KiwiSaver ‘refresh’ is a wake-up call
OPINION: KiwiSaver is being reviewed, and big changes are on the agenda, including whether or not to strip salaried workers of annual government contributions, making them $521-a-year worse off.
It’s a solid reminder that KiwiSaver is a creation of politicians, and that politicians can decide to make it more or less generous at any time.
That’s why it’s important to make the best use of KiwiSaver now, instead of putting it off until later, in the misguided belief that KiwiSaver will always be there in its current form.
Now, I think it’s unlikely that Labour would dare to make radical changes to the $521 government contribution many, but not all, KiwiSavers qualify for each year.
Currently, every dollar a person contributes to KiwiSaver (except over-65s and under 18s) earns 50 cents of government contribution, up to the maximum $521.
Imagine a government telling people that’s off the table, effectively dropping a person’s income by $521.
I should tell you that the idea being discussed would not necessarily block people’s access to government contributions. The idea is to make them earn government contributions by making additional voluntary contributions over and above their basic 3 per cent contributions from salary.
This isn’t about Government penny-pinching. It’s about trying to get people to save more.
KiwiSaver has many good things for the saver, but the chief ones are: employers making matching 3 per cent contributions, and the opportunity of getting the $521 each year.
Yes, KiwiSaver puts money beyond temptation. Yes, it’s driven down fund fees. Yes, it’s taught a generation to invest. Yes, it helps people save for first homes. But it is the matching employer contributions, and the $521 government contribution, that supercharges people’s ability to save something meaningful for retirement.
But take away the $521, and people would continue to contribute 3 per cent from their salaries to get matching contributions from their employers. So why continue paying it? The debate here is essentially whether the $521 (or whatever the government contribution should be) should be an entitlement or an incentive.
If it’s an incentive to get people to contribute to KiwiSaver, it may well not be working, and perhaps should be re-targetted in a bid to getting people to save more (assuming that’s what we want them to do).
If it’s an entitlement, essentially a disguised tax break, then removing it will result in some people paying more tax, if they can’t make extra voluntary contributions. And it was a disguised tax break.
KiwiSaver was the creation of a Labour government, which wanted to earn political brownie points with a tax cut, but wasn’t into no-strings-attached tax cuts.
To the average salaried KiwiSaver, reversing that tax cut would not be welcome. Nor would requiring them to save more to get it.
For these reasons, I can’t see it happening, but betting against changes to KiwiSaver wouldn’t be wise.
In 2015, the National government removed the $1000 kickstarter incentive to join KiwiSaver. In 2011, it had cut the government contribution in half from just over $1040 to $521.
Each of us has to take personal responsibility for learning about KiwiSaver, and getting the most out of it.
Many people are not getting their full government contributions each year. Many are on contribution holidays, or opted out of KiwiSaver. They will all have their reasons, and there are lobby groups trying to get greater KiwiSaver fairness for women, the self-employed, lowerincome people and the selfemployed.
But it would be hard for people who have not yet started to get the best out of KiwiSaver to wake up one day to its attractions, only to find it’s been made less generous.