Labour's proposals to allow the Reserve Bank to adjust
KiwiSaver contributions rather than interest rates to control
inflation could hurt savers and see debt repayment delayed
until retirement, KiwiSaver experts warn.
The Labour party this morning announce proposals to change
New Zealand's monetary policy tools by introducing a variable
savings rate for KiwiSaver.
The policy would require the Reserve Bank to use changes to
the rate of people's KiwiSaver contributions rather than
interest rates to control inflation while taking pressure off
the over-valued kiwi dollar.
Labour would also make KiwiSaver compulsory and increase
contributions from the current 6 per cent combined employee
and employer contribution to 9 per cent over time.
Labour finance spokesman David Parker said the proposal would
mean that instead of people paying more interest on their
mortgage, a similar amount of extra savings would go into
But Chris Douglas, co-head of Australasian research at
Morningstar, said the policy had the potential to penalise
"Obviously low interest rates are great for borrowers but it
does penalise savers."
Douglas said it would help people who wanted to borrow a lot
to buy a house.
"But what happens when they reach 65? Will they just have a
huge mortgage which they will have to pay off using their
Studies on Australia's compulsory superannuation saving
showed many were retiring with more debt, he said.
"Rather than using their retirement savings to pay for their
retirement lifestyle it is being used to pay off debt."
Douglas was in favour of increasing the contribution rates
from 6 per cent to 9 per cent.
"I think that is great. I'm sure the industry would like
But warned it was likely to come out of future pay rises.
"It's really the employee that's stumping up with the full
Michael Littlewood, co-director at Auckland University's
retirement policy and research centre, said the policy was
based on the underlying assumption that New Zealanders needed
to be forced to save for retirement.
"The policy rests on compulsion and that is flawed - there is
no evidence New Zealanders are undersaving for retirement."
Littlewood said if Kiwis were forced to save through
KiwiSaver they would reduce their savings elsewhere.
He said using KiwiSaver to fight inflation was a "sticking
plaster kind of solution"and would add another objective to
the retirement savings scheme.
"KiwiSaver was supposed to be a nudge into retirement
savings, then it became a tax incentive ... then a housing
plan and now suddenly we think KiwiSaver can be used to fight
inflation. All of a sudden KiwiSaver has different drivers.
The risk is you fail at all of them."
But Labour's proposals was given support by KiwiSaver
industry body the Financial Services Council.
Chief executive Peter Neilson said New Zealand did need more
macro-economic tools to control inflation and being able to
adjust KiwiSaver could also result in contribution rates
going down if the economy was tanking, giving people more
cash in the hand.
Neilson said despite the perception that his industry would
gain from making KiwiSaver compulsory there were mixed views
among the industry about it.
However surveys it had conducted showed around 60 per cent of
the population would potentially support compulsory
He welcomed the proposed increase in contribution rates and
said 9 per cent should be enough to provide for a comfortable
retirement as long as New Zealand Superannuation was not cut,
the default for KiwiSaver account was shifted from
conservative to balanced and tax changes were made to the