- KiwiSaver has changed many times, but it’s still worth contributing to
- Is it worth signing up a child to KiwiSaver now the kick-start has gone
- A novel way of valuing your friends
QLike many Kiwis, we signed up to KiwiSaver and started saving for our retirement. We also encouraged our children to sign up and participate.
And then the National Government comes to power. While hanging on to our money, it starts whittling away at the incentives. Next year, are they going to axe KiwiSaver and give us our contributions back minus the government contributions? We have forgotten this occurred 40ish years ago, which is why most New Zealanders do not have retirement accounts now.
If we signed up to KiwiSaver doesn’t this make us consumers? What is Consumer Rights saying about the government’s bait and switch? I think the government needs its feet held to the fire. Especially when it happily squanders tax revenue on convention centres, monuments, Saudi businessmen and political perks.
AYou’re right, that Mamas and the Papas’ line “Nothing’s quite as sure as change” surely applies to KiwiSaver.
I must say I was shocked when I put together the following list of changes since KiwiSaver started in July 2007:
- Total remuneration — employers including KiwiSaver in employees’ remuneration packages, which means non-KiwiSaver employees take home more cash — was banned by Labour in mid-2008 but allowed again by National later that year.
- The $40 annual fee subsidy lasted less than two years.
- Mortgage diversion made it to just two years — although the small number who were already using it could continue to do so.
- Minimum employee contributions have swung from 4 per cent to 2 per cent to 3 per cent.
- Compulsory employer contributions rose from 1 per cent to 2 per cent, but plans for future rises to 3 and then 4 per cent were axed. Later, however, employer contributions were raised to 3 per cent.
- The annual tax credit for employers — as opposed to employees — of up to $1043 per employee was cancelled.
- Employer contributions were at first taxed if above 4 per cent, then that changed to above 2 per cent. Then all employer contributions were taxed.
- The first home subsidy has seen changes in minimum contribution requirements, house price caps and maximum incomes. And recently the amount doubled for buyers of newly built houses.
- The first home withdrawal can now include tax credits, which previously had to stay in your account. That means you can now take out everything except $1000. Also, originally you could use the withdrawal to buy a house outside New Zealand, but no longer.
- Access to KiwiSaver funds if you move to Australia was changed. You can now transfer to an Australian super scheme but not get your money out in cash.
- Tax credits were halved, from a $1043 maximum to the current $521 maximum.
- Grandparents used to be able to sign up a child to KiwiSaver. Now it has to be both guardians.
- The $1000 kick-start has just been axed.
- The government is talking of auto-enrolling all employees not already in KiwiSaver, not just those starting a new job.
Even politicians would probably agree that that’s too much mucking around in just eight years.
However, I think two of your assertions need challenging:
- The first is that National has been the only government to change KiwiSaver.
If we go back to when the scheme was first announced, in 2006, there were no tax credits, no employer contributions, and member contributions were 4 per cent or 8 per cent.
Then, in the 17 May 2007 Budget — just 44 days before KiwiSaver started — the Labour government added the member and employer tax credits and gradually rising compulsory employer contributions.
These major changes left KiwiSaver providers scrambling to update their literature at the last minute. I heard of one bank having to dump 60,000 copies of its investment statement and start again.
It could also be argued that quite a few of National’s changes resulted from the fact that Labour brought the scheme in hastily, and problems had to be remedied.
- The second is that all the changes have been detrimental.
KiwiSaver members have benefitted from rises in employer contributions, higher house price caps for the first home subsidy, and access to tax credits in first home withdrawals. And some other changes — such as the lowering of the minimum employee contribution — have helped some people to get on board.
Still, the scheme ain’t quite what it used to be. I think you’re getting a bit carried away, though, if you really think the government will repeat Robert Muldoon’s abolition of the NZ Superannuation Scheme when he came to power in 1975.
That scheme was compulsory, more government-run than KiwiSaver and less than a year old. The fact that KiwiSaver isn’t compulsory but has attracted such a big proportion of the population makes it impossible for a government to kill it outright, in my opinion.
As for consumer law, it doesn’t apply to KiwiSaver in the way you suggest. When you joined, nobody — government or otherwise — promised you it wouldn’t change.
If you don’t like the changes, you can always take repeated contributions holidays until you withdraw your money. You just fill out a simple form. Or, if you’re not an employee, you just stop contributing. Meanwhile your money is sitting there growing for your retirement spending.
