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Should KiwiSaver be Compulsory?

Should KiwiSaver be Compulsory?. Annual SuperFunds Summit 2007 Brent Layton, March 2007. Should KiwiSaver be compulsory?. Only regulate if there is a market failure and Regulation is the most efficient way to correct the problem and Regulation creates a net benefit

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Should KiwiSaver be Compulsory?

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  1. Should KiwiSaver be Compulsory? Annual SuperFunds Summit 2007 Brent Layton, March 2007

  2. Should KiwiSaver be compulsory? • Only regulate if there is a market failure and • Regulation is the most efficient way to correct the problem and • Regulation creates a net benefit • What is the market failure?: • Households saving too little for retirement due to myopia? • Country saving too little restraining investment and so restraining economic growth? • Households or country choosing to put too much into housing? i.e. inefficient asset allocation

  3. Net household savingsPercentage of GDP Source: Statistics New Zealand, NZIER forecasts

  4. Net household savings Australia and New ZealandPercent of GDP Source: Statistics New Zealand, Datastream

  5. Net household savings comparison(as a percent of disposable household income) Source: Statistics New Zealand, OECD Economic outlook

  6. Spicers’ Index of household net worthAnnual percent change Source: Spicers

  7. Household assets and liabilities(Million dollars) Source:Spicers

  8. Net public savingsPercentage of GDP Source: Statistics New Zealand

  9. Net business savingsPercentage of GDP Source: Statistics New Zealand

  10. Net household, public and business savingsPercentage of GDP Source: Statistics New Zealand

  11. Net national savingsPercentage of GDP Source: Statistics New Zealand

  12. Net worth per household(Dollars) Source: Spicers

  13. Growth rate comparisonsPercent Source: Statistics New Zealand, OECD Economic outlook

  14. Conclusions • No evidence that households able to save are saving too little for retirement. • Enticing those with too little to save to save will not solve this issue; it will just increase their current misery. Not a market failure • No evidence of savings/investment/growth link for second problem to be a real issue

  15. Conclusions ctd • Saving too much in housing and fixed interest? • Public and business savings are non-residential so the weight of residential assets in household total “balance sheets” not so heavily residential as the direct household balance sheet • The capital gains tax myth – same tax regime for direct property and direct share investments • Offset borrowing costs against other income – negative leverage – does shift income to period when some individuals expect their marginal tax rates will be lower. Solution - flatten the tax rate? • Residential property has performed well – domestic shares not so well. Broaden market. Sell SOEs. • May be some inadequacy of financial literacy about shares. Improve school curriculum. Fund Retirement Commissioner better.

  16. Conclusions ctd • KiwiSaver not most efficient way to deal with the small issues there might be around asset allocation biases • Negative net benefit from KiwiSaver i.e. compliance costs and admin costs less than any benefits • Don’t make KiwiSaver compulsory; scrap it.

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