Gareth Morgan, Director of Gareth Morgan Investments
The issues relevant to the introduction of compulsory superannuation can be considered under two headings. Is it good for the individual and is it good for the country ?
Insofar as the individual is concerned, being compulsorily required to contribute to a superannuation scheme deemed by politicians to be "suitable" can only be beneficial if the alternative of self-provision yields significantly less and inadequate means for older age. While this may indeed be the case for some, to generalise that it would be the case for so many as to warrant compulsion, is a big leap.
Clearly compulsion would leave some individuals worse off. Three instances readily come to mind; (i) Those who can invest funds more profitably than the average institutional portfolio manager. Looking at the average performance of the New Zealand-based professional investment community, such a challenge is hardly beyond us all. (ii) Those who compulsion would place completely at the mercy of the approved fund they've invested in. These folk will be the ones who assume that a compulsory scheme approved by the government amounts to a guarantee of a secure income in retirement and end up saving less than they would if left to their own devices. (iii) Those who end up with money in a licensed scheme which just bombs – like those near retirement who had their savings in the commercial property investments of the New Zealand insurance industry when the 1987 crash hit.
Who might compulsion be good for then ? Those who never make provision for themselves and would be destitute without a pension. Currently these folk are mopped up by National Superannuation, a welfare benefit from the current generation of taxpayers. So in fact they'd only be worse off if there was no compulsion and no safety net of a state pension. That alternative is not being promoted by any political party at present. Of course New Zealand First see compulsion as an adjunct to National Super, which will still be the pension of last resort. So downside risks which investment of compulsory contributions will have, won't impact the individual beyond that point. At worst they will have forgone income over the years for no benefit (still a real loss though), but they won't be destitute. As an aside, this safety net could make the investment industry here more prone to taking risk, safe in the knowledge their clients can always pick up the state pension.
What of the national good ? Probably most alarming of the arguments forwarded by New Zealand First for a compulsory scheme, is the notion that it will raise the national savings rate and reduce our dependence on foreign capital. Exactly the opposite is probable. Treasurer Peters has reasserted recently his preference to see the licenced institutions required to invest the contributions within New Zealand. This he argues, would be in the "national benefit". Even if the investments are sub-optimal and the returns pathetic ? Where is the economic rationale for some investors having to go with lower returns because some evanescent politician directs them to invest in non-competitive endeavours. The likely outcome of course is that our economy fails to deliver the income we all expect and we expand our borrowing from abroad to make up the difference – just like in Muldoon days. The dependence on foreign capital would rise – unless of course Interventionist Peters decided to outlaw that choice as well.
Finally, some ponder the influence compulsory superannuation may have on the housing market. Currently, owner-occupied dwellings offer a great tax-free savings and investment vehicle. At times of real house price appreciation, owners can and do see price appreciation as an increment in their wealth. This is what drives many to purchase houses well above their long term living needs – the intention to trade down at a later date, cashing up the "investment" component of their house. And it can be a great tax free investment. It is argued that compulsory superannuation may well deprive the housing market of funds that it would otherwise attract. But on the other hand lenders may be prepared to advance mortgage monies on easier terms in the knowledge that the borrower has the "collateral" of a longer term income stream from their superannuation savings.
In conclusion then, compulsory superannuation will be at best, good for very few individuals and certainly will never be good for the economy generally. It is a distortion of investment market of the most gross kind and neither NZ First's all-encompassing compulsion nor ACT's substitution of compulsion for National Superannuation deserve serious consideration. Neither would be given the time of the day were it not for the fact that National's pragmatism has been so pervasive it's allowed minnow parties an influence over policy way beyond their station.
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