New Zealanders often face calls for an Australian-style compulsory superannuation scheme that would expand Kiwisaver by making it compulsory.

This is a multi-faceted issue and is worth reflecting on, particularly the political economy aspect.

The political economy argument in favour of compulsory super goes like this: people often do not save on their own accord, and when a large portion of the population does not save, it creates political pressure on governments to provide retirement entitlements to pensioners. This creates further incentives for people to not save, knowing that the government will take care of them. Compulsory super, it is argued, will avoid this situation.

This is indeed the strongest argument in favour of compulsory super, and it does have a certain internal logic. But there are several downsides too, many of which are being felt in Australia where the super industry is being reviewed.

For a start there is an erroneous view that ‘employers’ pay super. Employers only transfer the funds to the employees’ nominated provider – the money is part of an employee’s total income package. This is not much consolation for students and low-income earners, who could do with the money today, not when they turn 65. Nor, in most cases, can it be invested in companies of one’s own choosing. Indeed, many super funds, and those invested in them, have suffered losses since the global financial crisis in 2008.

Under the Australian system there are also the so-called ‘industry funds’, where employer groups and unions tied to industry awards appoint fund trustees. These are basically protected fiefdoms of low accountability and embedded anti-competitive practices.

And this reveals a fundamental problem with Australian-style compulsory super: it creates powerful and well financed vested interests reliant on the scheme. There is a massive financial services industry in Australia that is protected and gets to clip the ticket on 9% of all wages and salaries earned. The returns for members are often poor but the fees for the fund managers are high (and simply deducted from future earnings rather than invoiced or billed). Unsurprisingly, the financial services industry heavily lobbied government to increase the compulsory contribution to 12% last year.

The question to answer is whether the political economy of such a super scheme outweighs the disadvantages of a protected gravy train created by compulsion?