'Host of risks' in Kiwisaver

The Government's multibillion-dollar KiwiSaver superannuation scheme has been slated by the Retirement Commission, which questions its huge cost and its value for money.

In its three-year review of Government retirement policy, the commission found KiwiSaver was a generous incentive scheme to kick-start the nation's woeful savings habits and was likely to provide a boost to the economy and capital markets.

However, it said there was a host of risks associated with the scheme, including an unknown cost, in-built unfairness, the scheme's complexity, bias against the self-employed and its hasty introduction.

The commission said costly additions made to KiwiSaver by Finance Minister Michael Cullen in the May Budget meant the retirement industry would never know whether the original scheme, without the taxpayer subsidies, would have been just as effective.

KiwiSaver was "turbocharged" by Cullen this year with the addition of a $20-a-week matching tax credit for everyone paying into the scheme through their employer.

Employers were required to match the contributions up to 4 per cent of salary, and the Government offered another $20 tax credit for employers. This was on top of a $1000 kick-start and a $5000 first-home buyers' bonus.

At the time, the cost of KiwiSaver Mark 2 was estimated at $2 billion a year by 2016-17.

However, the commission said that beyond that point the bill could balloon substantially, yet no forecasts appear to have been done.

"The swift introduction of more generous and costly incentives in KiwiSaver 2 has made the fiscal cost of KiwiSaver a more significant issue," the commission said in its report.

"The costs of KiwiSaver beyond 2017 are not available. These costs can be expected to continue to increase for some time as more people join than leave.

"The incentives are now a significant cost that future governments will have to consider.

"The danger is that these costs become too high, and something has to change."

The commission said that in a worst-case scenario, New Zealand's universal superannuation would have to be cut to fund KiwiSaver.

"Reducing the advantages of New Zealand Superannuation would hurt more people more seriously than cutting KiwiSaver would," it warned.

The commission said that if the original KiwiSaver had been left to run as planned, the Government would have gained a better understanding of the effectiveness of the design.

"Given the probable disinclination of politicians to reduce incentives, New Zealand is likely to be locked into a high-incentive, high-cost system without ever knowing whether a lower-incentive, lower-cost system would have been just as effective."

The commission said KiwiSaver would compound the gap between those who had saved and those who had not, threatening the equity and fairness of current retirement income policy. It was more likely to be taken up by people who were saving already. "The incentives in KiwiSaver come out of general taxpayer funds.

Whether the incentives are an unfair subsidy from non-savers to savers is a debatable point," the commission said.

It also raised concerns about the cost of universal superannuation, saying there was great uncertainty around how fast life expectancy would increase.

Current policy did not take into account the increase in life expectancy and New Zealand super was likely to cost more than envisaged, it said.

It also flagged concerns over falling home-ownership rates and rising house prices.

Retirement Commissioner Diana Crossan said Government retirement policies were working "reasonably well" for those in, and approaching, retirement, but there were danger signals.

"On balance, New Zealand's retirement income policy has been remarkably successful and is world-leading, but there are some unknowns creeping into the environment - some early signals that make us concerned."

- © Fairfax NZ News