Outspoken KiwiSaver opponent Bruce Sheppard says national sovereignty threatened by architecture of savings programme. Your view?

Outspoken KiwiSaver opponent Bruce Sheppard says national sovereignty threatened by architecture of savings programme. Your view?

Former Shareholders Association Chairman Bruce Sheppard

Outspoken KiwiSaver opponent Bruce Sheppard says the savings scheme threatens NZ's national sovereignty. Your view?

Interest.co.nz's Personal Finance Editor Amanda Morrall interviewed former Shareholders' Association Chairman Bruce Sheppard about KiwiSaver.

Here's raw Q&A.

Q)What do you make of the exponential growth in KiwiSaver funds?

A) My problem with KiwiSaver is unchanged from when it was first birthed. It is in essence a massive subsidy of the fund management industry. It is a massive incentive for investors to surrender their reason and their capacity to think to fund managers and it is having the perverse effect of reducing the liquidity of the stock market because passive funds (which is what these are) soak up equities and don’t sell them. And as those passive funds soak up the available free float of liquidity, and as mum and dad investors say `I don’t have to invest in shares any more because I’ve got a KiwiSaver account’, so they stop participating, then the liquidity declines further. What happens is the risk premium attached to equity rises because of the lack of liquidity in the market and that means our price-earnings fall, which means then that our good companies increasingly become even more attractive take-over targets which is a bizarre dumb thing to do.

Q) But is there not an argument that KiwiSaver will benefit the average person by forcing them to save for retirement when they might not otherwise have done?

A) The average person who has no discipline and spends every dollar they earn and doesn’t think needs to have some element of force or compulsion or incentive applied to them. For them it works?

Q)Isn’t that the majority of the population?

A) I think that’s a sad indictment. The real issue is what’s the best way for them to save and what’s the best risk profile. In my experience over the last 20 years of having watched financial planners as a profession and fund managers as an industry. The best summary of a fund manager’s job description I got was from a fund manager himself who when asked to describe, said “yes, I manage peoples’ money until it’s all gone.’’

If you say to a person if you have the discipline to save $500 a month and put it into a bank term deposit and not touch it, my bet is that your discipline at $500, CPI adjusted, for 40 years, putting that money in the bank and having the interest compound each month would probably add up to a number that would be greater than 85% of the same savings plan with a fund manager. There might be 15% of managed fund plans that could beat than over 40 years.

Q) What about inflation?

A) Over 20 years, there would be one in five or less fund managers that have a nominal balance in their account of more than the amount that someone would have if they ran an equivalent savings programme with term deposits. Why is that to you think because 20 year is long enough to aggregate out the ups and downs of the vagaries of the market? It’s because they charge too f..ing much. So what happens is the risk premium that they earn through playing with your money is consumed by their fees. And that is the truism of this sh..t. If you look at the disaggregated numbers of KiwiSaver and look at the underlying real return since inception you’ll find the return rate is less than net of tax rate on term deposits.

If you simply say there is NZ$10 million under management now and of that x amount is accumulated profit. And on average the funds built up in this manner then you plotted the date from which the money was deposited, then calculated a return based on term deposits rate on that money and compared it with the end outcome that’s there now, you’d find the return is less than having had the Government put the money in the bank with a term deposit.’’

Q) What about the argument that it's good for the national economy?

A) I’ve just answered that by saying it's sucking savings out of direct productive investment and recycling it back into direct investment through a fund manager who clips their ticket. But that isn’t the problem. The problem is once that has happened the liquidity in the market is removed and given these fringe KiwiSaver funds only invest in listed companies. The declining liquidity in the stock market is actually a risk to our national sovereignty.

Q)What do you make of John Key’s pledge to have KiwiSavers benefit from the potential sale of SOEs?

A) You mean the fund managers who have the money that’s come from KiwiSavers? What Key is actually saying is the institutions are going to get first dibs at it and not ma’s and pa’s. He obviously doesn’t understand the market, or he does, but he chooses to be disingenuous.

But again in terms of why I don’t like KiwiSaver, it is a subsidy to the fund management industry. If I had a KiwiSaver account I could personally could have a KiwiSaver account that I could self-manage I would great it with relish.

Q) Aren’t there self-managing accounts?

A) No, I don’t want to pay fees. I’ve always said if a KiwiSaver accounts get to NZ$250,000 the owner should be able to draw all that money out and manage it themselves with a mixture of term deposits, direct equity investments or whatever, not property. They should be capable of doing that. The other really big flaw in the KiwiSaver model is what happens when these buggers retire? What was the purpose of giving all this money away. The purpose of giving all this money away was to provide a nest egg for these old bastards to be able to have an income when they retire right. Hello, when they turn 65 they don’t get an income, they get a lumpsum.

Q) Won’t that be sorted out with an eventual annuities plan?

