Let’s stick with carrots for KiwiSaver

The suggestion that more New Zealanders will move to Australia now that its superannuation contribution rate will rise to 12% is another absurd example of the pathetic politics of envy common to this country.
Whether Australia’s superannuation contribution rate is the current 9% or 12% (which it will slowly edge up to by 2019) is neither here nor there to most people.
New Zealanders move to Australia because they can make more money; the weather’s generally better (if you don’t mind the mix of drought and floods), and; the people are alright once you get to know them.
But New Zealand’s financial services industry looks across the Tasman and salivates about Australia’s compulsory superannuation system because it knows that if compulsion were introduced here it would feed them forever.
When those who stand to gain commercially from compulsory KiwiSaver start couching their arguments in terms of the national interest, be very suspicious.
While it has undoubtedly built up a significant pool of capital, Australia’s compulsory superannuation system is not without its problems – it’s complex, prone to constant tinkering and, as Sydney Morning Herald writer, Michael West points out, needs constant attention to prevent gouging at all levels.
By contrast, KiwiSaver is administratively simple, wonderfully flexible and should impose less costs on members. With well over one million New Zealanders already signed up to KiwiSaver, it seems incentives are doing the trick.
It is true that contribution rates are low compared to Australia. Under the KiwiSaver rules, only the 2% employer contribution is tax-free (to get that employees must also contribute 2% of their gross wage or salary). However, members are free to contribute up to 8% of their income to KiwiSaver, which combined with the employer contribution quickly bumps up the savings rate to 10%.
The only problem with this strategy is that you still need to pay income tax on that 8%. Rather than compulsion, perhaps a better way to ramp up KiwiSaver accumulation rates would be to allow those extra contributions to be tax-free: more carrots, less stick.

David Chaplin