John MacDonald: Make KiwiSaver compulsory, but not for babies

When I first heard about Winston Peters’ idea to give every newborn baby $1,000 so they can have a KiwiSaver account from birth, I liked the sound of it.

Until I did some numbers. Which I’ll get to.

Announcing the NZ First policy yesterday, he said it would be compulsory for every newborn to be signed-up to KiwiSaver and the state would throw in $1,000 to get things started.

He said the policy would ensure every child began their financial life as a KiwiSaver member and would be a nest egg for what he’s calling “the KiwiSaver generation”.

Which sounded pretty good on first blush. Until I did some numbers.

Let’s start with what it would cost the government.

There were about 58,000 births in New Zealand last year. So, on those numbers, that would put the cost of this policy at around $58 million a year.

And what would that $1,000 government contribution, on its own, be worth after 65 years?

Assuming 4 percent interest for 65 years, it would come to $12,800. If we assumed 7 percent over 65 years, it would come to about $80,000.

And, when I consider those numbers - plus the tens of millions of dollars of government money every year for that kind of return - I think it’s a dud of an idea.

But Winston does have another KiwiSaver idea that I think is an absolute no brainer. Making it compulsory.

Winston and I are not on our own thinking this.

Sam Stubbs, who is managing director of the Simplicity KiwiSaver outfit, does too.

He says it has to be compulsory because we have to make sure everybody is saving for their retirement while they're working. And the only way to do that is to make it compulsory.

Across the Tasman, it’s compulsory for employers to contribute but not for workers.

Which doesn’t sound terribly fair to me. Because why should employers be forced to make contributions if the people who work for them aren’t?

I remember reading about the number of people who don’t have a KiwiSaver account and some work that had been done to work out how much people are missing out on because of that.

Collectively, with so many people not even saving the minimum 3 percent of gross salary, the KiwiSaver pot is going to be about $110 billion less than what it should be or could be if we all had an account we were putting money into.

And it’s not just the people who don’t have accounts. About a third of those of us who do have KiwiSaver accounts aren’t contributing anything. Which is why it has to be made compulsory.

And it’s not like people would be out marching in the streets if it was made compulsory. Because a survey a couple of years ago found that 62 percent of us support the idea.

I don’t know if that level of support may have waned since then because of the cost of living.

Nevertheless, making KiwiSaver compulsory for workers is a no-brainer and a way better approach than NZ First’s idea of making it compulsory for newborns.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Morning's Podcast with John McDonald
from News TALKS'B.

Speaker 2 (00:13):
When I first heard about Winston Peter's idea to give
every newborn baby a thousand bucks so they can have
a Keywi Saver account from birth, I thought I sound
of that until I did some numbers, which I'll get
to in a second. So, announcing the New Zealand First
policy yesterday, he said it would be compulsory for every

(00:34):
newborn to be signed up to Kiwisaver and the state
would chuck in a thousand bucks to get things started.
And he said the policy would ensure every child began
their financial life as a Keywi Saver member, and he
said it would be a nest egg for what he's
calling the Keiwi Saver generation. Now, as I say, sounded

(00:56):
pretty good on first blush until I did some numbers,
and just some pretty basic numbers. But they tell me
that this is a dud of an idea. Let's start
with what it would cost the government. So there were
about fifty eight thousand berths in New Zealand last year
fifty eight thousand, so on those numbers, that would put
the cost of this policy at around fifty eight million

(01:18):
dollars a year. And then I worked out what that
one thousand dollar government contribution on its own, right on
its own would be worth after sixty five years. So
I did it. I ran ran it with four percent
for sixty five years four percent return, they would come
to twelve thousand, eight hundred if we assumed something around

(01:40):
seven percent, and we're talking sixty five years here, but
if we assumed seven percent over sixty five years, it
would come to about eighty thousand. And when I consider
those numbers, tens of millions of dollars of government money
upfront every year for that kind of return well as
to sale, I think it's a dud. You might have

(02:01):
heard Winston Peters being a bit cagey about the numbers
when he was talking to Mike this morning, And no
and no, wonder are given the expense and the level
of return for this Keiwi saver generation he's championing. But
he does have another key we Save idea that I
think is an absolute no brainer, making it compulsory for adults. Now,

(02:24):
Winston and I we're not on our own thinking that.
Sam Stubbs, Managing director of the Simplicity Key we Saver outfit.
He does too. He says it has to be compulsory
because we have to make sure everybody is saving for
their retirement while they're working, and the only way to
do that is to make it compulsory across the Tasman.
I don't know if I appreciate it until recently that

(02:46):
it's compulsory, but it's only compulsory for employers, not for
the workers, which doesn't sound terribly fair to me, because
why should employers be forced to make contributions of the
people who work for them aren't. And I remember reading
about the number of people who don't have a key
we Saver account and some work that have been done
to work out how much people are missing out on

(03:07):
because of that, and Wister Peter's idea here with the
one thousand bucks for newborn babies won't fix it collectively.
With so many people not even saving the minimum three
percent of gross salary, it means the Key we Save
a pot is going to be about one hundred and
ten billion less than what it should be or could
be if we all had an account and if we

(03:28):
were all putting money into it. And it's not just
as people who don't have accounts. I mean, you know,
no wonder people get into retirement and agent thinking oh oh,
ow do a cope? Do you know that about the
third of us who do have key we Saver accounts
aren't contributing a bean, which is why it has to
be made compulsory. And it's not like people would be

(03:48):
out marching in the streets of OZ made compulsory because
the survey a couple of years back found that sixty
two percent of us support that idea. Now I don't
know if that level of support may have waned since
because of the cost of living and all of that
that's going on. Nevertheless, making key we Save a compulsory
is a no brainer and a way better approach the

(04:09):
New Zealand First's idea of making it compulsory for newborns
with a one thousand dollars kick start from the government.

Speaker 1 (04:15):
For more from Caterbory Mornings with John McDonald, listen live
to news talks at be Christchurch from nine am weekdays,
or follow the podcast on iHeartRadio.