Latest news with #KiwiSaver
NZ Herald
11 hours ago
- Business
- NZ Herald
Compulsory KiwiSaver: It's time NZ had a serious debate about it – Fran O'Sullivan
That council was set up by former Labour Prime Minister Dame Jacinda Ardern and chaired in 2019 by current PM Luxon, who was at that stage chief executive of Air New Zealand, before he passed the baton to Whineray on leaving the airline. Whineray says that after presenting KiwiSaver reform ideas to Ardern in late 2019 'she quipped that I was 'in danger of becoming a socialist'.' 'I replied that 'I was more of a caring capitalist' – and that the time had come to evolve KiwiSaver.' Call it KiwiSaver 2.0.' The council had lofty goals. It produced papers on the 'infrastructure crisis', the world of work, immigration and education and more. However, the Covid pandemic resulted in the Ardern Government losing its focus on reform, at least as far as business was concerned. The council's expertise was not harnessed in the way chief executives had expected when they took up Ardern's invitation to join the council. With Luxon now PM, Whineray is having another shot. As he puts it, the 2.5-page proposal was designed to evolve KiwiSaver into something fit for purpose by 2030: a 'serious economic engine and a foundation for personal dignity, resilience, and independence'. In essence, the then council believed there was an opportunity to enhance the KiwiSaver framework to achieve more equitable outcomes via a transition over 10 years to a compulsory savings scheme, with the objective of achieving minimum annual contributions of 10% of personal income by 2030. Six years on and Nicola Willis' second Budget has moved to increase KiwiSaver contributions to 4% of wages or salaries by 2028 by employers and employees – essentially 8% of personal income. It remains an 'opt-in' scheme – it is not compulsory. In Australia, employer contributions, known as the Super Guarantee, are currently 11.5% of an employee's ordinary time earnings. From July 1 this year, that rate will increase to 12%. A massive pool of savings has been built up in Australia since its compulsory superannuation scheme was introduced. Whineray's intervention is timely. Both Luxon and Willis have reopened the discussion on superannuation – particularly on extending the age of eligibility for universal New Zealand Superannuation from 65 to 67 years beginning in 2044. But their coalition partner New Zealand First baulks at that. Whineray contends gaining political support for making KiwiSaver compulsory and increasing the contribution rate should not be too difficult. He points to the fact that NZ First leader Winston Peters pushed for compulsory savings in the 1990s. Former Labour Finance Minister Sir Michael Cullen launched KiwiSaver in 2007 and the New Zealand Super Fund in 2001. Both Luxon and Willis reopened debate in Budget 2025. There is the ability to begin a cross-party dialogue to build wide support for compulsory super. As a parting shot on LinkedIn, Whineray contended that universal NZ Super at 65 won't survive demographic gravity. If people don't save, taxpayers still carry the cost. The freedom to opt out likely becomes a redistribution from those who opt in – 'even if total savings rates don't shift on average, they do shift for the people who don't currently save'. Whineray's is a welcome contribution to the superannuation debate. It's become commonplace to blame the Boomers for the NZ Super iceberg coming taxpayers' way. Superannuation is the largest and fastest-growing welfare expense, increasing from $13 billion in 2017 to a projected $29b in 2029. That is a 25% increase from the projected $23.2b for 2025 in just five years. In reality the first of the Generation X cohort will themselves be coming on to NZ Super in 2030. It is not simply a 'blame the Boomers' issue. It is also reality that Boomers' expectations to have super at what was then the retirement age of 60 were shattered by the Bolger Government, which sensibly raised the age of eligibility to 65 within a decade. Generation X is in a position to lead the debate now to ensure the age of eligibility for NZ Super is lifted again – this time to 67 or beyond. It's getting tiresome to hear and read repeated arguments by media personalities that range from blaming Boomers for not having enough babies (ie future taxpayers to support the scheme), to 'Luxon won't be able to build support to raise the age' and finally and more irksome 'I've paid taxes all by life and hence I want my national super at 65″. There is a role for the media in leading this debate, not simply fostering the thinking that leads to full-on fiscal crisis.
