KiwiSaver policy under scrutiny

Labour’s KiwiSaver policy has been criticised by the University of Auckland’s Retirement Policy and Research Centre.

Wednesday, July 2nd 2014, 3:00PM

In its latest Pension Commentary, the centre’s researchers say that Labour has followed a long tradition in New Zealand politics of making announcements on retirement savings issues without public discussion or supporting evidence.

Labour has said that it would increase KiwiSaver contributions, make KiwiSaver “universal” – with a number of exemptions for beneficiaries, those on limited incomes and the self-employed, stagger the payment of the $1000 kickstart and ask the Reserve Bank to implement a “variable contribution rate” to be used as a tool of monetary policy.

Susan St John, Michael Littlewood and Claire Dale write: “New Zealanders deserve a full debate on all issues associated with the financial implications of an ageing population. KiwiSaver must be part of that debate, but cannot be seen as independent of the whole retirement income framework.”

They say Labour is wrong to refer to its scheme as “universal”. “The Labour Party’s KiwiSaver will be ‘compulsory’ in the same way and to a similar extent that Australia’s Superannuation Guarantee scheme is compulsory. With universal NZS, all who qualify receive the same taxable amount, but the lump-sum at age 65 from KiwiSaver will reflect the distribution of paid work, with high earners the major beneficiaries.”

Labour’s policy would increase the risk of some sort of offset to super eventually being imposed, they said, and the fact savings could be accessed at 65 while the pension age would rise to 67 could encourage early spending of the KiwiSaver nest egg. The researchers said this already happened in Australia.

The scheme under Labour would be more like Australia’s but the RPRC report said that was not necessarily something that New Zealand should strive for.

They said Australia’s compulsory superannuation savings scheme might not have had the positive effects on the economy that it was often credited with. “It has however enriched the financial services sector … Australians now seem to arrive at retirement with greater debt, having effectively ‘pre-spent’ their retirement savings. Australians also seem to retire early to collect their lump sum saving accounts and spend those before reaching qualifying age for the means-tested state pension.”

If KiwiSavers were forced to contribute more, they might save less in other areas, they said.

The proposed exemption from KiwiSaver for people on low-incomes would hurt those workers, too, because they would not only miss out on their own savings but they would lose what their employer would have contributed.

“Labour’s policy could instead have exempted them the member’s contributions but required the employer to make the same contributions for them as for other employees. The same approach could also apply to those who are allowed to stop contributing on grounds of hardship or ill health.”

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