Don Brash writes in today’s Granny Her­ald that mak­ing super­an­nu­a­tion scheme KiwiSaver com­pul­sory won’t nec­es­sar­ily deliver the ben­e­fits pro­po­nents of com­pul­sion claim. He’s right. It’s actu­ally about incentives.

The part Dr Brash misses is we actu­ally already have com­pul­sory super­an­nu­a­tion, in the form of national super, which was imposed with the some­what ironic iconog­ra­phy of danc­ing cos­sacks. National super is funded from com­pul­sory taxes on you and I, irre­spec­tive of whether we’ll be around to claim for it. Dr Brash, him­self 69, cor­rectly argues New Zealan­ders should face up to the real­ity that this scheme can’t work for­ever, or (more likely given the atti­tudes of this gov­ern­ment) we’ll have to mort­gage the coun­try fur­ther to pay for it.

We have to raise the age of eli­gi­bil­ity inline with other OECD nations. Actu­ally, I think eli­gi­bil­ity should be updated twice a decade at life expectancy minus 10 years (cur­rent life expectancy in New Zealand is 80 years, mean­ing we would have a retire­ment age of 70 under this sce­nario). Not only does that ensure it will remain sus­tain­able, it also makes sure fur­ther gains in life expectancy are account for.

Increas­ing the eli­gi­bil­ity age also cre­ates incen­tives for work­ers to save and invest for their retire­ment: those still want­ing to retire at 65 are able to do so, so long as they pay for it. KiwiSaver pay­ments could start from national super eli­gi­bil­ity minus 5 years, which under the cur­rent life expectancy would be 65. That means any­one want­ing to retire early would have an excel­lent incen­tive to save.

And as well know, incen­tives work much bet­ter than compulsion.

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