KiwiSaver has failed to boost saving, economists suggest............

So ran the recent headline in the NZ Herald. The economists found after extensive research - albeit over a relatively short period - that New Zealanders' net wealth has not increased as a result of Kiwisaver being introduced into the superannuation issue.

With the greatest respect to the gentlemen involved, whether Kiwisaver has resulted in a net wealth increase or decrease is academic. Their study, as the article suggests, is focussed on pure economic theoretical research. While such research is laudable, interesting, and fascinating, some fundamental aspects of Kiwisaver appear to be outside the scope of the research project.

Has Kiwisaver increased New Zealanders' saving for the specific purpose of providing retirement income benefits?

There have been a number of commentators, academics, and others who have made statements from an economic perspective, or a fiscal standpoint - all of which have been, in their own context perfectly valid, accurate, and appropriate observations.

However, the provision of retirement benefits involves much more than just pure economics.

The intrusion of social and human factors plays a significant role in developing a retirement benefit resource which is sustainable, affordable, and widely accepted as an appropriate policy among stakeholders.

For a start, the community and the electorate have to decide the priority they wish to see placed on the provision of retirement income and what role, if any, the State should play in the equation.

Many moons ago, the U.K. and Australia decided that the provision of such benefits should be transferred away from Government, as the cost of administering state supported schemes was running out of control. Thus, these two countries with similar political and demographic environments effectively privatised the provision of retirement benefit provision.

This may offend the Left-wing of the political spectrum, but even a cursory glance through the history of retirement income funding in the U.K. will indicate that Governments have been pretty useless at delivering an effective, sustainable model when left to their own devices.

Mrs Castle's scheme in the 1970's in the U.K. - a two-tier model with a Guaranteed Minimum component and a 'Contracted-out' (privately invested) component - fell foul of financial crisis, poor governing legislation, questionable industry practices, and slack regulatory supervision - this latter factor is a malaise which has traumatised the private pensions industry environment in Britain.

Despite the rather sniffy references by some Kiwi observers that the Australian regime is complicated and that it 'doesn't work' (whatever that means), practical first-hand experience suggests that it is no more complex than any other comparable regime, settles some of the confusion around the contribution issues for citizens, and has markedly increased the provision Australians are making to fund their retirement benefits.

Sure the economists will point out that this money would have been saved anyway. Maybe so - but not for the specific purpose of providing retirement income. Too many other issues which occur in our progress through life can cause us to access our savings or our assets, and render the retirement provision exercise subordinated.

House purchase, personal financial difficulties, economic crises, and divorce - to name but a few - can all intrude on the intentions to accumulate specific retirement benefit provision, and whether economic theory or research believes that net wealth has increased by applying one model or another is quite irrelevant.

As mentioned, governments have traditionally been hopeless at providing pre-funded retirement benefits, and have frequently relied on some form of 'pay-as-you go' model - at least up until the era of significant inflation, and the ever-increasing lifespan of the populace. Once the impact of inflation impacted on real financial value, U.K. governments sought to encourage private enterprise to take on the responsibility to deliver privately funded benefits and remove the State from that liability. In effect, Australia did likewise, even if the rampant inflation of the 1970's had largely dissipated by the time compulsory superannuation was introduced in 1992.

Similarly, the impact of citizens surviving longer in retirement has prompted governments to seek a solution beyond the public domain, and encourage private enterprise to develop acceptable solutions.

Again, some observers claim cry foul over the troublesome experience visited upon the community by suspect investment practitioners, fund managers, and advisers.

While their ire is understandable, what remains bizarre is the apparent desire to prevent private enterprise from creating markets, business, employment, and ultimately shifting the liability away from the limited resources of the State, to entities specifically designed to deliver products and services which government quite simply cannot afford to do.

If the oversight of such commercial entities is inadequate and has resulted in negative experiences for citizens, the oversight should be fixed - but that's a story for another day.




The Laird