KiwiSaver: Govt-subsidised holidays

KiwiSaver is a taxpayer-funded holiday fund for nearly a fifth of users.

ASB polled KiwiSavers about what they planned to spend their nest-eggs on when they retired, and 17 per cent said they would use the money on holidays, or to go travelling.

Pensions expert Michael Littlewood said around $800 million a year in taxpayer subsidies was going into KiwiSaver, but no research was being done into whether the scheme was doing what it was designed to do.

KiwiSaver was created ‘‘to increase individuals’ well-being and financial independence, particularly in retirement, and to provide retirement benefits’’, according to the preface of the KiwiSaver Act.

But ASB’s research indicated many people did not plan to use their KiwiSaver money to provide for daily living costs in retirement.

Instead, they planned to spend it on luxury trips, hoard it, or use it to pay off excess borrowing they incurred while working.

As well as the 17 per cent planning to holiday on the money built up with the help of annual member tax credits worth up to $521.43 a year, 10 per cent planned to use their KiwiSaver to pay off their mortgages.

Another 8 per cent planned to ‘‘help’’ family members.

And a combined 36 per cent didn’t really need to start spending the money on daily living costs when they retired, and would either leave it accumulating interest, reinvest it, or buy property.

Just 42 per cent of the people polled by ASB said they would use it to cover daily living costs.

‘‘It doesn’t surprise me,’’ Littlewood said. ‘‘There’s no question that joining KiwiSaver is a sensible financial move because of the subsidies.’’

That included both the government subsidies, and matching employer contributions, but research from the UK indicated many people would hoard their retirement nest-eggs, because they didn’t need it to cover their daily living costs.

This suggested most of the money was passing to the next generation, Littlewood said.

He believed many Kiwi retirees would do the same.

ASB economist Chris TennentBrown said the research was carried out in a bid to understand more about what motivated KiwiSavers, and help the bank work out better ways of engaging with people about their savings.

The bank also did deep-dive interviews with a smaller subset of people, and found things were even more complicated than the survey suggested.

Although KiwiSaver was designed as a personal savings vehicle, quite a few people looked on the money as family wealth.

But while Littlewood found the findings interesting, he believed surveys were no substitute to finding out what people really ended up doing with their KiwiSaver money.

Littlewood said: ‘‘We have spent $9 billion, and we are currently spending $800m a year on KiwiSaver, and nobody is asking whether or not it is working.’’

He called for money to be found for a long-term study of Kiwi financial behaviour to help work out whether the taxpayer was getting value for money.

‘‘Nobody is asking whether or not it is working.’’ Pensions expert Michael Littlewood