The Standard line: Kiwisaver

Written By: - Date published: 11:37 am, October 24th, 2008 - 26 comments
Categories: economy, election 2008, kiwisaver, national, tax, The Standard line - Tags:

So, you’re talking with someone about politics and they say something really dumb and wrong and you know it’s wrong but you don’t have the arguments and facts at your fingertips to make a decisive point. That’s where our election series, The Standard line, comes in. The info you need in bite-size form. Today: Kiwisaver

Points
-National says 4% is too much to save and more people would join their 2% scheme but sign-up to Kiwsaver at 4% savings has been twice what was expected, 830,000, and people on middle incomes, $20,000-$40,000, are actually over-represented among Kiwisavers.
-The huge numbers of Kiwisavers is not just the rich signing up their kids. 55% of Kiwisavers only have income from wages or salary. Another 31% earn part of their income from wages and salary.
– Under National’s plan, Kiwisavers would lose 2-4% of their gross income in lost contributions from their employer and the Government.
– Every Kiwisaver, no matter their income, would lose more money from lost Kiwisaver contributions than they would get from larger tax cuts from National.
-A typical family on an income of $65,000 with both parents in Kiwisaver stands to lose $50 a week from National’s tax and Kiwisaver policy.
– National’s plan would halve the size of your Kiwisaver nestegg. It adds up to hundreds of thousands of dollars for young people.
– The money National would save by slashing Kiwisaver would be spent on giving tax cuts for the rich. Slashing Kiwisaver would save $3 billion, National’s tax cut plan would cost about $4 billion more than Labour’s, about half that money would go to people on incomes over $80,000. That constitutes a big shift in wealth from ordinary Kiwis to the rich.
– As a country, we need to save more, otherwise we have to borrow from overseas to grow our economy. So, far Kiwisaver has created a $1 billion savings pool, and that is growing exponentially. Rather than saving for growth, National would slash savings and give the money to the most wealthy to spend. In the long-run, that’s bad news for New Zealand.

26 comments on “The Standard line: Kiwisaver ”

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  1. Lampie 1
    24 October 2008 at 11:45 am

    Even I cringe at 4% but believe if you are going to make a decent go of it, put in some decent cash. No half pie bollocks. You need to get the habit going (myself included in that, need my arse kicked)

  2. Pat 2
    24 October 2008 at 11:47 am

    I would like to know the actual figures on how many people who have joined KiwiSaver actually earn PAYE income.

    Case in point: I saw some clients last night and enrolled all 5 members of the family into Kiwisaver. Only the husband was on PAYE income, wife was a stay-at-home Mum, 2 school age kids, one pre-school. So only 1 out of 5 will be affected by National’s proposed changes.

  3. Tane 3
    24 October 2008 at 11:49 am

    Lampie. Join your union, get a 4% pay rise, and put it into Kiwisaver. You won’t even notice it going out.

    I say this, of course, as someone who hasn’t actually got around to joining yet…

  4. Steve Pierson 4
    24 October 2008 at 11:52 am

    Pat. That’s in the IRD report that cm out yesterday. “Just over half (55%) of KiwiSaver members earned income solely from salary and wages (which includes benefit payments received) for the 2007 tax year. A further 31% earn a portion of their income from salary and wages and the remainder from other sources (e.g. self-employment).”

    so, to answer your question – 86%

    tane. poor.

  5. yl 5
    24 October 2008 at 11:54 am

    Pat,

    If you case and point is true, then that is the reason that i do not vote national. What a short sighted argument that sums up the national party policy.

    Although only 1 in 5 are currently affected by kiwisaver now, that wont always be the case.

    The mother could well start working then the children are older.

    The children will start working when they are older.

    You are a fine example of voting based on the then and now. Think about the future Pat.

  6. higherstandard 6
    24 October 2008 at 11:54 am

    Tane – Kiwisaver or the Union 😉

  7. Spider_Pig 7
    24 October 2008 at 11:56 am

    And how many have joined for just the first year and are now no longer “active” members? Perhaps waiting until the scheme is more affordable? Such as a 2% + 2% proposal? Where they get the benefits of KS, but more importantly that income isn’t tied up for 30 years?

    Needless to say NZ is not a rich country and a long-term scheme where the government provides huge (taxpayer funded) incentives to save, whilst also providing costly (taxpayer funded) universal superannuation is destined to fail, especially as the population ages.

    And don’t mention the Super Fund. To borrow money to invest in the super fund to reduce borrowing is, to borrow a term from Dear Leader, mind-bogglingly stupid.

  8. insider 8
    24 October 2008 at 12:08 pm

    Don’t forget the 171,000 people who have opted out, most of them from younger age groups and on lower incomes. WOnder if they would opt in at 2+2?

