The Press rejects KiwiSaver compulsion

June 20th, 2014 at 3:00 pm by David Farrar

editorial:

The Party yesterday announced that if it were to win the next election it would seek to change that. It would make compulsory for all employees aged between 18 and 65. …

It is more likely that those who are not part of the scheme at this point are those who have decided, for good reasons of their own, not to participate in it. Some may, for instance, have decided it makes more sense for them to pay off debt – student loans, mortgages and the like – than to save through a super scheme. Others may not be able to afford to enter it. Forcing them to do so will require them either to borrow or forgo other spending. The spending is likely, at this point in their lives when they are younger, to be more valuable to them than a larger payout would be in old age.

Whatever the situation, it is their own choice not to enter a superannuation scheme. Compulsorily enrolling them is almost certainly going to make them worse off than if they were left to decide for themselves.

It’s patronising big government. Labour is telling people they are incompetent and can’t decide for themselves how best to save for their retirement.

Labour’s proposal is designed to increase what are said to be “chronically low savings rates”. Whether KiwiSaver does that is open to debate. It appears more likely it simply redirects saving rather than increasing it.

The evidence to date suggests exactly that.

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18 Responses to “The Press rejects KiwiSaver compulsion”

  1. Rex Widerstrom (5,354 comments) says:

    I have yet to hear an Australian lament the fact that 9.25% of their salary is sequestered as superannuation with a provider of their choice (or, if they’d prefer, a self-managed super fund or SMSF). I regularly meet self-supporting retirees, travelling the country as “grey nomads”, able to enjoy life with no money worries and not dependent on a government pension. I can recall only a handful of people in a similar position in NZ.

    The US has 401ks, Canada has Retirement Savings Plan (RRSPs) and Hong Kong has Mandatory Provident Funds… it’s not a radical nor is it a left wing idea.

    John Howard had plenty of political capital and could have ended Australia’s scheme. Abbott is so unpopular that it couldn’t get any worse for him if he did it. Instead, the rate is increasing to 13%.

    There are simply too many people who intend to get around to it but don’t. It’s a demographic disaster waiting to happen and if we don’t expect future generations to pay even more tax to fund growing numbers of pensions then NZ needs compulsory superannuation – provided that, like Australia, it’s not left to public servants to invest, and the people whose money it is have the widest possible choice of investment vehicles.

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  2. Nigel Kearney (1,013 comments) says:

    Labour is telling people they are incompetent and can’t decide for themselves how best to save for their retirement.

    There is consensus across all parties in Parliament that people are incompetent and can’t decide for themselves how best to save for their retirement, or provide for their health care, or pay for their kids’ education, or insure themselves against job loss, or decide what substances to put into their bodies, etc etc. Now we’re just quibbling over relatively minor details.

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  3. trout (939 comments) says:

    The continued criticism of Kiwis being poor savers is absolute claptrap ( promoted of course by the finance industry and fund managers). Hundreds of thousands of New Zealanders have chosen to invest in property – primarily their own home. The investment is generally leveraged (by way of mortgage) and can absorb further investment by way of improvements. Many folk aim to pay off the mortgage prior to retirement ( the number of freehold homes is surprisingly high) and liquidate the asset when required (to trade down, enter a retirement home etc. etc). Through the 60’s. 70’s, and 80’s it became apparent that one could not get wealthy by working; most personal wealth has been gained through property investment. I say to the finance industry that want to take my money (by compulsion) , charge rapacious fees; and then sell me a sob story when their investments fail: get stuffed.

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  4. Dave_1924 (116 comments) says:

    @Rex. Compulsion on this is not the right approach. The current carrot approach is working fine. if people have the spare cash flow and they look at the scheme they will see its a nice little earner with the government and employer pay in’s

    in NZ we have the fact we have offerings from Fund Managers that are way too highly burdened with fees – the investor gets raped and the returns are damn average in most cases. hence why I invest myself – averagely I admit but at least I am not being sucked dry by fund managers

    Why give the leeches more money to leech off – particularly when most people who aren’t currently in are probably in that position because they have other places to use their money. It makes no sense to invest for a 1 or 2% net gain if your lucky after tax and fees when you’re paying 5.75% or what ever the current average mortgage rate is out of after tax dollars…..

