KiwiSuckers or KiwiCynics?

Some commentators are so certain that joining KiwiSaver is a ‘no-brainer’ that anyone who hasn’t joined, by implication – has no brain. So this article is to try and explore whether there is any rational argument to excuse the decision of hundreds of thousands of kiwis who have not yet joined KiwiSaver. Or else, maybe we have developed a cool new tool that can save us a great deal of time at dinner parties: Are you a member of KiwiSaver? No? …well I must be checking out the buffet – please excuse me!

In fact, there’s even a name for such alleged mental defectives: “KiwiSuckers”. It’s amazing what you can do with numbers. You can condemn wholesale a huge number of people for making a financial choice. One that may not be all that irrational after all. 

But first – let’s do justice to the case for the prosecution. The sums say that, for example, if you are age 60 and you pick up the kick-start, the annual sub from the government for fees, plus the $20 a week, and your employer contribution, you would have more than $15k in your KiwiSaver account. Finance that from a credit card and your cost is $9,300. Finance it from a mortgage and it’s lower. Finance it through an increase in interest free student debt and the cost is lower still. No brainer. 

Of course, there are lots of assumptions about this. The “KiwiSuckers” tag assumes that the only reason you don’t join is ignorance – either of the scheme in its entirety, or the benefits specifically. But even assuming you are aware of the scheme, you may still choose not to join, for three reasons, all of which are rational.

1. Poverty. What if you can’t raise the money? You may be busy trying to just feed the kids. You may be trying to stave off bankruptcy. Or you may be one of the thousands of people who are fighting to keep a home as mortgage payments have risen from 30% of your income to close to 50% of your income. Which they have: for the substantial number of people who bought their first home with 90% finance during the last four years. 

2. Preference. What if you’ve got better things to do with the money. P users are not alone in having unusual preferences. I know that the powers-that-be think it’s awfully untidy of the electorate to behave like individuals – but, we do. So, some people are heading off to Australia, and they won’t do it. Some people are spending all their money getting drunk – and they won’t do it. Some people are buying G-gauge train sets. It’s what makes us interesting. These differences are in fact what make KiwiSaver decisions a bad guide as to who you might like to chat to at dinner parties. Unless you’re still selling – naughty, naughty. 

3. Risk. Non participants may have a completely different assessment of risk. Compared to the other two reasons (which get plenty of attention) risk - does not. I must admit to flip-flopping on this one. In the end, that made me realise that it’s a valid argument. Some people apply – subconsciously unless they are an economist – a higher discount rate to financial projects than this is paying. That’s because of risk. 
Here are the big ones:

• I may die (a modest, but significant risk)
• I prefer an investment I control. For example: education can have a very high payback. Of course, since some people prefer to play slot machines than buy food, so there may be plenty of KiwiSuckers hiding in this category. 
• Finally, the biggest: The rules may change. This is reasonably high risk - the largest versions are: a) change of age of eligibility, b) forcing an annuity or c) reducing NZ super or some combination thereof.

You don’t have to be some end-of-the-worlder or government hating cynic to ask the basic question “does it all sound too good to be true?” It might be. In fact, if you’ve been paying attention in the superannuation debate, the only time there has been policy stability has been a period when the policy has been pretty much “look after yourself – no incentives”. 

Whenever we’ve had big incentives, there’s been plenty of political football with them. It’s a damn big bit of the budget, and politicians cannot help themselves but fiddle. In fact – turn this around. What’s the bet that they won’t fiddle with what you get paid? The longer you have to run to get your money out, the more likely substantial change becomes. And what change? That it’ll become much more generous? Hmmmm… 
It's interesting to note that some commentators as diverse as the Retirement Commission, Matt McCarten on the left, and David Farrar on the right, for example, believe that the scheme design is so generous that it means a change in the rules is highly likely. Some say it almost guarantees changes in the rules - to the extent that KiwiSaver is effectively the death knell for "universal" NZ Super. Were that to happen, fiddling with what you can do with your KiwiSaver account is not only one possible way to achieve it – it’s the most likely way to achieve change. Some mechanisms are already included. For example, the age it becomes unlocked to the ‘age of eligibility for NZ Super’ – not age 65.

Remember, in any long term investment, risk is the largest factor to take into account. The longer the term, the greater the risk. This is reflected in the adoption figures with a greater percentage of adoption amongst successively older groups of Kiwis. This may be because of greater awareness – but it fits with the risk argument as well.

So, it is possible to make a decision not to participate, and you could either be a sucker or a cynic. Or you could be poor. 

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