Budget Buster: KiwiSaver’s 10th birthday is hardly worth celebrating
OPINION: KiwiSaver turned 10 years old on Sunday. I hate to be the drunken uncle ruining the birthday party, but allow me a brief rant before we bring out the sausage rolls and fairy bread.
Everyone sings the praises of KiwiSaver because it's too juicy a scheme to pass up. First, there's all that 'free' money: Early members scored $1000 just for joining, everyone is eligible for a $521 tax credit each year, and you can even nab up to $10,000 for a first home.
As I've said before, we should stop calling government handouts "free" money. It's your own tax dollars, taken from your pocket and then returned to you – minus handling costs, of course – as if it's some benevolent gesture. The KiwiSaver lollies are a pointless money-go-round for the middle and upper classes, at the expense of poor people.
If you're on the bones of your butt, you need every cent to pay the bills. Saving for retirement doesn't come into the picture. That means you miss out on all the 'free' stuff, but you don't get to stop paying taxes.
You also miss out on the employer salary matching. This is an even more valuable part of the scheme, but it's also a bit of smoke-and-mirrors. If employers have to match 3 per cent of your pay, it effectively means base salaries are 3 per cent lower than they otherwise would have been.
Finally, there's the increased savings rate, which is the whole point of the scheme. These money-go-rounds might make sense if they nudged us into better behaviours, like saving up for a distant retirement instead of blowing our whole pay packet every month. However, reports are conflicting on whether KiwiSaver is actually helping.
Sure, it's signed up lots of members – you'd be a mug not to get that 'free' money – but it might be that people just save less in other places, or don't pay as much off the mortgage. One analysis found there was no evidence of a positive effect on net wealth, while others suggest one third of contributions are 'additional' savings.
While the savings benefits are still unclear, there is one group of undisputed winners: The banks, and other KiwiSaver providers. The government has shepherded 2.5 million docile lambs into the providers' holding pens, where they've been fleeced with fees far higher than similar schemes in other countries.
Now we come to the strange conclusion: I still think KiwiSaver is the right choice for most people.
Even if it doesn't make sense for society as a whole, individuals have to work within the system. If you want to get what's yours, you have to play the game. That means contributing enough to max out employer matching and collect the $521 tax credit. It means making sure you've chosen a fund that matches your risk profile. It means looking carefully at fees, which can have a huge impact on your nest egg over the decades.
KiwiSaver is the red-headed stepchild of the money world. There's no point moaning about its inadequacies, because it's here to stay. All we can do is try to make the best of things, and hope that the next 10 years are better than the first.
- Sunday News