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  5. seanmaitland (500 comments) says:

    @Rex – Australia is not a good example – over there it is an additional 9% of their gross pay. When you interview for a job in Australia it is always advertised as pay net of super annuation – it is completely ingrained over there and just another employer expense.

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  6. burt (8,269 comments) says:

    Why would anyone in NZ save when if you don’t the gummit looks after you anyway. If you do they tax you hard for being a rich prick so they can buy the votes of people who don’t.

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  7. Manolo (13,774 comments) says:

    The socialist Labour Party loves, adores, compulsion. From how long can we shower, to wattage of lights bulbs, to how much we need to save.

    The comrades will always be petty tyrants at heart.

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  8. davidp (3,581 comments) says:

    A couple of years ago Labour were promoting the idea that government should increase their borrowing to “invest” in the Cullen Fund. Their bizarre idea was that investments would pay more than the cost of borrowing, rather than the other way around. Which taken to its logical conclusion meant that government should borrow and invest trillions of dollars and the whole country could retire immediately and live off the investment returns over the cost of borrowing.

    Is this compulsion a variation of the same idea? Young families shouldn’t pay off their mortgage, but will become rich by borrowing to invest in Kiwisaver.

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  9. Rex Widerstrom (5,354 comments) says:

    @seanmaitland

    Very true… any position advertised is + super @ 9.25%. Employees don’t feel they’re losing anything, but rather gaining. An important factor in gaining acceptance of the scheme.

    Of course it wasn’t that way when Keating – the last of the PMs with the courage to undertake any real reforms – took office. It’s taken many years to get to the point where it’s the accepted norm.

    @Dave_1924

    We clearly move in different circles, and I don’t mean that sarcastically. The majority I know go into debt for cars or holidays or such, not to fund productive assets. Then when they grow old, as burt says, expect “the gummint” to keep them.

    I’d improve on Australia’s scheme – and mitigate your very reasonable objection – by allowing young people to opt to have their 9.25 (or whatever) percent put toward their student loan or super, or spilt it between the two. Similarly payments on the mortgage for the house in which they live.

    For those who want to avoid lacklustre performances by fund managers there’s the option of switching funds or having the tax office approve your SMSF. Then you can, for instance, put your super contribution, plus voluntary savings, into investment properties.

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  10. john (47 comments) says:

    What Trout says. My parents spent about $50000 in my name in 1976 for 36ha of land, today that part of the farm is valued at 1.8m. In 1979 I signed up to an endowment policy that matures next year, $47/month, what do I get? A touch over $50000 for 35 yrs of investing(I know it was small but at the time it 10% of gross wage) . I can still hear my father talking about an endowment policy he had taken out and how rich he thought he would be on maturity, sadly it was enough to buy our first colour telly for the 1974 com games.

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  11. jhanet (11 comments) says:

    Hear hear. Why i’m shifting to the Nats after previous Labour loyalties. Surely how to save my own money is one thing the government can butt out of…

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  12. burt (8,269 comments) says:

    jhanet

    It’s great that you have shifted to the Nats and now consider it your money – Under the Labour govt it was their money. The bit they let you keep rather than keep in taxes.

    That’s the different right … In National a tax cut is just that, you pay less of your money in tax – Under Labour it’s the government giving money to rich pricks.

