Could this be the end of the rise in mortgage interest rates?


ANALYSIS: Incumbent MP Trevor Mallard has suggested that the Te Pūtea Matua Reserve Bank be given the power to use KiwiSaver as a monetary policy tool in its efforts to fight inflation.

His “left field” idea was that the Reserve Bank could be allowed to increase the proportion of workers’ wages going into KiwiSaver, for example from 2% to 4%, when it wanted to slow the economy.

Conversely, he could lower people’s premiums when he wanted people to spend more to stimulate the economy.

The suggestion makes KiwiSaver watchers laugh: some are nervous. Some incredulous.

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Katrina Shanks, a former national MP and now chief executive of Finance Advice New Zealand, does not think there would be public support for Mallard’s idea, which should be researched and consulted before it is introduced.

Mallard presented his idea as an alternative to the Reserve Bank cooling or stimulating the economy by raising or lowering the official exchange rate (OCR).

The results of OCR increases or decreases were both slow and unpredictable, he said, largely because most home loans were at fixed rates that did not change until the end. of the term.

Trevor Mallard delivers his farewell speech in the House, dropping a farewell KiwiSaver bomb.


Trevor Mallard delivers his farewell speech in the House, dropping a farewell KiwiSaver bomb.

Allowing KiwiSaver contribution rates to change would be a quicker solution, he said.

“They could raise or lower take-home pay almost immediately, and thus stimulate or tighten the economy,” he said in his farewell speech.

Don’t touch people’s savings

“It’s a pretty unique perspective on growing people’s wealth,” Shanks says.

KiwiSaver was designed to give people control over their retirement savings decisions, she says.

“If you allow the government to control this better, it’s very dangerous territory.”

She worries that confidence in KiwiSaver could be shaken if it becomes a monetary policy tool.

Mallard’s left-field suggestion is actually a dusting off of previous Labor Party policy.

Reserve Bank watcher Michael Reddell calls the idea “dumb.”

It would undermine retirement savings and it was unlikely to work, he said, because it wouldn’t make people less wealthy. This would have the effect of moving their money from one place to another.

But Reddell says the policy was one Labor adopted in the 2014 election, in which it won just 25% of the party’s vote.

This is how the 2014 elections for Labor went.

Chris Skelton/Fairfax NZ

This is how the 2014 elections for Labor went.

At the time, he proposed making KiwiSaver mandatory and proposed asking the Reserve Bank and Treasury to develop the “variable contribution rate” proposal as a monetary policy tool.

Susan St John, Michael Littlewood and Claire Dale of the University of Auckland’s Retirement Policy and Research Center criticized the idea.

The government could not control “compensatory” behaviors, they said.

These were people compensating in other areas of their financial life, such as saving less in non-KiwiSaver pension plans, or bank accounts, or extending their borrowing.

They warned that the policy would also be unfair to the poor.

“The burden of this policy will fall on those who cannot offset any increase in contributions by saving less elsewhere,” they said.

Trevor Mallard and Chris Hipkins on election night 2014. The party's KiwiSaver policies were among those outright rejected by voters.

Cameron Burnel

Trevor Mallard and Chris Hipkins on election night 2014. The party’s KiwiSaver policies were among those outright rejected by voters.

“Reducing demand by taking the purchasing power of low earners while leaving those with capital income unchanged will have negative effects on the less advantaged,” they said.

Unfair to savers?

KiwiSaver expert David Boyle of Mint Asset Management says that while there were more than three million people with KiwiSaver accounts, only 1.2 million were saving regularly.

This would limit the impact of manipulation of KiwiSaver dues as a monetary policy tool.

This was not only because KiwiSaver was not mandatory, but also because many people were employed as “contractors”.

“Some employers don’t really act in the spirit of the KiwiSaver legislation,” he said.

Barry Coates, a former Green Party MP and founder of ethical investment charity Mindful Money, said there were clear equity issues with the plan.

Wealthier, better-paid people would periodically see larger sums forcibly saved or left in their pay packets as a result of such a policy.

But poorer households, including many renters, who were just making ends meet would struggle to cope with sudden increases in forced savings, he says.

This could force them to stop saving in KiwiSaver and build long-term wealth.

The question of “volatility”

KiwiSaver watchers also point out that KiwiSaver funds invest in volatile assets such as company stocks and assets that can sometimes perform poorly when interest rates rise, such as interest-bearing bonds.

The Reserve Bank is battling inflation and people’s KiwiSaver accounts have lost value.

It’s a long-term savings plan, so downturns in the markets are tolerable for most savers.

But whether the public would accept being forced to save more in devaluing assets, while their mortgages were costing them more, was a big unknown.


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