NZ Herald
13 hours ago
- Business
- NZ Herald
What if you die with a large KiwiSaver balance?
You can spare your family a $3000 bill and up to three months of waiting for funds. KiwiSaver is many people's largest financial asset outside the family home. Yet what most don't realise is that these funds can create unnecessary complications for families should the sole account holder pass away - turning what should be a smooth transition into a royal pain. Since its introduction in
NZ Herald
14 hours ago
- Business
- NZ Herald
The biggest winners and losers from the Government's KiwiSaver changes
Young people are the only clear winners in the Budget announcements about KiwiSaver. True, every employee's KiwiSaver balance will grow faster when they and their employers increase their contributions – from the current 3% for most people to 3.5% next April and 4% from April 2028. But Treasury has said many employers will get that money back by giving employees smaller wage rises, so in the end employees will really pay all the extra themselves. The same goes for employees on total remuneration – a practice that should be banned – in which employees effectively pay their employers' contributions. Meanwhile, the Government's contribution will halve, to a maximum of almost $261 if you contribute $1042.86 or more during every July-to-June year, starting this coming July 1. And people earning $180,000 or more will get no Government contributions. The biggest losers are probably the self-employed and those not employed. Their only KiwiSaver incentive is the Government contribution, and the halving makes it considerably less attractive. Still, it's worth getting. If you save $20 a week and your savings outside KiwiSaver would have been $100,000, in the scheme they will be $125,000. Back to the young ones. At the moment, under-18s receive no KiwiSaver Government contribution. And their employers don't have to contribute either, although some do. But from July 1 next year, 16- and 17-year-olds will get the Government money, and from April 1 next year, employers will also be obliged to put in their 3.5%. Young people, like everyone else, don't have to join KiwiSaver. While they will be automatically enrolled in the scheme when they get their first job, they can opt out if they wish. But I've always encouraged teenagers not already signed up by their parents to join and start the savings habit – with their eye on perhaps withdrawing soonish to buy a first home. The introduction of Government contributions from age 16 gives that idea even more appeal. Even though we're talking small amounts here, it adds up. What's more, once a child is 16, you and other grandparents, parents or friends could make a point of together depositing enough – a total of $20 a week – so that at least $1042 a year goes into the teenager's account. Then they'll receive the maximum $261 from the Government. Try to continue to do this until the young person starts fulltime work. I heard somebody on the radio the other day suggest that every newborn should be enrolled in KiwiSaver. Great idea. In the meantime, let's get as many young ones in there as we can. Only parents and guardians can sign up their children for KiwiSaver, but presumably you could encourage this to happen. And you could suggest the parents choose from low-fee aggressive KiwiSaver funds that make similar investments to the fund your grandchildren are in now. While these share funds are volatile, they usually have the highest long-term growth. Ideally, though, the parents will pick a global fund rather than a US one. While American shares make up about 70% of the value of all world shares – and they have performed particularly well in recent decades – in the long run, the widest possible diversification works best. The parents can find suitable aggressive KiwiSaver funds in the Smart Investor tool on by sorting by 'Fees (lowest first)'. We should note, though, one downside of saving for children in KiwiSaver as opposed to elsewhere. The money can't be withdrawn for, say, uni fees or starting a business. And not everyone wants to buy their own home. So their KiwiSaver money might sit there until they reach New Zealand Superannuation age. The upside is that the money will grow hugely over such a long time. Join KiwiSaver after 65? Q: I'm 66, still working and intending to work for a few more years yet. I have cashed up my KiwiSaver to pay off my mortgage. Is it worth my while to start another KiwiSaver account, or should I just set up a regular savings regime with a fund manager instead? A: When KiwiSaver started in 2007, you couldn't join if you were over 65, although once you were in, you could keep an account running into retirement. But since 