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What Are The Differences of NZ & Aussie Retirement Systems?
New Zealand’s retirement system involves a voluntary savings scheme (KiwiSaver) with auto-enrolment. Introduced in 2007. Employers are required to match employees’ KiwiSaver contributions to a cap of 3%. Approximately 1 in 10 employers contribute at a higher rate. Besides the voluntary savings system, New Zealand has a universal public pension (New Zealand Superannuation, or NZ Super).
By contrast, Australia’s system consists of a compulsory savings scheme. The Australian Superannuation Guarantee, introduced in 1992, is wholly funded by employer contributions, currently at the rate of 11.5% (soon to move to 12%) of an employee’s salary or wages. In addition to this, they have a means-tested government pension (the Age Pension).
What are costs and benefits?
For New Zealand
The New Zealand system is more equitable due to the universal nature of NZ Super and its simplicity, meaning more efficient administration and less cost. As NZ Super is income indexed, over time it may become less affordable. Due to the universal nature of NZ Super, KiwiSaver plays a different role from the compulsory Australian Superannuation Guarantee regime.
New Zealand’s system is pay-as-you-go, with the next generation’s taxes being used to fund the retirement of today’s workers ‒ a significant risk.
For Australia
Australia’s pre-funded system places a lower burden on future generations, but that tax incentives within that system are expensive.
Australia’s system has a greater effect on savings, which can boost investment, but on the other hand, it discourages labour force participation, inhibiting growth.
What can New Zealand learn from Australia system?
The introduction of the Superannuation Guarantee and its incremental increases boosted national savings by about 1.5% of GDP as of 2011, and will likely reach 3% some time after 2040. The increased savings enable economic growth by providing a crucial source of funds for domestic investment, driving labour productivity and higher future living standards by reducing its reliance on foreign finance.
Australia has demonstrated the pivotal role that increased national savings can play in achieving economic growth and stability. New Zealand can learn from these insights and develop further opportunities to benefit its own system.
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