Kiwisaver was a pointless and hugely expensive straitjacket on the New Zealand economy, according to a report released this morning.
The Centre for Independent Studies released its critical report of KiwiSaver at a time when fund managers are releasing their surveys showing a large uptake and generally high confidence in the scheme.
The centre calls KiwiSaver one of the Government's most popular and high-profile policies.
In March, the 500,000th member joined, placing pressure on the National Party to state its position.
Although refusing to announce the exact policy, National had promised to keep the scheme and some form of government subsidy if elected as government this year.
Centre policy analyst Phil Rennie said the incentives added last year to KiwiSaver had made the scheme expensive, distorting, regressive, unfair, unstable and unsustainable.
"KiwiSaver represents a fundamental change to New Zealand's retirement system which now combines one of the most generous pensions in the world with a heavily subsidised saving scheme. It represents a major shift in how people allocate money over their lives."
The best available research showed that most people were already saving enough for retirement, with 80% of couples saving enough to maintain a level of consumption similar to, or better than, in pre-retirement, he said.
Savings were notoriously difficult to measure and most attempts ended up vastly underestimating the true level.
With KiwiSaver and New Zealand superannuation combined, it was now possible for a young person on the average wage to retire on a higher income than they enjoyed during their working live.
"It is a complete overload to have a subsidised saving scheme on top of an age pension that is the highest in the OECD."
Mr Rennie maintained KiwiSaver largely benefited the wealthy who could afford to save more, and put a burden on younger generations who must save now and pay for a large part of their own retirement while also paying today's retired generation.
"KiwiSaver politically and economically threatens the future of New Zealand Super.
It adds to the cost of an ageing population and makes mean testing more likely in the future.
"Evidence from around the world suggests that subsidies for savings schemes do little to actually increase overall savings. Instead, people tend to shuffle around existing savings to take advantage of the subsidies."
People saved in many different ways, not only by putting money in the bank, Mr Rennie said.
However, it was now more rewarding for people to join KiwiSaver than it was to pay off debt or a mortgage or to invest in business or an education.
That was a major distortion which could make New Zealand worse off.
One financial adviser said it was now logical for some people to borrow money on a credit card if necessary to take part in KiwiSaver.
The economic damage caused to a country by those distorted decisions was known as "dead weight cost" and was likely to be substantial, he said.
"KiwiSaver is hugely expensive. The total cost will rise to $2 billion a year which is more than New Zealand spends on its entire defence force. If used for tax cuts, it could provide a significant boost to incomes and economic growth."
The original KiwiSaver, as announced in 2005, was an innovative policy, Mr Rennie said.
The opt-out provision was an original way of overcoming most people's natural inertia while still allowing people flexibility in how they saved and organised their lives.
The problems had come with the addition of subsidies.
By rushing changes through, it seemed the Government had failed to fully define the problems KiwiSaver was meant to fix and it had failed to consider the wider ramifications of tinkering with retirement policy.
"The easiest way to fix KiwiSaver is to scrap the generous incentives to contribute and return it to its original incarnation as a simple and modest savings scheme," he said.
