Big bad government unlikely to spoil KiwiSaver
Every now and then, someone says to me, “The government must be paying you for all that favourable publicity about KiwiSaver”. It’s not, of course. And in any case, my coverage has been far from totally positive.
As I’ve often said, KiwiSaver distorts savings decisions, because you can save only in certain types of vehicles.
Also, the government — in other words the taxpayers — is paying many KiwiSaver members thousands of dollars to do saving they would do anyway. True, other members will save more because of KiwiSaver, but whether the whole thing is cost effective remains to be seen.
The scheme is far from perfect, then. However, I can’t go along with some of the cynicism I’m hearing about how current or future governments might treat people who have signed up for KiwiSaver — with the speaker concluding that it’s not a good idea to join.
Just this week, for instance, a reader challenged my comment in my last column that it will be easy for an employee to take a contributions holiday after being in the scheme for a year or more. The reader says he’s heard that Inland Revenue will be tough with people who want to stop putting money in.
Inland Revenue officials assure me that’s not the case. While employees can stop contributing during their first year only if they experience significant financial difficulties or serious illness, after 12 months anyone is entitled to take a contributions holiday, simply by filling out a form.
I believe them, and not just because they seem trustworthy. Here’s why:
- Next July, a year after KiwiSaver started, we’ll see the first people applying for contributions holidays. If they find it difficult, they will yell.
That would send a clear message to all the people who haven’t yet signed up for KiwiSaver: “This scheme is not as flexible as you think.” That’s hardly going to encourage others to sign up.
- All non-employee KiwiSaver members — children, the self-employed, beneficiaries, home makers, early retirees — can simply stop contributing to KiwiSaver. They don’t need to take a contributions holiday.
Forcing employees to keep contributing against their will, when others don’t have to, doesn’t sound like an election-winning strategy to me.
Other cynical readers say they won’t join KiwiSaver because future governments might reduce the KiwiSaver incentives — the $1,000 kick-start; tax credit of up to $1,043 a year; $40 a year fee subsidy and, if passed into law, compulsory employer contributions.
They’re quite right that the incentives might be reduced. No government can ever make guarantees for a future government. But that’s a reason you should join now, not a reason not to join. Make hay while the sun shines.
If future changes make the scheme unattractive to you, you can always stop contributing or take contributions holidays from then on. You will still have savings in your KiwiSaver account from “the good old days” — in other words, now.
Everything would change, of course, if KiwiSaver were made compulsory, which is another possibility.
In that case, presumably contributions holidays would end, and incentives would stop. But if everyone had to belong from then on, those who joined now will be the winners, having gained from the incentives.
I struggle to come up with a government change that’s at all likely to happen in a democracy that would make KiwiSaver members regret having signed up now. Any suggestions, anyone?
Quick KiwiSaver info
If you want to catch up with the basics of KiwiSaver, and find answers to many or your questions, go to www.maryholm.com and click on the KiwiSaver Book page. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]
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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.