Everyone should listen to the KiwiSaver haters

Wednesday, 9 October 2019

There is no 'set and forget' for KiwiSaver.

OPINION: Some people hate KiwiSaver, and they contact me to tell me why I should hate it too.

They're under the impression I write about KiwiSaver because I love it like I love 'Mom's apple pie'.

I don't. I see KiwiSaver as a fact of life, and as it exists, and nearly three million people are in it, I feel I should write about how to get the best out of it.

Some people really, really hate KiwiSaver. It's worth understanding why.

I'm not sure I've met anyone other than fund manage who actually love KiwiSaver. Most people are in it for the 'free' money.

* The KiwiSaver risk ladder - a step by step guide

* KiwiSaver: Should it be your retirement savings plan?

* Strategies for the five ages of KiwiSaver**

They joined for the contributions their employers will make, the annual 'member tax credit' (MTC) gift of up to $521.43 from the government, and/or they want to buy a house one day.

But those striving to get the most out of KiwiSaver shouldn't be blinded to its flaws, risks and inequities. Knowing them can help them make good KiwiSaver decisions.

Here's a top 10 of why some people aren't KiwiSaver fans.

1. It's government meddling: KiwiSaver was an attempt to change human behaviour by a Labour government loathe to give people a tax cut they could spend. People could have a tax cut, but they'd to save money to get it, and then they couldn't spent it until they were 65.

2. It's not lifted savings rates … much …probably: Much of the money in KiwiSaver would have been saved even if it had never been invented. It would just have been saved somewhere else. I know KiwiSaver didn't shift my own savings rate.

3. It's middle class welfare: KiwiSaver works best for people on higher salaries. They are most likely to get the MTCs, and they least need the taxpayer to subsidise their savings.

4. It's swelling debt: There's nearly $60 billion in KiwiSaver, but, people being people, many will simply end up using their KiwiSaver to repay mortgage debt when they get to to 65.

5. It's a taxpayer-funded holiday scheme: Many savers plan to use KiwiSaver to fund post-retirement holidays and cruises. MTC's cost the taxpayer over $800 million a year. What a thing to spend taxpayer money on.

6. The 'lock in' is unfair: KiwiSavers can't touch their money until they turn 65. This is the quid pro quo for the taxpayer subsidies in KiwiSaver. The trouble is people might need the money earlier (and have to beg under hardship rules to get it out) or have a better use for it, such as founding a business.

7. It'll save on welfare payments: Imagine getting to retirement while still renting with nothing but a modest KiwiSaver nest egg and NZ Super.You'll be means-tested for accommodation supplement, and your KiwiSaver money will merely save the state on welfare.

8. There's political risk to KiwiSaver: When the age at which people get NZ Super is eventually lifted to 68, 69, or 70, expect politicians to say, 'If you want the luxury of retiring at 65, you can use our KiwiSaver to pay for it'.

9. It's invested in volatile, risky shares, which is 'agony' for savers: This view is both a matter of perspective and fact. It's often held by people who think short-term, and believe houses are a practically risk-free way of earning high returns forever.

10. The fees are too high: For many funds this is true, as research from the Financial Markets Authority just published indicates. KiwiSaver been great for banks' bottom lines, and not as good as it could have been for KiwiSavers'.

GOLDEN RULES:

Understand KiwiSaver

Aim to get the best from it

Be aware of the risks