Kiwisaver ‘kink’ concerns Cullen
The architect of Kiwisaver is concerned about the nearly 130,000 people on contribution ‘‘holidays’’.
Kiwisaver allows people to stop contributions for a period of time, a feature designed to allow people to cope with sudden cashflow crunches, or to use their money to do other things, like pay down their mortgage.
But Sir Michael Cullen, who as Labour finance minister launched Kiwisaver in 2007, now calls the holiday rule a ‘‘kink’’ in the design of Kiwisaver.
‘‘I am a little worried about the high level of members on holiday,’’ Cullen said.
Experts such as David Boyle from the government-funded Commission for Financial Capability have suggested it is time to change the rules around contribution holidays, as well as changing the name to something less ‘‘positive’’.
Savers can take a contribution holiday and not have to reapply for a new one for five years.
The commission recommended late last year that people should have to reapply after one year, forcing them to think about what it meant for their retirement to go another year without contributing to their retirement nest egg.
A poll done by the commission last year suggested 52 per cent agreed the proposed change was a good idea, but the Government has not acted on the suggestion.
If it did, the taxpayer would have to fork out more in the ‘‘member tax credit’’ contributions it makes to Kiwisavers’ accounts, which are linked to how much people contribute.
Earlier this year Cullen became an independent director on the board of Lifetime Retirement Income, which sells ‘‘variable’’ annuities allowing people to turn their Kiwisaver nest eggs into retirement income.
Cullen said that when Kiwisaver was launched, the motivation was not only to get Kiwis saving. Labour also thought New
"I am a little worried about the high level of members on [a contribution] holiday." Sir Michael Cullen, above
Zealand needed a pool of money to finance investment in New Zealand companies.
And Kiwisaver was also a way of taking money out of circulation to take the heat out of the economy, and to slow an unwelcome boom in house prices.
Cullen believed Kiwisaver had achieved all three of those ends.
Cullen sketched out the blueprint of Kiwisaver during a summer break from his then day job as Finance Minister.
He was pleased it had grown to hold almost $40 billion of savings for more than 2.7 million Kiwis.
‘‘Kiwisaver was successful way beyond official projections, at least in terms of the number of people joining,’’ Cullen said.
‘‘Now the fact that Kiwisaver is a useful tool for long-term financial security has been embedded into New Zealanders’ thinking.’’
He was disappointed National governments had ‘‘hacked away’’ at the incentives that made the scheme more equitable for low- to middle-income earners, including cutting the member tax credit.