Concern over remarks on old-age support largely unwarranted
People should not be put off joining KiwiSaver because entitlement may eventually occur later
My biggest concern about Diana Crossan’s discussion about raising the NZ Super age and cutting KiwiSaver incentives is that it will discourage some people — especially the financially unsophisticated — from joining KiwiSaver.
There’s not much logic behind the discouragement.
True, raising the NZ Super age will also raise the age at which KiwiSaver members get their hands on their money. But such a change would be phased in over many years, probably affecting only those currently in their 40s or younger. For them, adding a year or two to a tie-up of 20-plus years ought not to make much difference.
As for reducing KiwiSaver incentives, that’s all the more reason to join now and grab the $1000 kick-start, annual tax credits and employer contributions while the going is good.
But what if the incentives are lowered and you’re stuck in the scheme?
Not everyone realises that you can put KiwiSaver on hold if you no longer wish to take part. Employees can take contributions holidays after a year of membership. And everyone else — beneficiaries, the self-employed, early retirees and other non-employees — can simply stop contributing whenever they want to.
“OK,” say the suspicious. “But a future government might cancel contributions holidays?” That would surely happen if KiwiSaver became compulsory — at which point everyone who has already joined would be glad they were members while the incentives were available.
Short of compulsion, though, I have trouble picturing a government cancelling contributions holidays. It would be seen as hugely unfair, giving rise to sad stories in the media of struggling families who would have been okay if they had never joined the scheme. And what kind of message would that send to people who had not joined KiwiSaver? Nobody else would sign up.
Don’t forget, too, that up to a point, the more people contribute the more the government has to contribute. Cancelling contributions holidays would cost the government plenty.
Similarly, other possible future changes to KiwiSaver shouldn’t put anyone off joining now.
For example, Crossan considers — although unenthusiastically — the possibility of income testing NZ Super. Such talk can lead some to ask, “If the government is going to cut my super because I’ve got income from KiwiSaver, why should I bother with KiwiSaver?”
My reply: If income testing was introduced, I’m sure the government wouldn’t cut NZ Super by a dollar for every dollar retirees receive from their savings. Again, think of the message that would send to non-KiwiSavers. It’s more likely to be 30c or 50c less Super. Savers would still be much better off than non-savers.
And those hell bent on getting every last buck from the government should realise they will probably get more by being in KiwiSaver than out. For many, the incentives will outweigh any reduction in NZ Super.
While you might not feel totally reassured by Labour and National’s protestations that NZ Super won’t change, don’t let doubt keep you out of KiwiSaver. It’s actually all the more reason to join.
Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.