Australia is proud of its savings industry, with the third pillar – compulsory superannuation – often described as a model for other nations to follow. The first pillar – government pensions – and the second – savings incentives, such as co-contributions – are not much to be proud of on a world scale, so a lot of faith is being placed in the compulsory part of the system. This is why the adequacy debate is still dragging on more than 20 years after Award Super paved the way for the Superannuation Guarantee.
It is interesting to see, therefore, what other countries, which are very similar to Australia, can do without compulsion. New Zealand has, until recently, had a chequered history, including a failed referendum on compulsory super, but last year’s introduction of the Kiwi Saver incentives scheme looks like succeeding more, and more quickly, than anyone imagined. When coupled with the continued growth of the NZ Superannuation Fund, the country is finally making progress towards solving its demographics problem.
Michael Cullen, the deputy prime minister and finance minister, announced last month at the Fund Executives Association Ltd (FEAL) Fund Forum in Wellington, NZ, that 670,000 people had signed up for Kiwi Saver after 11 months. This compares with the official forecast of 270,000 after a full 12 months. “So, we’re heading towards one million by the end of the year,” he told the forum, which was the first FEAL event held outside of Australia.
Under the scheme, the Government tips in NZ$1,000 as a kick-start, a tax credit of up to NZ$1,042.86, a fee subsidy and, if you qualify, a first home deposit subsidy. The scheme is not intended to be universal, targeting rather what Cullen called the third through to the eighth deciles of income earners. “Kiwi Saver is hitting the target well,” he said. “Through the early period the profile of the average member has changed: they are younger, with more and more under 35-40. About 180,000 are under 25. And contrary to predictions the majority are women and the take-up by Maori and Pacific Islanders is not much less than the others.”
Importantly, he believed that Kiwi Saver was starting to change people’s attitudes to saving, from one which was very poor to one which focused on the long term. He thought that the take-up rate would be sufficiently high that any benefit from NZ moving to a compulsory scheme, which is often discussed but considered highly unlikely, would be marginal.