I don’t recommend that, though. Pulling off the KiwiSaver Road isn’t all that clever. The government and employer contributions still make the scheme hard to beat. If you keep driving, you’re likely to end up in a more comfortable retirement.
QWe enrolled our now three-year-old son in KiwiSaver when he was a baby. I have just received the latest statement that shows that the $1,000 kick-start — the only money contributed so far — has grown to over $1,200. However, I am also aware that over time, inflation is likely to erode a lot of the gains made unless we top up.
Unfortunately I was not quick enough off the mark to enroll our newborn baby into KiwiSaver (born May 1) before the kick-start was removed. As you probably know, you have to complete the birth certificate application and then get an IRD number and it is a lot of paperwork with a newborn. Of course I would have prioritised it had I known!
So my questions to you are — do you think it is worth enrolling our baby anyway and say putting $1,000 of our own money in her KiwiSaver account? Do you think it is worth the return on investment compared with inflationary pressures?
Also, what if we enrol her now, and then — if there is a change of government — the kick-start is reinstated and, because she is already enrolled, she doesn’t get it? But even if that happens, it won’t occur until 2017 at the earliest, so maybe we are missing out on possible returns in the intervening years.
AYou mean to say you had better things to do in the first few weeks of your baby’s life than enroll her in KiwiSaver? Surely not!
So what should you do now? One argument says to sign up the baby and deposit $1000 of your own — if only because treating two siblings differently can cause trouble down the line.
On whether inflation will erode away all the value, that’s unlikely these days. In the year ending March 30, inflation was just 0.1 per cent. That will change, of course — although who knows in what direction? But returns tend to move up and down with inflation. And even in more conservative funds, in recent times they have usually been higher than inflation.
In any case, with young children I would suggest you invest in a higher-risk growth KiwiSaver fund. Returns will sometimes fall, but over the years until your child uses the money for a first home, they are highly likely to be above inflation over the long term.
But — as you say — what if Labour returns to power and restarts the kick-start? I put the question to Grant Robertson, Labour’s finance spokesperson.
“We are in the process of reviewing all our policy, including on superannuation and KiwiSaver,” he says. “Having said that, the kick-start remains our policy as we believe it is an important incentive to building a savings culture.”
If Labour does bring back the kick-start, might it pay it retroactively to those who join KiwiSaver between now and then?
“At this stage we cannot guarantee to compensate those who miss out on the kick-start as a result of National’s cut,” says Robertson. “A final decision on that would need to be made looking at the overall state of the books when we return to government.”
If, in the meantime, National goes ahead with its plans to auto enroll all employees, there will be many thousands of new KiwiSaver members who don’t get the kick-start. So it may simply be too expensive for Labour to give $1000 to each of them later.
But who knows? Governments do strange things. KiwiSaver was Labour’s baby in the first place, and Robertson seems fond of it. “We would want on returning to office to continue our longstanding support for it,” he says.
So, should your wee daughter and others delay joining? Says Robertson, “As I am not a registered financial adviser I would be reluctant to give the kind of advice you ask for.”
Okay, then, I’ll have a shot at it. I reckon everyone over 18 should join as soon as possible. What you might miss on the kick-start you will probably more than make up for on tax credits and employer contributions in the meantime.
But it’s different for children, who don’t get the tax credit or employer contributions. For them — or more accurately their parents, including you — it might be wise to wait.
In the meantime, you could put $1000 into an interest-paying savings account, earmarked for your daughter. Then you have two courses of action:
- If Labour reinstates the kick-start in the next few years, sign your daughter up for KiwiSaver, and transfer into her account the interest earned in the savings account. Spend the rest on a treat for you.
- If the kick-start fades into history, put her into KiwiSaver anyway, and transfer in all the money from the savings account.
QI could get about a million dollars for my Auckland property. The only reason why I haven’t sold is that most of my friends live in Auckland. So that must mean that my friends are worth a million.
AI hate to be a wet blanket, but your friends are actually worth a million minus what you would have to pay for a property elsewhere! But still, they’re pretty precious friends. Maybe you — and everyone else in your situation — should tell them so.
Footnote: Okay, now who’s got the Mamas and Papas song, “Look through my Window”, running through your head. I admit I have!
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. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.