2019, every New Zealand resident of any age can join. Unfortunately, though, some over-65s don't realise that, which is a pity, as KiwiSaver can work well during retirement. Generally there are no inducements for over-65s to join. The Government stops its contributions at 65 and employers don't have to contribute, although many still do, so you might want to check that out with your boss. But even without 'the extras', I still think it's worth being in the scheme. Fees tend to be a bit lower than on non-KiwiSaver funds. And providers are regularly surveyed by Te Ara Ahunga Ora, the Retirement Commission, on the services they offer, which puts pressure on them to treat members well. Also, while there are no Government guarantees, it seems that the Government watches KiwiSaver providers' behaviour more closely than other investment providers. In retirement, you can use your KiwiSaver money in whatever way works best. Your first withdrawal will involve a bit of form-filling, but after that you can take out lump sums whenever you want to – bearing in mind it might take a couple of days to receive the money. And many people set up regular transfers to their bank account to add to their NZ Super payments. Continue ex's life insurance? Q: When my husband and I divorced, I kept up the payments on his life insurance premiums. I took quite a hit financially as a result of the divorce and now any modicum of comfort in my retirement depends on him dying before me. It's not a great mindset to be in, to wish someone a happy life but not a particularly long one! And yet financially doesn't it make more sense for me to keep paying the premiums in anticipation of a lump-sum payment that I wouldn't otherwise be able to save? A: If this were crime fiction, your ex would be looking behind every tree for the hitman you hired! Back in the real world, I want to suggest you cancel the policy and invest the premium money elsewhere – because if your ex stays alive for many years, you will have little for your retirement. And he might outlive you – and you'll get nothing. But first I asked Peter Leitch, a financial adviser and insurance expert with Share NZ, if you're likely to get a surrender value or some other compensation if you stop the policy now. 'Some older life policies, called whole of life, or endowment, may have a cash surrender value,' Leitch says. 'If the policy is cancelled, she could get this value now. Or she may be able to stop paying the premium but retain the policy in place (called 'paid up'). And it may be possible to do both – get some cash value out and keep a lower level of insurance coverage in place. So, advice matters.' Leitch adds: 'Your correspondent has a dilemma. Often retirement income is reasonably fixed, but the cost of life insurance premiums will usually increase each year.' He suggests she should check several things: Is the premium fixed to a specified age (level premium), or does the premium change annually (stepped premium)? Premiums increase reflecting the chance of claiming. And it can get (very) expensive as you age. Life insurance is not an investment. You are paying for peace of mind and security. It seems like neither of these apply. Is the policy ownership in her name? There is no point paying for a policy which is owned by him, as proceeds will go to the policy owner (or their estate). 'Retirement should be enjoyable and rewarding. Paying for life insurance for a person where the relationship has changed may not bring you joy, or a reward! 'I'll finish by saying if you insure a car, you are not going to keep insuring that car after you have sold it. The insurance did the job while you had the car, but after the need has gone, the insurance has done its job. 'I have seen people keep insurance far too long on the basis that they believe they should get a return on the premiums paid. That is not how insurance works.' Time to talk to a life insurance expert. Gold not so shiny Q: Last week's correspondent, Richard Coleman of NZ Gold Merchants, is talking his books. Compared with income-generating investments like shares and property, gold is a poor relation. It has its moments, but following the 1980 gold crash, it took 27 years to reach the same level. Then there's the buy/sell margins, cost of storage, security and insurance. Gold bugs often regurgitate the 'hard to find' nonsense, or 'we're running out', but new technology ensures more gold is being mined each year. Ask those who purchased in 1980 if it's 'inflation-resistant'. A: Of course Coleman was presenting the positive side of investing in gold last week. In response, I pointed out the almost halving of the gold price from 2011 to 2015, and you have pointed out the earlier big drop, when