Cullen: Make saving compulsory
KiwiSaver should be made compulsory and there needs to be a gradual lift to the retirement age, former finance minister Sir Michael Cullen says.
This, as well as lifting contribution levels, will help the country avoid making a ‘‘very, very dangerous bet’’ on income taxes paying for superannuation in the future.
Cullen, who was behind KiwiSaver’s introduction nine years ago, spoke at the Workplace Savings New Zealand conference in Auckland on Monday.
Cullen said since then KiwiSaver had grown to just over $35 billion and 2.7 million members.
But while he thought it had been a success, a couple of key changes were needed. These included the ‘‘controversial’’ choice to make the scheme compulsory, but also relied on a gradual lift in the retirement age, which he said would help grow KiwiSaver to a $100b industry.
Cullen said there had been what looked like a ‘‘multi-party conspiracy’’ to avoid raising the retirement age as the country’s demographic permanently shifted.
‘‘I’m not in favour of some sort of short, sharp, rapid rise in the age of qualification; there is no need to do that,’’ Cullen said.
‘‘Raising the age seems to me to be not so much a no-brainer but simply the most obvious way of dealing with the increase in costs.’’
Most controversial, however, was to make the scheme compulsory, which Cullen said had never been the intention when it was introduced. He said a compulsory scheme offered a ‘‘third pillar’’ to monetary and fiscal policy, both of which had side effects.
The Government could lower or raise somebody’s contribution rate to help stimulate the economy, he said. ‘‘The foregone income remains the property of the individual; that’s its beautiful advantage compared with interest rates.
‘‘You’re not redistributing from people trying to pay their mortgage to people who are elderly and have large surpluses with a bank.’’ long-term
As well as compulsion, Cullen said of the 2.7m members, 1m were non-contributors, which needed to be tightened up.
Contributions should be raised from the ‘‘inadequate’’ 3 per cent to closer to 6 per cent over the next six years or so, which was more in line with Australia.
‘‘There seems to be a real danger that a substantial proportion of the population will become almost permanently severed, either wholly or partly, from the benefits of KiwiSaver.
‘‘That will exacerbate income inequality in retirement because we can guess which of those are most likely to be severed, which is the opposite of the original intention of the scheme.’’