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Talkin' bout my generation: retirement savings
Each generation tends to have strange views about its own future. For example, in 1966 The Who sang about how the youth of the time had become dislocated with the older generation. "I hope I die before I get old", they merrily sang.
Unfortunately for the rest of us (at least from a retirement savings perspective), The Who's generation of New Zealanders did not die before they grew old. In fact, to the contrary, the aging baby boomers now represent one of the most significant economic burdens for New Zealand to confront over coming years.
We now face two big problems. First, New Zealand has a massive "retirement bubble" - a large number of people moving to retirement age within the next ten to 20 years.
Secondly, that generation - and, for that matter, the ones that have followed it - are terrible savers. New Zealand has one of the lowest savings rates in the OECD world.
Put simply, the Government faces a real problem in figuring out how to ensure that the former g-g-g-generation can be sustained - as well as worrying about the next one.
Are the kids alright?
In response to this challenge, one of the initiatives announced in the recent budget was the establishment of KiwiSaver - an initiative which is intended to encourage the current generation to become good retirement savers.
In essence, KiwiSaver is a voluntary scheme. Employers are required to offer the scheme to employees - but workers can "opt out". Perhaps more importantly, for those employers that do opt in, the employer is not obliged to make any contributions to savings.
Anecdotally, the evidence in New Zealand is that employers do not like employer-incentivised saving schemes. Only 14% of employers currently offer workers any sort of saving scheme at all. And international experience suggests that the schemes that are most successful in attracting participants are those in which the employer matches the employee's contributions. In the case of KiwiSaver, however, that will be left to the discretion of individual employers.
These distinctions make KiwiSaver a different type of scheme to those offered in other countries.
In Australia, it is compulsory for every employee to be a member of a retirement scheme - and there is no ability to "opt out" until retirement age.
In Singapore the position is similar - although employees are given some ability to withdraw funds for such things as housing or medical expenses.
Indeed, one of the more successful savings schemes in New Zealand over recent years has been the State Sector Retirement Savings Scheme - which includes employer contributions of up to 3% of employee salary (meaning that, in effect, an employee can increase her remuneration by agreeing to have a portion of it attributed to the retirement savings scheme).
So what is the likely outcome of KiwiSaver?
Well, there are a few reasons why kiwis tend to be poor savers.
For one thing, New Zealand's university graduates now leave their tertiary institutions owing an average debt of $15,000. In fact, in the case of some high-fee courses (such as medicine), it is not unusual for graduates to owe over $100,000.
Secondly, there is still a real perception that the best type of savings scheme is an investment in property. With the booming housing market, investment in this commodity has become increasingly expensive - and most young New Zealanders have to put all of their available cash towards getting a deposit for a house (rather than having the luxury of allowing some of it to remain in a savings scheme).
So will KiwiSaver change any of this?
Probably not. Judging by international experience, the scheme will only be attractive if it is endorsed by employers who want to encourage their employees to save.
Faced with an uncertain economic climate, the changing US dollar, and demands by unions for a 5% pay rise, will these individual employers decide that they still have the ability to contribute money to their employees in order to encourage retirement savings?
Perhaps the best way to close this article is to reflect upon The Who's own personal experience in this area.
Having said that they wanted to die before they got old, nature rather had the better of them. The best retirement that the band ever had was probably founded upon its world-wide reunion tour in 2004.
Sadly, that may not be an option for the rest of their g-g-g-generation.
