KiwiSaver option drawcard for young
A call to rethink KiwiSaver's first- home withdrawal facility risks turning young people off the scheme, says a retirement savings researcher.
Michael Littlewood, of Auckland University's Retirement Policy and Research Centre, was responding to a submission by KiwiSaver provider AMP which argued that letting people withdraw savings for a house deposit was contrary to the scheme's goal of long-term savings.
Littlewood said that knowing they could benefit from the scheme before turning 65 was a big reason why many young people joined KiwiSaver.
"It does signal to people that putting money aside for a deposit is a constructive way to prepare for retirement. Allowing people access to the money means that young people can join with some confidence, because they know there is some relatively quick [benefit]," he said.
"For someone with student debt and starting a young family, looking forward 30 or 40 years to retirement age is completely outside their planning window.
"[But] I would say to somebody starting their first job, 'Yes, join, because you may end up wanting to buy a first home'."
Although take-up of the withdrawal facility has been relatively low as a proportion of KiwiSaver members, savings industry body Workplace Savings NZ expects numbers to rise more quickly as more people become eligible after three years of membership.
AMP suggested the Government should review the first-home option and limit home-buyer withdrawals to any savings made above the minimum 2 per cent (soon to be 3 per cent) of salary. Employer contributions would remain locked away.
Limiting withdrawals would help boost savings and ensure first-home buyers reached retirement with similar-sized nest eggs to people who did not make withdrawals, the provider said in its submission to the Ministry of Business, Innovation and Employment on a review of the KiwiSaver default fund system.
Littlewood said withdrawals for first houses were not incompatible with retirement saving: working towards owning a freehold home was an important part of retirement preparation, because it removed the risk of rent increases.
Economists debate whether owning or renting is a better investment at any particular time, given house prices, maintenance costs, interest rates and rents.
David Kneebone, of the Commission for Financial Literacy and Retirement Income, said any vehicle that promoted saving for a first-home deposit was useful.
"Any changes would need to be treated with a degree of caution, particularly given the issues with housing affordability, which are still a long way to being addressed."
The commission plans to tackle the issue of KiwiSaver and first- home deposits in its review of retirement policy this year.
The first-home withdrawal system is under the spotlight because the Government is considering a proposal supported by KiwiSaver providers Mercer, Onepath and Tower for all savers who join KiwiSaver but do not pick a fund to be automatically channelled into "life steps" funds.
Such funds automatically change people's mixture of shares, bonds, cash and other investments to be less risky as they get older.
The first-home withdrawal would present a challenge if the Government decided to adopt a life steps approach as the default fund option for people who do not choose their own funds, because young people who want to buy a home are on a short investment time frame.
The Government is also considering the number of default providers, fees and investment approach. Fairfax NZ
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