatever the merit of these, they have the appearance of tinkering. Compulsory superannuation has a far more thoroughgoing appeal. So much so that the Government need not ponder long.