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The future of KiwiSaver

Act party leader Don Brash says KiwiSaver hasn't helped New Zealand's savings rate and was nothing more than a bribe from the previous Labour government.

Tuesday, August 30th 2011, 7:10AM 8 Comments

He told the Workplace Savings conference last week that governments don't know how to increase national savings.

"Let me make it quite clear that KiwiSaver is a wonderful scheme for savers – the subsidies from the government are so generous that if you’re a New Zealand resident under the age of 65 and don’t belong to a KiwiSaver scheme you don’t understand it," Brash said.

"But does KiwiSaver increase national saving? Almost certainly not."The only study I’ve seen suggests that KiwiSaver has probably increased private sector saving to a very modest extent – most of the private contributions coming not from reduced spending but from a diversion of saving from other areas – but at the cost of very substantial dis-saving by the government, because of the scale of those subsidies," he said.

However AMP chief economist Bevan Graham disagreed with Brash.

He said one of the good things is that KiwiSaver is starting to engender the culture of savings in New Zealanders.

That point was supported by Raewyn Fox, the chief executive at the NZ Federation of Budgeting Services.

She said her members had seen that KiwiSaver was helping people who attended budgeting services develop a savings habit.

Graham said the government spending on KiwiSaver, through mechanisms like the Member Tax Credit (MTC), has been worth it to get a savings culture started.

The government halved the MTC in this year's budget and Graham expects this to be the start of a cutback trend.

He warned delegates more such changes will happen.

« News Round Up: August 29KiwiSaver mismatch a 'huge challenge' for advisers »

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Comments from our readers

On 30 August 2011 at 8:36 am Nick said:
As someone who saves equally between KiwiSaver and a private unit trust, Brash is quite right. The main advantage of KiwiSaver is the administration simplicity for the employer (compared with running a separate superannuation scheme). This is heavily influenced by how IRD wants super handled through PAYE. If this wasn't the case, and without the subsidisation by my employer and government, I would be saving about the same. The difference is that it would be more flexible and suit greater circumstances that KiwiSaver does.
On 30 August 2011 at 11:20 am Peter said:
Whether Brash is right or wrong, what Kiwisaver has done is increased the awareness of the generally financially uneducated public in NZ of the need to save for retirement. What is missing is a government funded programme in schools to further develop this mantra. I don't care if it is Kiwisaver, as long as we educate people that spending more than you earn is a recipe for disaster, and that there are better ways to build wealth, long term, than purely property and cash in the bank. We live on average for about 20 years after retiring and, in my experience most Kiwis have not much more than their home as an investment; an investment many of them are reluctant to sell down. If they do and we have a property slump like now, they are screwed. The secret is to have as many pots as possible to draw from.
On 30 August 2011 at 4:03 pm Dean said:
Just picking up on the two comments above, the message to try and get across to New Zealand is that: a) part of every paycheck should be set aside specifically for retirement savings; b) KiwiSaver by itself will not provide adequate income to retire although it will certainly make a good start, but like Nick above we need to supplement KiwiSaver with other savings; c) investment other than property must be a part of every retirement portfolio, if for no other reason than liquidity if funds are needed quickly or sooner than the earliest age of KiwiSaver entitlement. I'm not saying property is a bad investment, just saying (like Peter) that diversification is critical.
On 30 August 2011 at 5:48 pm Collin said:
KiwiSaver. while not perfect, has done a tremendous amount to highlight the 'shared burden' of saving for retirement in NZ. Although savings have been diverted the shear volume of members in KiwiSaver mean that contributions into KiwiSaver should swamp monies diverted. It is pity KiwiSaver has become a political football and a pity that Brash's KiwSaver venture, Huljich, did not work out - while it was in operation the above comments would've been most inappropriate..
On 31 August 2011 at 7:53 am denis said:
I think Brash is one of those people that enjoys having audaciously contradictory "headline" standpoints - and then he backs himself intellectually to defend them.

"KiwiSaver is a cyncical bribe."/"Come and join my KiwiSaver scheme"

"KiwiSaver hasn't helped anyone save money for retirement" / "1.7m people have now joined KiwiSaver"

In the face of this, we are meant to drop our bacon sandwiches and gather round his feet in wonder over the athleticism of his mind.

Trouble is, if we do that, he will talk long into the night about the academic studies that prove his latest opinion du jour. Then the audience's eyes glaze over and thoughts turn to absolutely anything else.
On 1 September 2011 at 9:58 am Andy said:
The only positive way to increase savings within NEw Zealand is to take away the alternative - Hire Purchase/retail credit. This should be left to the banks. People would then have to SAVE to have the luxuries, rather than simply putting a dollar down and 50cents a week thereafter. Only the retailers and finance companies gain here. The Finance companies have a bad record of lending on bad propositions, therefore encouraging bad fiscal activity.

Kiwisaver is a great idea, but is only part of the equation. It does encourage retirement savings, but many people are still too ignorant to seek better advice on a full and comprehensive retirement plan.
On 1 September 2011 at 4:19 pm ray said:
Brash is a plonker and always was, our Kiwisaver is a great start and I suggest you ask any Aussie if their work pension is a con and a waste of time, I know the answer you'll get.

Kiwisaver will get even better when our employer rates match those in Aussie - 9% - then it will be gangbusters.

God I hate these half witted politicians making "brash" statements when they don't have a clue!
On 3 September 2011 at 7:30 pm SueDonim said:
I'm a fan of Brash in general, and he may be right at this time that KiwiSaver to date is a diversion of other savings.

But in the long run, KiwiSaver and the improved savings culture will be critical to ensuring a stable retirement and reduced dependency on the Crown.

As KiwiSaver balances increase, people will have more incentive to follow the markets. This interest and education should result in increased savings outside KiwiSaver, all to the benefit of the NZ economy.
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