PensionReforms' summary and comments
 
This paper, presented to the Association of Superannuation Funds Conference in October is in PensionReforms' Library.  New Zealand faces the introduction of a major retirement savings initiative called KiwiSaver.  It starts on 1 July 2007 and the author, recently the Director of the UK's Pensions Policy Institute (and now a Governor), looked at the New Zealand arrangements by comparing it with the National Pensions Savings Scheme (NPSS) that the UK government proposes will begin in 2012.

"KiwiSaver is the first national auto-enrolment savings scheme in the world. It will be the first test case of a national public policy that in effect forces the population to engage with saving, even if only to the extent of taking action to stop saving..[so] does KiwiSaver look set to be a world leader not just because it's first but because it is good policy?

The paper suggests that a number of environmental factors mean that "the UK [will face] a harder path to success with auto-enrolment of its rather prescriptive pension savings plan, compared to the easier path to the simpler KiwiSaver, for reasons as much to do with the wider environment than the design of the savings vehicle itself."

"So, ... in comparison with the UK, KiwiSaver has an easier path to success with an auto-enrolment policy.

. With no proven savings problem, Government has been able to choose to introduce KiwiSaver because it wants to, without being under pressure to do so.

. It has been able to decide itself on a clear approach, and managed the budget through the Treasury.

. New Zealand Super [universal Tier 1] provides a stable underpin with no doubts that full value will be obtained from saving on top. Any saving can be used for general purposes and it does not have provide a retirement income.

. With, by international standards, low existing pension business here in NZ, the risk of new saving substituting current saving is smaller."

However, the report sees some risks for New Zealand including the small studies in very different environments that support the concept of auto-enrolment.  It is certainly in fashion - whether it will be successful as a country-wide strategy remains to be demonstrated.

Secondly, there will be substitution and in the New Zealand environment, we can't predict but will need to monitor KiwiSaver's effectiveness.  Thirdly, all effects have to be measured and fourthly, if KiwiSaver doesn't work, there is a risk that the 'opt-out' will be switched off, making the scheme a compulsory Tier 2 arrangement.  The report suggests that the conditions in New Zealand seem not to justify such a change (perhaps different, in this regard, from the UK).

Finally, the author suggests that KiwiSaver benefits should not be used as the basis for an asset-test for New Zealand Superannuation (the Tier 1 scheme).

"So how does New Zealand savings policy rank internationally? KiwiSaver is a world leader, which with other initiatives provides a coherent policy role model. I suspect that as KiwiSaver moves through implementation many other countries will be watching its progress. And will it be a success for New Zealand? The case for absolutely needing it may not be fully proven. But absolute proof is impossible anyway, and proving it just may not matter. If KiwiSaver can do good by making saving easier, and not do harm, then it will be on balance a positive policy. And it is more likely to be able to do good here in a relatively easy savings environment than elsewhere."

PensionReforms suggests that the report is too kind - KiwiSaver should be judged for the good it will do or for the need it will fill, not for the potential damage that it might not do to New Zealand's savings industry or to New Zealanders' habits.  There is some evidence that New Zealanders are responding rationally to the unusual retirement income settings and the report acknowledges that.  KiwiSaver's existence assumes a degree of irrationality that has yet to be demonstrated.  KiwiSaver may indeed be better, or be more like to succeed than the proposed equivalent in the UK.  That is not necessarily a feather in KiwiSaver's cap.    74