  9. Pat 9
    24 October 2008 at 12:10 pm

    yl – I see the future impact of National’s changes as follows:

    – At 2% more people will join, simply because they can afford to join. As someone who deals with families and their budgets on a daily basis, I know this is true.

    – After 3 years there may be over 2M Kiwis enrolled in KiwiSaver. That’s a lot of voters.

    – KiwiSaver can then become a true political issue at the next election, and subsequent elections. Once a major portion of the population are in the scheme, more people will be interested in the employee/employer thresholds. That will only drive them upwards, progressively.

    – Employers will learn to use KiwiSaver contribution levels as a tool to attract and retain staff.

    So whatever changes National makes to KiwiSaver now, it will not be set in stone forever. Unwittingly, they will be forced to concede much more on KiwiSaver at the next election.

  10. yl 10
    24 October 2008 at 12:21 pm

    Pat,

    I do not think that the percentages are the issue. it is an attitude that New Zealand has to saving.

    In Aussie they pay 8% because there is an understanding over there that saving for your future is important. We need more of that.

    Where the hell have you been, kiwisaver is an election issue this election.

    More and more people are joining kiwisaver. The biggest thing to stop people joining it is national party policy threatening to cut it in half.

    Employers need to use kiwisaver as a tool to attract and retain staff now. Changing the percentages wont fix that.

    Nationals kiwisaver changes are a pay cut is disguise.

  11. insider 11
    24 October 2008 at 12:22 pm

    PAt

    “Employers will learn to use KiwiSaver contribution levels as a tool to attract and retain staff.”

    Surely employers calculating the worth of Kiwisaver into remuneration is only going to happen under the evil National scheme. I thought Labour’s version was immune?

  12. Pat 12
    24 October 2008 at 12:30 pm

    KiwiSvaer is not the big issue this election that Cullen wishes it was. The simple fact is that it has only been going a year, so people only have a few grand in their savings. Plus most Providers have been so slack at sending out Investment Statements, most people don’t really know how much they have saved anyway.

    But when people have $10K or more saved, they will become a lot more interested in KiwiSaver as an election issue.

  13. yl 13
    24 October 2008 at 12:37 pm

    Pat,

    well i disagree about it not being an election issue, but it is pointless to argue about that.

    but you only answered one of my points.

  14. Pat 14
    24 October 2008 at 12:45 pm

    “I do not think that the percentages are the issue”

    I think 4% has been the biggest barrier to entry, and will continue to be so as peoples budgets get tighter. I have had clients put off joining until the next pay-rise, only for the cost of living to soak up the pay rise when it came.

    “Changing the percentages wont fix that”.

    It allows employers the option to match employees beyond the standard 2%, to differentiate them from other employers in the industry.

  15. Pat 15
    24 October 2008 at 1:01 pm

    KiwiSaver faces two challenges: getting more people to join, and getting existing members to not take contributions holidays as their budgets get tighter. The 2% threshold goes someway to addressing both of these.

    2+2 is not ideal long term. But it is a good way to get an increased participation in KiwiSaver, during a period when both employees and employers are having a tough time economically. Then the thresholds can be increased over time.

  16. Policy Parrot 16
    24 October 2008 at 1:06 pm

    National’s changes to Kiwisaver effectively remove the employer contribution. It would reduce savings by approx 1/3 as 8% combined became 4%. Having employer contributions as part of a “total salary package” forces people to choose between saving and spending, when neither choice represents a good outcome, and contributions to Kiwisaver or a 2% pay rise will effectively become the next pay rise. Kiwisavers will get nothing added to their net (including Kiwisaver) wage packets.

    Not only this, but this move will inhibit the growth of Pension funds, and constrict the currently predicted amount of cash available to domestic business for research and development, part of the main reason Kiwisaver was implemented in the first place. Foreign capital will become more expensive and harder to obtain in the new economic era – why is National intent on knee-capping us?

  17. yl 17
    24 October 2008 at 1:07 pm

    What do you mean pat?

    we have more and more people joining kiwisaver all the time.

    It is New Zealand’s attitude to saving that is the issue. This is what needs to change.

    This 2+2 stuff is just a pay decrease for most people on wages.

    In Aussie they have 8% or 12% payments.

  18. Daveski 18
    24 October 2008 at 1:07 pm

    Your first point is self-referencing and ignores the question how many would have joined if the threshold was lower.

    Your entire response ignores the affordability of the plan as it stands given the economic and fiscal changes since the plan was introduced.

    I can anticipate the response – it therefore questions the affordability of National’s tax cuts.

    The problem I have – and I’m sure many others share – is that in the short term – particularly right now – tax cuts are more attractive than long term savings.

