I haven't joined KiwiSaver. All the advice I've seen from government ministers and officials, economists and financiers says anyone able to enter the scheme would be stupid not to. They tell us the benefits are just too good to miss.
I could afford to put aside four per cent of my earnings for KiwiSaver, but I haven't. Call me stupid, but I won't be joining.
Last week, Finance Minister Michael Cullen announced that 381,000 New Zealanders have signed up for KiwiSaver in the first six months of its opening. This is much greater than the 276,000 his officials predicted would be in the scheme by July 1, 2008. For Cullen, it's a success story. "The verdict on KiwiSaver is in," he says. "New Zealanders want to save for a better retirement and they know KiwiSaver makes that easier than ever before."
There is no denying that the savings incentives built into the scheme are lucrative. We are told that no other investment is likely to match the KiwiSaver return. The Government's $1000 kickstart, the tax credits of up to $20 a week and the administration contribution mean this is heavily subsidised savings.
Employers aren't unhappy either. Most of the contributions they will be required to make will come back to them in tax credits.
There are three main reasons I won't be joining. First, despite government denials, it is clear the scheme heralds the privatisation of national superannuation. What each individual is able to save during their working life will provide their income in retirement. The value of government superannuation will fall as KiwiSaver takes over. For those unable to save, it will be tough luck. The aged poor will be left with the crumbs while for others the icing on the cake will just get thicker.
Cullen has not provided a breakdown of his 381,000 contributors, but they will be skewed heavily towards middle and high-income earners and it is here the benefits will be greatest. Higher levels of savings attract higher government subsidies and higher returns for retirement. Unlike national superannuation, which is a scheme providing the same government contribution for all New Zealand retirees, the benefits through KiwiSaver will be accrued to higher-income earners.
Second, there are no assurances the money will be safe. It is not government guaranteed. Just as more than a dozen finance companies have collapsed in the past 12 months, so could any of the schemes approved for KiwiSaver. Don't think it won't happen here. In the United States, tens of thousands of American workers have lost up to 100% of their retirement savings as pension fund investments have been hollowed out from company collapses such as Enron's spectacular demise. Interestingly, American pension savings are now guaranteed by their government. But not KiwiSaver. It's as safe as an investment in Bridgecorp.
Third, there are limited options for "ethical investment". KiwiSaver funds could be invested in companies manufacturing nuclear weapons, growing tobacco, processing whale meat or genetically engineering food. On the domestic front, they could be used to invest in companies such as Rakon, which manufactures crystal oscillators for use in missiles.
There are also deeper philosophical objections for thinking New Zealanders. When KiwiSaver was first announced, New Zealand First's Winston Peters said it would, for the first time, give New Zealand workers a direct stake in the economy. In other words, workers could benefit directly from the profitability of capitalist enterprises. They would have an incentive to make sure companies were successful because their retirement income would depend directly on the profitability of the companies their savings were invested with.
But should working New Zealanders have confidence in capitalism in the first place?
Last century, British economist John Keynes was scathing of those who expressed faith in capitalism. He expressed it this way. "Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all."
Underscoring Keynes's comment is an extraordinary statistic reported last week which should send a chill down all our spines. Last year, the top 1% of income-earners in the US received increases in their income which were greater than the entire income of the poorest 20% of their citizens. In other words the poorest 20% of US citizens, who are living below the poverty line, could have had their incomes doubled last year if the wealthiest 1% had forgone just their increase in income last year.
Keynes had it right. None of us should share Labour or National's touching faith in individual investments in capitalism to provide for better retirement incomes for us all. The evidence to the contrary is overwhelming.