Report questions benefits of compulsory super
As a taskforce looks at whether to impose compulsory superannuation on New Zealanders, new research has been released casting doubt on the merit of forcing people to save.
To compel or not to compel is one of a number of issues being asked by the Savings Working Group, which is led by Grant Thornton chairman Kerry McDonald.
The Retirement Policy and Research Centre (RPRC) has published a paper, Household wealth in Australia and New Zealand, which looked at what effect compulsory super has had on Australia’s composition of household wealth compared to New Zealand’s.
The paper used data on household wealth from the Survey of Family, Income and Employment in 2006 and compared it to equivalent information from Australia’s Household, Income and Labour Dynamics in Australia survey, also from 2006.
Michael Littlewood, co-director of the RPRC, said the comparison showed more fundamental similarities than differences in the overall proportions of assets and liabilities of survey participants on each side of the Tasman.
Rather than focusing on dollar amounts it looked at assets owned by all respondents as a group and percentages of the total.
The report’s main finding was that overall, the respondents from both countries had relatively similar proportions of their net assets in things that can be realised at retirement (54.5% in Australia compared to 51.2% in New Zealand).
They had also borrowed roughly the same proportions of gross assets, with 14.4% in Australia and 13.9% in New Zealand.
However, the report found that governments can affect the different types of assets and liabilities held and the way they are held.
For example, ‘superannuation’ assets made up 18.6% of net assets in Australia, compared to only 2.1% in New Zealand.
On the other hand, New Zealanders have a much higher proportion of their wealth invested directly in businesses, at 22.2% compared to 9.3% in Australia.
The RPRC’s report concluded that, when comparing Australia and New Zealand’s retirement savings policies, the question should be which overall strategy is likely to be better for the income security of future retirees in either country.
“Given similarly larger proportions of retired populations in each country, what in fact matters is economic activity and growth, rather than the size of dedicated ‘retirement savings’.”
Mr Littlewood said New Zealand should be discussing how to grow the economy, rather than simply comparing the amount of money each country has invested in superannuation schemes.
The full report is available here.