Nick Sherry, who was Australia’s first Minister for Superannuation, told the Institute of Financial Professionals (INFINZ) conference, what New Zealand should do to boost savings and capital markets and improve retirement incomes.

Sherry, who recently ended his 22-year stint in the Australian Senate, said that KiwiSaver was a good start but compulsory superannuation such as what Australia has would be a better option.

“I’m a strong advocate of compulsion for the simple, practical reason that the majority of people do not save for retirement.  There’s a significant level of inertia and the only way to overcome that is to have a compulsory system,” he said.

Compulsory super is also an “important social policy” that “adds to retirement incomes in Australia in a sustainable way.”

KiwiSaver should be made compulsory because it would significantly reduce the need for government subsidies, Sherry said, citing research that showed about 43% of the total funds under management in the scheme had come from government tax credits.

“You have to ask whether at least some of that money can put to better purpose in the government context,” he said.

Sherry said contribution rates would have to be low initially if KiwiSaver were made compulsory; for instance, Australia’s compulsory superannuation started at only a 3% contribution rate.

Compulsory super, including raising the minimum contribution rate from 9% to 12%, was one of the only issues on which there was bipartisan political agreement in Australia, he said.

Sherry had other advice on how to improve KiwiSaver: ditch the first-home buyer early withdrawal option.

“I’m not supporter of early access for first home ownership as it diverts funds from retirement savings and adds to administration costs,” he said.

Helping first-home buyers was a “legitimate government policy”, he said, but it “should be administered by a separate set of incentives.”