Public pensions and retirement savings

New Zealand faces the challenge of an ageing population, as well as doubts about whether it can continue relying so heavily on foreigners’ savings in the future. New Zealand Superannuation, the public pensions scheme, is straightforward and well-designed, but the growing share of recipients will lead to rising costs, although the New Zealand Superannuation Fund will help smooth the rise, through partial pre-funding. Future outlays could be pared back by adjusting the indexation of benefit rates and/or by raising the age of eligibility, and an automatic adjustment mechanism to share the fiscal risk associated with life-expectancy increases could also be considered. Households have accumulated relatively few financial assets and relatively few working-age adults are covered by registered superannuation schemes. KiwiSaver, starting in July 2007, is designed to encourage participation in voluntary work-place savings schemes, by automatically enrolling new employees. Employer contributions have been made tax-exempt up to capped limits. This should promote retirement savings although the housing elements of KiwiSaver may be inconsistent with households diversifying their net wealth away from housing. And all registered superannuation schemes that have lock-in of savings comparable to KiwiSaver should be treated equally for tax purposes to avoid substitution effects.