Angry readers react
I don’t think I’ve ever received as many letters about this column as I did after the last one about KiwiSaver. A man is cross with me, a woman is cross with the government, and others are confused, curious, or want to make a point.
Let’s start with the angry bloke, who commented on the following quote from my last column:
“While you can withdraw KiwiSaver money if you strike financial hardship or serious illness, there are some fairly big hoops to jump through to get it. And what if a family member needs the money? Or — on a more positive note — what if a relative or friend has a great idea for a business start-up that you would like to support?”
Says the reader: “This is perhaps the most irresponsible retirement planning advice I have ever heard. Nine out of 10 business starters fail. You should not be encouraging unsophisticated investors to put their precious retirement savings into friends’ business startups.”
He has a point. I didn’t mean to imply that a start-up is necessarily a good investment — certainly not with the bulk of your savings. But I hope many New Zealanders are willing to put, say, 5 or 10 per cent of their savings into such ventures — knowing they might lose that money.
When a company flies, that’s how we create jobs, make profits from exports, and all that useful stuff.
The woman’s gripe with the government starts with the fact that both employer and employee contributions to KiwiSaver will rise from 2 to 3 per cent in April 2013.
“While I don’t have a problem with this, someone mentioned that the government is now to tax employer contributions, and that will have the effect of the employer’s amount going into my KiwiSaver account going from 2 to 2.1 per cent.
“So although my employer is making a much bigger contribution to KiwiSaver (and thus adjusting my overall remuneration at my next pay review), I will be seeing very little of it in my retirement savings. Surely this can’t be justified, it’s just a tax grab.”
She’s right that the tax on employer contributions — which took effect last 1 April — largely offsets next year’s rise to 3 per cent, although less so for those on lower incomes.
On $30,000, your annual employer contribution goes from $600 before both changes to $743 after both changes. On $50,000, you go from $1000 to $1238, and on $100,000 you go from $2000 to just $2010.
Is it a tax grab? Well, from April 2013, the government’s KiwiSaver tax credit will outweigh what it receives in tax for those earning $53,936 or less. It will be the opposite for people on higher incomes.
But if you add the $1000 kick-starts into the mix, the government looks more generous. In any case, keep in mind that KiwiSaver is a transfer of wealth from non-members to members. Maybe reducing that transfer is fair.
Points from other readers’ letters:
- “Will the age of KiwiSaver access to your own funds increase if the government increases the age of NZ Super eligibility?” Yes — they are tied.
- “Some employers (like mine) have matched employee contributions to 4 per cent. So not everyone should cut back their contributions from 4 per cent to 2 per cent, as they could lose out.” Quite right — although I think that’s quite rare.
Finally, readers who will soon get access to their KiwiSaver money have asked about their situation. I’ll go into that in another column soon — although I’d better skip KiwiSaver next time or the anti-KiwiSaverers will start complaining! In the meantime, no harm’s done by sitting tight for a while in your KiwiSaver fund.
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.