Compulsory
Kiwisaver (KS) is arguably a mechanism by which the least advantaged members of
society will benefit in the long term, however, it has the inherent capability
of making them suffer in the interim with no betterment for society in general.
The Retirement Commission proposes that in order for KS to provide adequate
cover for retirement, workers will need to contribute at least 10% of their
incomes to make ends meet at retirement. For those low income earners with a
student loan, the total compulsory deductions taken from their income will be
41.2% since the new payback rate for a SL is 12% and the PAYE tax rate for
those who earn between $14K - $48K is 19.2% (which includes the ACC levy). These
deductions will have a significant impact on low income earners while they work
providing them with the barest of security at retirement.
Let
me be clear, saving for retirement is not in itself a bad thing – but in my
opinion the current structure of KS does not provide a great benefit to NZ as a
whole and if it is to become compulsory, then it should have a wide ranging
benefit since the levels at which we will be expected to contribute are
significant.
The
argument for compelling KS is that we will be better off. But will we? Could we
do better? In my view, there are other options. Whilst I do not profess to be
an expert at finance I would rather see a scheme where our contributions
benefited society as opposed to propping up private corporations. If
KS was a government owned and operated fund our contributions would not
be wasted on fees for private fund managers and propping up private interests
and could instead be used to develop new SOE’s that could provide a solid
dividend stream for the KS fund. In practice, I accept that this might be a bogus
idea since I know next to nothing about finance and investment, but why are we
so busy propping up private companies when we could be investing and getting a
return on our contributions through a fund that contributes the betterment of
NZ by providing local economic growth?
Additionally,
by having a scheme that is owned by the people, we can influence policy as to
how those funds are to be managed. Whilst we may be able to use the fund to develop
SOE’s we might even be able to develop a scheme whereby any first time home
buyer could withdraw a certain amount of their contributions as a deposit for a
first home purchase. Home ownership has been a highly successful mode of
preventing poverty in pensioners and we cannot just look at the income we will
receive at retirement age, but must also consider the security of home ownership In his book ‘Daylight Robbery’(2011), Ian
Wishart makes the valid point that home ownership is more valuable to those at
retirement age since around 80% of pensioners own their homes mortgage free,
while only 3% are officially in poverty (2011, p.204). Additionally, that as
was reported in the NZ Herald by Diana Crossan “Compelling us to divert more
income to fund managers would put the Kiwi dream of home ownership out of reach
of even more young New Zealanders” and proposed that perhaps the government
consider ways of helping more young New Zealanders into home ownership (p.204).
The
current KS scheme does some work to this effect; but it has an income threshold
that precludes those who earn over the threshold from accessing their own funds
for this purpose. This is, for lack of a better word, bonkers. How can a person
be deprived of access to their own money to purchase a first home simply because
they earn above the threshold? Did the government foresee how expensive it was
to buy property these days? For instance in Auckland, the average home costs
around half a million to purchase, and that’s just for a piece of crap with a
courtyard if you want to live nearer the city, and a rundown hardy plank home
with slightly more land if you want to live on the outskirts of Auckland.
So
my point is essentially this, whilst KS could provide a benefit to all New
Zealander’s, the current scheme simply operates to the benefit of private
corporations and provides those on low incomes with the barest of security
for retirement. If KS becomes compulsory
under its current structure, then it is an absolute dog. But if KS were used in
a more innovative way for improving economic growth domestically, and considering the wider economic positions of pensioners, then we may
stand a chance when we get to retirement age, and we might just be able to hold on to that kiwi dream of home ownership.
