Rob Stock: Save 10 per cent into KiwiSaver? No way
OPINION: I read the other day that I should be sticking 10 per cent of my salary into KiwiSaver.
No way. At least, no way until the Government redesigns it.
I totally agree that saving just 3 per cent of your salary into KiwiSaver isn't going to be enough for a glamorous retirement.
But KiwiSaver isn't the place to put more than the minimum amount needed to get your employer's contribution, and the taxpayer-funded member tax credit.
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The really odd thing about KiwiSaver is it teaches people to invest in diversified portfolios of cash, shares and bonds, and then discourages them from saving more than the absolute minimum into it.
It's a design fault. It could be fixed.
Let me explain using the example of a person aged 65 who is still working. This elder citizen can save into KiwiSaver, without the money being locked away.
Should they need it, they can get it.
Fantastic. That's KiwiSaver fulfilling a savings need for people doing that last dash to build up their retirement nest egg.
Now, let's think about younger folk.
Say you've paid the mortgage off at 55, 50, or even 45. Hooray for you, but don't waste the wonderful position you put yourself in. Carry on saving,hard.
KiwiSaver, with its efficiency, low(ish) fees and spread of investments in cash, bonds, shares and property has done well for you.
And yet, you'd rightly pull up short at the idea of increasing your KiwiSaver contributions beyond the minimum.
I mean, what if a great business opportunity came your way and you needed capital? What if you fell on lean times?
KiwiSaver is supposed to encourage a savings habit, so why can't we tweak KiwiSaver and let people already saving the minimum, save more without locking it away until they are 65?
KiwiSaver's great disincentive to increase your savings rate would have been removed.
What's the alternative for that 45-year-old?
Let's say he or she is with ANZ and opts for one of ANZ's non-KiwiSaver funds.
The management fee on the ANZ KiwiSaver growth fund is 1.13 per cent. It's 1.44 per cent on ANZ's non-KiwiSaver growth fund.
Wouldn't it be better for that person to get more reasonably-priced fund management through KiwiSaver?
I've been debating my KiwiSaver "tweak" with KiwiSaver managers and experts.
One felt it might make KiwiSaver overly complicated. Another thought it a great idea. Another said once people's savings hit a certain level, they often withdrew some to spend on rewards (holidays, new TVs, cars, etc) for having done so well.
Still another said KiwiSaver providers could be providing non-KiwiSaver funds at the same price as their KiwiSaver funds. They just don't want to because if they did, they'd have to drop the fees on all the money already in the higher-fee funds they currently offer.
I'm reliably told one KiwiSaver provider is planning on disrupting that little party.
- Get your employer contributions
- Get your member tax credit
- Call for a better KiwiSaver