Is KiwiSaver sensible?
What issues will get your vote?
KiwiSaver is a government-subsidised saving for retirement.
At an emotional level it feels like a good thing to do, but is it a logical or sensible thing to do?
I would contend that the answer to this question is a no, and the reasons for this are many.
I am an old guy but I had this discussion recently with my 20-year-old daughter when she asked if she should start a Kiwisaver fund.
I told her that before you start a KiwiSaver fund and commit your savings to someone else's control for 50 years, you should ask some questions. Such as:
- Do you get a better return on your savings than you would get from paying off your student loan or mortgage? No.
- Are your savings inflation proof? No.
- Are your KiwiSaver savings secure? No.
- Can you spread your risk? No.
- Do you trust the share market and the financial industry to act responsibly and to treat you honestly? No.
- Are you likely to get anything like the full value of your investment back in 50 years? No.
- Do you think your KiwiSaver will be safe from political interference? No.
- Do you think the world will be a much different place in 50 years' time? Maybe!
- Do you think your politically-controlled savings will safely endure 50 years of peak oil, climate change, increasing resource scarcity, pestilence, war and the technological and societal changes that will occur with ever increasing and amazing rapidity?
The political basis for this savings regime is the premise that at some point society will be unable to afford a liveable pension. The population is ageing and the Government's ability to tax is dwindling as the ageing population works its way thought the system.
As the Government accumulates debt, its ability to fund social payments diminishes.
Ever thought where that population bulge will be in 50 years' time? It will be dead and gone and your KiwiSaver will have been buying the assets that their KiwiSaver funds cashed in.
But who will buy your KiwiSaver assets when you want to retire? Tough luck!
The Government is borrowing money to pay the KiwiSaver bonus. Its borrowing costs are higher than many KiwiSaver funds are returning. You don't need to know much about economics to see that borrowing money to lose money on savings is worse than futile.
A key consideration in all of this is that your KiwiSaver fund can evaporate if the fund goes broke, and this has happened about once a decade every decade for the past 100 years.
Ever thought that KiwiSaver might be nothing more than a vast subsidy to the whole financial circus that we currently live in?
KiwiSaver commits some 5 per cent of the total wages earned in the country each year to the financial investment industry. That fund is growing far faster than the asset base it is investing in. There can only be one outcome from this and that is asset-value inflation.
Have you seen the sharemarket and the property market lately? KiwiSaver funds rely on asset value growth of 5 per cent to 7 per cent, but this can't happen in an economy that is growing at only 2 per cent.
By 2020 KiwiSaver will have more funds invested than the value of the New Zealand sharemaket and will be equivalent in size to our national debt. Maybe we could afford social payments if we simply paid off the debt instead.
Unlike your savings, no one can steal debt you don't have.
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