If KiwiSaver is all about wealth creation, why not let people use it to start businesses?

Friday, 3 January 2020

People with a business idea can't fund it from their KiwiSaver.

OPINION: KiwiSaver is all about wealth creation, but arguably not the time-honoured wealth creation strategy of starting a business.

Money from your salary goes into KiwiSaver, and fund managers invest it to earn you capital gains and interest.

KiwiSaver money can also be used by young people to help buy them a home, which has been key to family wealth creation.

But a petition to Parliament from one annoyed KiwiSaver is a good reminder of how the scheme has wealth-creating limitations.

**READ MORE:

* Here's how New Zealanders get rich

* Is KiwiSaver just making the rich richer?

* Everyone should listen to the KiwiSaver haters**

Carl Smith asked: 'That the House of Representatives change the KiwiSaver rules to allow people to use their KiwiSaver to start a small business if they wish.'

'Currently KiwiSaver does not allow people to use their funds for setting up a small business,' said Smith.

'I feel this is controlled and disadvantages the rights of people with their own money.'

He is absolutely right.

There are restrictions on savers taking money out of KiwiSaver until they are aged 65.

KiwiSaver was created by a government that wanted people to save more money, and leave it saved until they reached the age of 65.

The government's books looked good, but instead of giving earners a tax cut to do with what they wanted, the Labour Government of the day created KiwiSaver, giving its tax cut in the form of annual taxpayer-funded contributions called Member Tax Credits which were paid to people who played the KiwiSaver game and saved.

It realised it had to let young people take money out to help buy a first home, or if KiwiSavers ran into financial hardship, or emigrated, or their estate asked for it after their death.

But it had no intention of letting people take the money out for just any old reason.

Many a fortune has been made in business, but you need capital to get going.

Traditionally this was done by people using equity in their family home as security for bank loans.

For many young people, homes are out of reach, but they do have significant money in KiwiSaver, and those with an entrepreneurial bent would like access to the money.

It's an attractive idea to use KiwiSaver money to fund the creation of thousands of small businesses, instead of investing it in already rich companies whose shares are listed on the New Zealand, Australian, and global sharemarkets.

If individuals used their KiwiSaver money to start successful businesses, the government would get exactly what it hoped from KiwiSaver: richer Kiwis, and a stronger economy.

But starting a business is risky, and at no stage has any recent government seen it as a good bet for KiwiSaver money.

Rarely do petitions to Parliament achieve much, and given Smith has so far only got four signatures, I do not have high hopes for his.

But his petition does remind people that money put into KiwiSaver largely belongs to future them at the age of 65, not present them now.

A dollar saved into KiwiSaver is no longer a dollar they can access for whatever purpose they want it for.

Starting a business, putting solar panels on the house, paying off debt, or putting a deposit on an investment property may strike you as better uses of the money you have in KiwiSaver than leaving it invested in stocks and shares until you can access it at the age of 65.

The government does not share your opinion. You have to factor that into your KiwiSaver planning.

GOLDEN RULES:

* Get the best out of KiwiSaver

* Be aware of its limitations

* Aim to get your full member tax credit