the price more than halved in the early 1980s and took decades to recover. So yes, it's a pretty volatile investment. But a little gold does bring some diversification, as Coleman pointed out. Okay, we've had both sides now. As the old-time editors used to say, 'no further correspondence on this topic will be entered into'. A dollar is a dollar Q: I find myself in a similar situation to the 55-year-old two weeks ago with investments in growth funds. You suggested that she gradually moves some of her savings to medium-risk and low-risk funds as she nears retirement. However, my approach is to leave the KiwiSaver and non-KiwiSaver investments in growth funds, and for the next five years focus on saving into a balanced fund, and then for the following five years focus on saving into term deposits. That way I get maximum growth over the next 10 and five years. Also, I can top up the balanced and term deposit buckets in the future if required. I would be grateful to hear your thoughts on this approach. A: Your approach and mine should have similar results. The aim is to have, at retirement: Money for the next three years or so in a cash fund or bank term deposits. Money to spend roughly three to 10 years away in a bond fund or balanced fund. Longer-term money in growth funds or similar – for spending later in retirement. As you near retirement, if it seems you will have too much or too little in any of those categories, you can always move some money then. In the meantime, both you and the earlier correspondent will have a portion of your savings in growth funds and a portion in medium-risk funds for the next few years. After that, you'll also have some at lower risk. It won't make any difference whether the particular dollars in each of those categories was saved recently or years ago. A dollar is a dollar. But if you find it easier to allocate your savings your way, go for it! It does have a certain simplicity. * Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@ Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
Otago Daily Times
2 days ago
- Business
- Otago Daily Times
Tough KiwiSaver changes
The milk was spilt in the retirement savings failure of 1975. How different and more prosperous might New Zealand have been if Labour's compulsory scheme had endured? Most retired New Zealanders would have had substantial nest eggs, and the nation would have benefited from the massive savings pool. Instead, Robert Muldoon stormed to power, and that was that. Universal New Zealand Superannuation, funded through taxes, took its place. Mr Muldoon described the scheme as socialist. Cossacks, epitomising a Soviet-like future, danced across television screens in an infamous and scurrilous ''attack'' advertisement. The respected financial analyst, the late Brian Gaynor, once described the abolition of the Superannuation Scheme as New Zealand's worst economic decision since that date. The scheme mandated 4% from employee and employer — the same figures Finance Minister Nicola Willis outlined in the Budget. She said minimum contributions would rise in two stages from the present 3%. In 2007, the Labour-led government, under prime minister Helen Clark and finance Mmnister Michael Cullen, introduced KiwiSaver. Designed as a voluntary, work-based scheme, KiwiSaver aimed to encourage long-term retirement saving and reduce reliance on government-funded pensions. It was not overturned by National. Initially, a $1000 kick-start encouraged participation, abolished by the National-led government in 2015. The annual contribution of up to $1042.82 halved in 2011 as part of cost-saving measures. Now, the government has announced the halving of the halving. More than $1000 in 2007 reduces to $260.72 in 2025 dollars. The cut is a money grab from a finance minister desperate to trawl for savings, estimated at $575 million a year for this measure. However, that contribution is proportionately more valuable for lower-paid workers. Their retirement savings, or first-home deposits, will suffer accordingly. Treasury and officials' advised Ms Willis that the contribution was ineffective as an incentive, an assertion to be treated sceptically. Ms Willis lacked the boldness to abolish the contribution altogether. Given the large sums, Labour should face pressure on whether it would reinstate the contribution. It failed to reinstate the kick-start or the $1042.86. Less disputatious is the decision to eliminate the contribution for those earning more than $180,000, a move that saves about $160 million a year. Increasing minimum contributions is fundamentally positive, although it comes at difficult times for employers and employees under economic pressure. An extra 1% will be hard to find for many. Increased