    I agree entirely that taking the short term option does not make for a long term success strategy. However, I think you will find that National won’t lose the election based on this decision.

    There wasn’t a significant response in polling following this announcement although I will agree it could potentially be one of a range of contributing factors.

  19. Ianmac 19
    24 October 2008 at 1:22 pm

    PAT: I don’t quite see how enrolling the kids help unless it is that the family thought it was a great long term advantage. Would that same family think that with the changes, it would still be such a good idea or would they feel cheated?

  20. Ianmac 20
    24 October 2008 at 1:26 pm

    Pat said:”2+2 is not ideal long term. But it is a good way to get an increased participation in KiwiSaver, during a period when both employees and employers are having a tough time economically. Then the thresholds can be increased over time.”
    Are saying that Nat would do this just to get more people engaged? Really? Not to fund the tax-cuts? Oh well one of us got it wrong then.
    And are you saying that 2X2 is not a good idea? – confused from Waimate.

  21. Pat 21
    24 October 2008 at 1:39 pm

    Of course the Nats are using the employer rebate to fund the tax cuts. As opposed to borrowing for tax cuts, which they were being falsely accused of.

    But 2+2 over the next 3 years = more people join + more people stay in.

    > 2 million in KiwiSaver = increased thresholds at next election.

    Enrolling kids requires no maths whatsoever – it is a simple no-brainer.

  22. randal 22
    24 October 2008 at 2:07 pm

    if kiwis stopped buying stupid motorbikes and other crap that they deem necessary to fulfill their destiny they would have plenty of money to put in kiwisaver. q.e.d.

  23. Sarah 23
    24 October 2008 at 3:15 pm

    It is simply unreasonable to expect workers to put in 4% of their income into kiwisaver in these current economic conditions, and still make ends meet.

    As John said, 2 out of 3 workers are still not enrolled in kiwisaver. Now while it is remarkable that so many people have signed up as of yet, it would be even better if all workers could get involved in the programme. To do that, less restrictions need to be placed on the programme, and a move to 2% contributions will certainly aid in that process.

  24. randal 24
    24 October 2008 at 4:52 pm

    if kiwis stopped buying stupid motorbikes and other crap that right wing shopkeepers tell them they need to gurantee happiness and the esteem of their peers then they will have plenty to pay the 4%
    its just the employers, greedy short termers, who want money now for trips to the south of france and ticking their silly bloody boxes that prevents the 2 out of three not enrolled in kiwisaver
    get a grip

  25. Macro 25
    24 October 2008 at 9:39 pm

    As usual Randal hit the nail hard on the head!
    There is so much wish wash about unaffordable 4% etc! I’m in the fortunate position of being in the receipt of a govt funded superannuation scheme. And have or could have been doing so for the past 20 years. I commuted 18 years of super to a lump sum. I now receive an inflation indexed monthly renumeration that is tax free. When I joined the scheme I bought back my previous degree and post graduate education at a cost of 7% of my current salary. And continued contributing at that rate for over 20 years. At the time of joining, I was purchasing a house at 16% interest on the second mortgage, I had a young child, and my wife was not working – and as was usual at that time did not return to work until our second child was well settled in school. (I appreciate that things are different these days) – but then there was not the immediate pressure to have every item of “necessary consumerism” in the white ware shops. (We still don’t have a dishwasher! – her choice not mine!) Or the need for a coffee, or dinners out every other day. Our budget didn’t run to buying newspapers, or evenings out, or trips overseas. I did have a motorbike tho randal – and I still have it – a 1957 BMW. And my wife and I are about to depart for another 6 mth sojourn to europe and canada.
    Like everything in life the more you put in the more you will get out. Let NO ONE be fooled by John Key’s sophistry.

  26. Paul Robeson 26
    25 October 2008 at 2:29 am

    “Battlers for electrification recall how Sir Dove-Myer Robinson’s earlier rapid rail network got the green light from the Kirk Labour Government in 1975, only to be thrown out in 1976 by the incoming National Government of Robert Muldoon”

    From Brian Rudman in the Herald. I knew the rapid rail network got kaiboshed, but I didn’t realised we had Muldoon to blame there too!

    Shite. So how about this for an ad?

    Worried about your future savings? Sick of waiting in traffic?

    Wish we had a government that could guarantee your retirement and stick a light rail across Auckland for a fraction of the cost?

    We did. In 1975 the Labour government introduced NZ super and a rapid rail network for Auckland.

    In 1976 the new National government cut costs by cutting these schemes.

    Don’t put it all at risk.

    John Key will:

    privatise ACC
    cutback on Kiwisaver
    make the super fund invest 40% in NZ at the cost of other more lucrative or sure returns
    eventually sell Kiwibank