Make KiwiSaver progressive

Last updated 05:00 19/06/2014
HELPING HAND: Without safeguards there would be many elderly people living in abject poverty at a time when their health is slowly declining.

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The original idea behind both the Superannuation fund and KiwiSaver is to ensure you continue to live in relative comfort when you retire.

When you turn 65, according to the current scheme, your income from Super drops to 64 per cent of your normal salary.

KiwiSaver aims to make up that difference and for many, especially those who were struggling to get by before retirement, that's a welcomed extra boost.

Without these two safeguards there would be many elderly people living in abject poverty at a time when their health is slowly declining, as was the case before Super was introduced.

That's not because people didn't think ahead when they were young, but more likely because their budget didn't stretch far enough to allow them to save, certainly not enough to pay for increasing living costs which as we all know tend to outpace salaries.

The current debate of making KiwiSaver compulsory centres around the fact that as life expectancy and living costs are going up, Super will be less and less effective at providing a basic standard of living for many people which is a real and pressing problem, to which the only other proposed solution has been to increase the retirement age.

One of the main problems I see with both of the above schemes is that they apply equally to millionaires as well.

So someone who retires as a millionaire will have received a big chunk of money from the government through KiwiSaver (4 per cent of several million is a lot of money) when they retire.

That's a needless waste for a system that was designed for need, and for averting poverty, not for maintaining a millionaire's lifestyle.

Sure they should get the money back that they put in and any interest earned, but nothing extra as they don't need it.

So make the government contribution progressive (ie. the less you earn, the more the government puts in).

Other people may well have other retirement schemes that don't rely on the government. If they can prove that they've put enough money into those schemes, then why force them to join KiwiSaver?

Put a periodic review in place to make sure people haven't squandered that money, and if they have for some reason lost it, then put them under the mandatory requirement scheme.

What do you think of this idea? Could it work? Share your thoughts. 

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