contributions could also strengthen National's case to raise the superannuation age. There is a long, long way to go to match Australia's 11.5% saving (soon to rise to 12%). Furthermore, the entire 11.5% is untaxed, whereas New Zealand reduces employer KiwiSaver contributions through tax at the employee's marginal rate. Many retired Australians are now relatively wealthy. Government superannuation there is means-tested. The extra 1% bill for the government, as a huge employer, will be about $700m a year. Yet, the government and Treasury have made no allowances for this. It is either a ''fiscal cliff'' as the Greens have claimed, or it becomes absorbed into wage increases. In theory, KiwiSaver should be in addition to wages and salaries. In practice, it is often part of the salary package. Thus, the employee, in effect, pays some or much of the employer's contribution. The government's move to extend KiwiSaver to 16 and 17-year-olds is welcome. It encourages savings early. KiwiSaver has helped many New Zealanders into their first home and grow their retirement savings. But its benefits could never be spread evenly. Those in lower-paid jobs will have lower balances. Some, too, opt out, unable to afford the 3%, let alone 4%, or too tempted to spend that money elsewhere. Those who take time out of the workforce, often women, will inevitably be disadvantaged. KiwiSaver has, overall, been positive for many New Zealanders, despite average balances of only about $40,000. Erosion of the tax credit is a step backwards, one that significantly affects retirement security.
Scoop
2 days ago
- Politics
- Scoop
Govt's Budget Balanced On The Backs Of Low-Income Families
Press Release – Green Party Poverty is a political choice this coalition is repeatedly choosing. Once again, we see the wellbeing of thousands sacrificed in the name of superficial savings and cowardly games of political hot potato, says Ricardo Menndez March. The Government is quietly leaving some of our poorest families hundreds of dollars worse off, ignoring warnings that changes to the accommodation supplement and public housing subsidies will disproportionately target disabled, older, Māori, Pasifika, and young people. 'This is a stealth cut, pushed through with no acknowledgement of the harm it will cause,' says the Green Party's spokesperson for Housing, Ricardo Menéndez March. 'Housing is a human right. We can build an Aotearoa in which everyone has what they need, and nobody is left behind. 'Instead, the Government hoped we wouldn't notice that, hidden under headlines about KiwiSaver and Best Start changes, lies a major policy shift that will leave 13,200 families worse off by $100, even up to $200 per week*. 'Changes to how the Accommodation Supplement is calculated means that income from boarders–which previously were partially exempt because the Ministry of Social Development (MSD) understood these boarders were often family members–now fully counts against eligibility. 'MSD flagged early on that increased hardship was expected to be experienced by disabled people, young people, older New Zealanders and Māori and Pasifika peoples. 'People who receive the accommodation supplement, by definition, already have unaffordable rents. $100 or $200 a week may not feel much for a Prime Minister out of touch with reality, but for thousands of families it's a lifeline that allows them to keep a roof over their head, put food on the table and pay their bills. 'MSD also noted that any 'savings' were likely overstated**, as costs were simply going to be shifted to emergency housing and hardship grants. 'Poverty is a political choice this coalition is repeatedly choosing. Once again, we see the wellbeing of thousands sacrificed in the name of superficial savings and cowardly games of political hot potato,' says Ricardo Menéndez March. Notes: *An estimated 13,200 households will be affected (7,000 on accommodation supplement, 6,200 on public housing subsidies). On average, the 7,000 households with boarders receiving the Accommodation Supplement will be $100/week worse off, and people with 3 boarders would be $202/week worse off. Affected households receiving public housing subsidies would see an average increase of $132/week to the cost of their rent. (Page 21 of the report) **The Government is saving $150m over four years by stripping support (Accommodation Supplement + Income Related Rent Subsidy) from around 13,200 households who have boarders. MSD has told the Government that the savings are likely to be overestimated (page 7 and bottom of page 15 of the report). This is due to people needing hardship assistance, emergency housing, etc as a result of these changes creating costs for other parts of the system.
