This article was published on 21 April 2012. Some information may be out of date.

Why a reader advises his son against KiwiSaver…

…and why I disagree

A reader’s letter explaining why he’s advising his 18-year-old son not to join KiwiSaver has not convinced me.

His first issue is with inflation. “I started work 40 years ago at $1 an hour. If KiwiSaver had been around and I’d invested that $1 (which KiwiSaver would have turned into $3) it would now be worth about $21, at 5 per cent a year, which is still now just an hour’s wage roughly,” he writes. “On a personal basis, that $1 was more valuable to me then than the $21 is now.”

The reader — let’s call him Fred — is actually being generous to KiwiSaver. Government and employer contributions no longer triple an employee’s contributions, except in the first year when they get the kick-start.

Instead, from April next year, the contributions of someone on $20,000 will be multiplied by 2.3. At $60,000 they will be doubled, and at $200,000 they will be multiplied by 1.8. A non-employee’s contribution of up to $1043 will be multiplied by 1.5.

So Fred’s $1 would have grown to around $14, not $21. But that’s not the point. While Fred might have needed more money when young, his son might be different. Life is unpredictable.

Fred adds that inflation might speed up again. True. But if his son invests in a KiwiSaver fund holding largely shares and property, its value should rise with inflation.

“Also”, Fred continues, “the likelihood of getting a consistent 5 per cent yearly average is doubtful — especially after the fund managers have taken their fees — which brings me to my second point…

“If the manager looking after your money is driving an expensive new car and you’re not, surely you’re doing something wrong — and its probably letting him/her look after your money. The person with the largest vested interest in your money is you — so you should look after it.”

My response: you certainly have more vested interest in your health than does your surgeon, or in staying out of prison than does your lawyer. But you pay highly for their expertise.

How much a fund manager makes shouldn’t matter as much as how your investment performs. And because of employer and government contributions, an investment in KiwiSaver is hard to beat.

In any case, some KiwiSaver providers charge pretty low fees, and I suggest that people go with them.

Fred’s third reason holds the least water. “The time when I needed money most was when I was younger, with a mortgage to pay and children to rear.”

It seems he hasn’t heard about the KiwiSaver withdrawal and subsidy to buy a first home — outlined at

Even if his son doesn’t get a subsidy, his savings for his first home will always be bigger in KiwiSaver than elsewhere. He can withdraw his own and employer contributions plus returns on all the money, including on government contributions.

And once he has bought a home, he can go on KiwiSaver contributions holidays if he prefers to concentrate on repaying his mortgage.

Fred concedes that, “having followed this advice for 40 years I have no retirement savings. But I have not been concerned or directly impacted by the tides of interest rates nor by the cycle of depressions/recessions/market adjustments that seem to regularly destroy people’s savings.”

That’s like saying, “I have no education, but at least I’ve never had bad teachers”.

He concludes, “I’m also very aware that this approach has been conditioned by the presence of NZ Superannuation, but can’t see how we will end it and still remain a decent nation.”

I agree that NZ Super probably won’t disappear. But it’s highly likely to be reduced from an already pretty basic level.

I hope Fred’s son has a mind of his own.

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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.