Choice, competition and open markets provide strong consumer protection. The risk that a customer might shift to a competitor, or to another type of product entirely, provides discipline.

National proposes removing one of the choices you might want to make about your retirement savings.

Currently, if you do not like the restrictions that come with a KiwiSaver portfolio, you do not have to join. Investment firms offer a wide variety of other options. You could invest directly. Or you might prefer to put your money into building your own business.

A re-elected National government would make KiwiSaver compulsory and sharply increase contribution rates.

When the United Kingdom phased in higher minimum contributions, from 2% to 8%, MIT economists found that only about a third of the increase came from people spending less. The rest came from more borrowing, including on credit cards, and from running down other savings. Forcing contributions up did not raise net saving so much as reshuffle the balance sheet.

Potentially, compulsion brings an even larger risk.

If you can no longer opt out of KiwiSaver, a future government may start to see your retirement savings as its own pool of captive capital, to be directed toward its priorities.

Funds could be required to invest a proportion of their portfolio domestically, to back government-preferred projects, or to comply with an expanded set of Environmental and Social Responsibility mandates. There are already calls for KiwiSaver to help plug infrastructure deficits.

The ability to opt out provides some protection. If a future government required funds to act against your retirement interests, you could stop contributing the next time you changed jobs. That risk makes governments less likely to impose such obligations.

If that exit is removed, other guardrails will be needed instead.

Last week, I proposed a few guardrails for a compulsory KiwiSaver. If a future government directs or interferes with fund managers' decisions, it should give KiwiSavers the chance to exit. If exit is not allowed, a mandate protection note attached to every account would oblige the government to pay for the imposition. Annual statements would carry a running tally of any mandate's effects.

The proposals can be refined. But any legislation making KiwiSaver compulsory should come with the guardrails needed to protect it over the decades to come.

Better to put them in place early than to regret their absence later.

Explore Eric’s research through our research note and our NZ Herald column.