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  13. Richard Hurst (859 comments) says:

    A way to encourage saving rather than compulsory saving is to remove all taxation on income earned from savings and investments- term deposits , PIE’s, shares, bonds etc. But you might need a property capital gain tax of some kind to plug the hole in lost revenue…

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  14. Albert_Ross (293 comments) says:

    Rex Widerstrom, Labour’s proposal will do nothing to address the future cost of NZ Superannuation; it will simply ensure that future retirees may (depending on whether they would have saved anyway otherwise) have more money on top of their NZS than they would have otherwise, at the expense of their younger selves. This may or may not improve their lifetime wellbeing.

    Of course Australians like the fact that they seem to be getting free money. Some of them like it so much that they get themselves heavily into debt before retirement, so that they can then pay off the debt when they get access to their savings and avoid the means testing of their state pension at the same time. Not clear that such behaviour, or a policy of adding substantially to the cost of employing Australians, brings any public benefit. Nor is it clear that the billions spent by the Australian government on tax breaks for retirement savings, most of which benefit the rich, is the best use that could be being made of that resource.

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  15. Albert_Ross (293 comments) says:

    PS: those who like the Australian system better than ours might be interested to have a look at this, in which Australian authors argue the case for Australia to switch to the New Zealand approach

    http://apo.org.au/research/sustaining-us-all-retirement-case-universal-age-pension

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  16. Dave_1924 (116 comments) says:

    @ Rex – Wainui boys don’t have to stay poor Rex. I borrow for stuff when I need to – but having a mother who was from Yorkshire makes me budget for what i want and save for the inevitable rainy day.

    my key objections restated in a simple way:

    >I don’t like compulsion full stop – I believe people should have the right to choose
    >Kiwisaver as currently set up is a sweet deal with the government kick start and the 500 tax credit plus the employer pay in for employees in the scheme. Its attractive as it stands
    >I don’t want to be pilaged by the Funds Management industry. They over charge and generally their performance is no better than buying a top 40 index of shares yourself.

    Plus:
    >Government will see an expanding honey pot and the Lefties will not be able to keep their hands off. Winston already wants to rob Kiwisaver to buy back the assets sold down by this Government. I can just see Russell Norman mandating Kiwisaver funds having to have 30% in Government Green Initiatives bonds… and see it all get pissed into the Windflow and similar gurgler….

    No to compulsion… and if your poor in retirement well thats the price for spend and enjoy in your youth…

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  17. slijmbal (1,236 comments) says:

    @John

    your post highlights one of the issues in NZ with investing via funds – through a combination of lack of competition, no economies of scale and poor regulation we are exceedingly badly served.

    We have a grand total of 4 ETFs on the stockmarket, with silly management fees compared to the rest of the world. Most funds charge as if they are actively managed but are really index huggers. If you decide to invest abroad then the c**t Cullen’s (un)fair Dividend Return means you get taxed for an imaginary return as you’re obviously a rich prick and deserve to have a capital gains tax applied even when there is no capital gain – heaven for a socialist.

    Many of the major kiwifunds providers are careful to buy their own products as underlying investments so they can double dip on fees, whilst making the ‘headline’ fees look low. Check out the sorted website on kiwifunds and the typical fees are 2% – this is awful and the savings are only doing well because the government gives back some of our money to us in the way of savings.

    Making this steaming turd of investment options compulsory is pretty nasty until the funds industry is better forced to be transparent. Disclosure – I have a Kiwifund because I get $500 of my own money back and its returns are not dependent on the KS funds managers as they gut us.

    Otherwise my real savings are in shares, low fee ETFs, bonds etc.

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  18. gander (91 comments) says:

    @Rex Widerstrom: The Canadian RRSPs and the USA equivalents are not compulsory. The Canadian RRSP differs from the Aussie super plans in that any contribution to an RRSP (up to a reasonably generous limit) is made from pre-tax dollars and the income within the plan is not taxed; it can be subject to taxation when it is withdrawn but even then tax relief is available if you purchase an annuity with the funds. A very popular programme in a very high tax environment. Even so, when mortgage rates are high, commentators will advise that a dollar may be better invested in one’s mortgage than in one’s RRSP.

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