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Taking a long view on KiwiSaver changes

Friday, October 10th 2008, 8:27AM 7 Comments

by Philip Macalister

At the risk of getting another earful from some readers I am going to venture into politics again! Before I start though a few reasons why. This site is about personal finance and financial advice. This is an area of intense interest this election, particularly in the wake of the National Party’s economic package released this week. It is quite reasonable, and I would suggest responsible, to discuss what each of the political parties are offering investors and advisers in the run up to November's election. (For the record I don't belong to, nor am I affiliated with any political party). John Key firmly put KiwiSaver on the agenda this week. This is an issue worth discussing. I don't have a hard and fast view on National's tax cut plans at the moment, but it seems to me raiding KiwiSaver to provide personal tax cuts isn't the smartest idea in the world. Clearly KiwiSaver has been popular with New Zealanders. Can you tell me another product in this country which has amassed more that 800,000 customers in less than a year? To take away some of the appeal of the scheme so everyone can get a little bit extra cash in their pocket doesn't, on the face of it, seem to add up. (Happy to hear contrary views on this). Also I wonder whether encouraging more consumption, and no doubt more debt, is a great idea when financial markets are falling down around the world due to credit issues. Likewise encouraging savings over consumption is at the heart of what a lot of this industry is about. Therefore it has been fascinating to watch the string of press releases on National’s plans and KiwiSaver and observing some strongly divided views. Even among industry bodies there seems to be contrary opinions. The ISI is disappointed with what is being proposed while ASFONZ is supportive. Unions, understandably are lining up with Labour on this, although National is proposing to lower the contribution rate to 2% (something the unions argued strongly for), and business groups tend to say the ideas are on the right track. Also this industry is based around long-term thinking. While much of the media comment is about the short-term immediate impact of the proposals, there was a piece of news I caught last night which took a long term view. I’m seeking the numbers now, but from memory the difference in how much a KiwiSaver would have in their account at age 65 under National and Labour was around $200,000.
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Comments from our readers

On 10 October 2008 at 9:54 am Kimble said:
"Clearly KiwiSaver has been popular with New Zealanders. Can you tell me another product in this country which has amassed more that 800,000 customers in less than a year?"

Sure, right after you tell me another product that is compulsory to start using, that you must opt out of if you don't want to use, and which gives you a cash back refund of 200% of the products original price.

I am pretty sure it isn't popular because of the expected impact on people's wealth decades down the track in retirement :)
On 10 October 2008 at 9:56 am Denis said:
While I am no apologist for National I think that they are getting a bad press re their proposed KiwiSaver changes. For the member, the Government subsidy is not changing at all. It is the required employer subsidy from 2010 that is reducing. Talk of National "raiding" or "axing" KiwiSaver is a bit emotive in my view and unsettles present and future KiwiSavers alike.

Let's face it - from a provider's point of view, if the 2&2 model was all we ever knew, we would have taken it. It's KiwiSaver Lite, not KiwiSaver Shite.
On 10 October 2008 at 10:01 am Andrew Burton said:
It is my understanding that a lot of New Zealanders cannot afford to save 4% in the current economic climate so the National policy is to reduce this to 2% so hopefully those who have already joined will remain in the scheme and it is also intended to encourage those who are still not in the Kiwisaver to join up? I feel that most people have joined up, NOT because of the compulsory savings but because of the carrot dangled by the Government of the $1.000 start !
I am a great believer in encouraging people to save for their own retirement but at the moment a huge number simply cannot afford to as they need every dollar to bring up their families.
In better economic times I would like to see Kiwisaver compulsory like it is in Australia and many other Countries. I understand that in Aussie the compulsory amount is now up to 9% ? Wouldn't it be great if everyone here could save 9% out of their pay packets ! I am not a Socialist, in fact I am,like you, Politically neutral but I am sure that the vast majority of lower paid workers in New Zealand are simply NOT earning enough. To fix that the minimum wage needs to go up substantially to a minimum of $15 per hour but there has to be a trade off so workers also need to lift their productivity accordingly. The gap between the haves and the have nots has definitely increased substantially in recent years and this imbalance must be addressed.
Thank you for your weekly blog as it is very interesting and informative so keep up the good work. Andrew Burton, Timaru.
On 10 October 2008 at 11:18 am Brent said:
The debate is focusing on the fact that KiwiSaver is successful because
800,000 people have signed up.
That is a good number but our experience as a business is that people are signing their kids up because it is money for jam. There are NO employee contributions , no other contributions except the Govt.
Not a bad thing but distorts numbers.
When we offer (it) to staff they say they can't afford 4% of gross it is approx 6% of net and often all of discretionary spend (after rent, mortgage etc). At 2% it will allow a lot more contributors rather than just kids.
On 10 October 2008 at 3:22 pm Peter Barker said:
National have put the skids, to a degree, under KiwiSaver. The people who bleat on about 4% being too much have no idea how much it costs to build up an adequate, not large, pot for their retirement. I have worked in this industry for 15 years, here and in the UK, and I can guarantee that everyone I saw through to retirement said they wish they had done more and done it sooner. My old company put 20% of my salary into my pension in order to provide a pension of 2/3 final salary at normal retirement age. For National to say in it's policy document that 2+2 is all that people are likely to NEED is totally disingenuous. Also for anyone earning around $30,000 a year the cut is significant, because if you read the policy document it says that this person will only receive a tax credit on the minimum contribution rate. Under Labour they would receive $1,042.86 tax credit on their $1,200 contribution, plus $1,200 from their employer. National will with their policy cut this tax credit to $600. So the rich get rich.................. The scandal of this is not just that National are robbing those who should benefit most from KiwiSaver and, unfortunately, need to be forced to save for their retirement, but they are also allowing those who can afford it, the better off, to put their non working spouses into the scheme and invest $1,042.86 per annum and get the full tax credit of $1,042.86. Where is the social justice in that.
National should be encouraging people to save now so that we are protecting those taxpayers in the future when there will be more and more retirees in receipt of state super. Many of these retired people also rely on other state handouts just to eke out a living after working for maybe 50 years. Where will thre money come from then Mr. English or are you like most politicians and only care about the next three years. I think this may have been a major error on your part and could well backfire on you.
By the way I am not committed to either party, but I have moved significantly towards Labour after this disgraceful action.
On 11 October 2008 at 11:06 am Bill said:
Who actually cares about KiwiSaver at the moment?

It's time the politicians stopped electioneering and ran emergency meetings to manage the economy.

If necessary manage the economy 5 days per week and electioneer at weekends.

Till they do this none of them have any credibility.
On 15 October 2008 at 8:45 am Keith said:
What has National proposed?

Dropping the minimum amount an individual can contribute down to 2% therefore making affordable for a lot more people. This should actually encourage more people to join up though we will, undoubtably, see a drop in contribution from some existing members.

Dropping the government's subsidy of the EMPLOYER contribution. This actually represents 2% on an income of $52,000. Therefore, for a large number of members, this isn't dropping the actual amount saved for the member by the employer - just the extra amount the govt will be putting in.

Maybe it's not such a bad proposal with the econimic climate what it is - and yes, many of those signed up will either be children (no-earners) to get the $1,000 or old fogies like me who will put in the $20 a week, get the govt $1,000 kick-start and another $20 a week from the govt - the best deal in town!

Therefore, it is e
Commenting is closed



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