Call to suspend $800m KiwiSaver subsidy
The Government should suspend KiwiSaver subsidies to help pay the economic costs of the coronavirus crisis, some pension experts believe.
They also say people in financial distress should be given immediate access to money in their KiwiSaver accounts.
In the year to the end of June
2019, the cost to the taxpayer of member tax credit subsidies going into individual KiwiSaver accounts was just under
$800 million, with each KiwiSaver receiving up to $521.43 into their accounts from government.
But pension experts Michael Littlewood and Michael Chamberlain said it made no sense for the Government to be borrowing to subsidise KiwiSaver during the coronavirus crisis. ‘‘It [subsidising KiwiSaver] was a silly idea at the best of times. It becomes even sillier at the worst of times,’’ said Littlewood, an honorary academic from the Auckland University Retirement Policy and Research Centre.
‘‘It would be very easy for the Government to stop member tax credits,’’ said Chamberlain, founder of KiwiSaver provider Superlife. KiwiSaver was always ‘‘a solution for a problem which did not exist’’, he said, and he did not believe the taxpayer should ever have been funding private savings accounts.
Chamberlain believed that instead of funnelling money into KiwiSaver, which was being funded by government borrowing, the Government should move to immediately allow people who needed their money to withdraw it. ‘‘What we should be doing is allowing people with KiwiSaver to take out $2000 a month, providing they give us a certificate that they have reduced income or have been laid off because of coronavirus.’’
The move would be timely given the hardship application process to get money out of KiwiSaver is unworkable in lockdown. But Sam Stubbs, founder of the Simplicity KiwiSaver scheme, was worried even putting a temporary hold on KiwiSaver taxpayer-funded incentives would be a nail in its coffin. ‘‘One crisis cannot be allowed to derail the most successful savings
scheme in New Zealand ever, which helped purchase almost
40,000 first homes last year, and could help fund the retirement of over 3 million Kiwis over time,’’ Stubbs said. ‘‘However, the presence of a $778m subsidy by the Crown, in the form of member tax credits in 2019, is clearly going to be up for review. It is simply too large a sum to be ignored in this environment.’’
If the subsidy was ended, Stubbs called for Australian-style compulsion, requiring everyone to save from salary or income, delaying the introduction for
12-18 months. ‘‘Any successful national savings scheme needs an incentive or to be compulsory. In Australia they have chosen compulsion and look how successful that has been,’’ Stubbs said.
‘‘If the Government takes away the member tax credit, and does not make the scheme compulsory, the rationale for many members to save simply won’t be there any more.’’
Stubbs said a large part of Australia’s economic success was its massive pool of home-grown capital, and losing KiwiSaver would deprive New Zealand of money that could be invested in developing the economy and infrastructure.
James Grigor, chief investment officer at NZ Funds, said even temporarily suspending the member tax credit subsidies would damage people’s belief in KiwiSaver.
Continuing it could well prove a great investment decision as share prices were now low, so any more invested would benefit from price recovery when the postcoronavirus crisis economic recovery took place.
‘‘I think we need to stay optimistic,’’ Grigor said.
‘‘It [subsidising KiwiSaver] was a silly idea at the best of times. It becomes even sillier at the worst of times.’’
Michael Littlewood Pension expert