A) Just think about it. It’s a major issue in Australia. They’re not using the money to buy an annuity or have  income. They are using it to buy beach houses, boats or BMWs. So you’re not solving the problem. So all of the people who have been investing in KiwiSaver in the belief that when they turned 65 they have lump sum could do with it what they will be might have their asset force-ably migrated into having to purchase an annuity.

Would any prudent person set aside money for the rest of their lives to end up getting to age 65 or 70 and being forced to use their NZ$300,000 or $400,000 capital to buy an NZ$30,000 annuity? Annuities are the dumbest investment ever invented!

A) So what’s the solution?

Q) The only way you can make an annuity work is this: the members account is held sacrosanct, and they’re allowed to draw off their own account on an actuarial basis and the amount that is consistent with life expectancy and if they live beyond their life expectancy there is an insurance premium paid that allows that to continue on. If they live shorter the balance in their account get reallocated to their dependents. That legislation doesn’t exist yet and I’m not going to put one brass cent of my money into a KiwiSaver account that some bastard in Government allows a fund manager to play with until I hit 65 and then force me to buy an annuity.

A)Surely, you're in the minority thinking this way?

Q) Yes, but the big macro-economic effect is this; the concentration of capital in the hands of a few fund managers which creates an economic moral hazard if they abuse that power. In the short term and long-term it reduces liquidity in the market because they take stock out of the market and they take buyers out of the market. That increases the buy/sell spreads and reduces the liquidity and that makes companies subject to foreign take-overs that have different markets and different capitalisation rates to us. What does this do to our small economy over the next 10 years? Fuel a revolving door.

For more on Bruce Sheppard's take on why KiwiSaver is a compounding dead weight, click here.

Sheppard is on the Financial Markets Authority establishment board, but said he was speaking on his own behalf.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

44 Comments

He's right.

I agree.

second that

.... absolutely true ......

Yes....... and No ...! .....We get things right , such as the construction of TradeMe , a NZ built and operated business , which provides an excellent service to it's users...........

.......And then we get things horribly wrong , by selling the business to the Australians , lock-stock-and-barrel .

No thought to keep such successes in NZ hands , or to gain wider ownership by a partial float onto the NZX .

........... We have learnt nothing since the days when Roger Douglas discarded SOE's to foreigners for pennies in the dollar .

I'll second that :)

 

As a whole NZ gets poorer, NOT richer!

 

Apparently NZers are too dumb to save, but what is dumber than giving taxpayer debt to the oligarchy.

He is contrasting the present situation with one in which all New Zealanders take an intelligent, engaged and well-informed interest in managing their personal finances, including saving for their own retirement.  Many, including most on this forum, are farsighted, confident and competent enough to do that; and of course it would be better, and you wouldn't have any need for KiwiSaver, if everybody were similarly financially sophisticated.

But that's not the case.  There is nothing in pre-KiwiSaver experience, or experience in other countries, to suggest that most people will be motivated and competent to learn to manage their own money optimally if they are not in some way prompted to do so.   Understanding that smoking is bad and taking regular exercise is good for for your health is simple by comparison, and many people still don't do it, so how can it be realistic to imagine that they will be ready, willing and able to tackle the much more complex challenge of undertaking their own pension fund management? Surely the public cost of dealing with the later consequences of people making the wrong decisions will be far greater than the present costs of ensuring that at least they are doing something to accumulate retirement resources.

He's right but still I have a Kiwisaver account to get government subsidies, why wouln't one?

Cause not everyone is a parasitic numbskull who wants or thinks its right  to be exploited by other parasitic numbskulls (fund managers & government) in the longterm via this 'benefit'.

 

 

Your comments are usually negative abiout most things though

I think the crux of Bruce Sheppard's argument is this:

"It is a massive incentive for investors to surrender their reason and their capacity to think."

That is important, but I would add that investing in KiwiSaver is not what the economy needs now - it doesn't innovate or cause resources to be better allocated or directly lead to the creation of any product. The underlying assumption is that financial assets can keep growing in value i.e. bubbles will resume their expansion. In that the "investment" model is relying on the old neo-classical economic one where wealth can compound forever. Bad call.

At last, someone with the strength of character  to call out the fund parasite industry! Well done Bruce. I have fended off suggestions that I should get "free money from the government" by paying into Kiwisaver. It just ain't right.

 

Jeremy Grantham has this to say on the subject:

Moving on to asset bubbles and how they form brings us to Exhibit 1. It shows how I think the market works. Remember, when it comes to the workings of the market, Keynes really got it. Career risk drives the institutional world. Basically, everyone behaves as if their job description is “keep it.” Keynes explains perfectly how to keep your job: never, ever be wrong on your own. You can be wrong in company; that’s okay. For example, every single CEO of, say, the 30 largest financial companies failed to see the housing bust coming and the inevitable crisis that would follow it. Naturally enough, “Nobody saw it coming!” was their cry, although we knew 30 or so strategists, economists, letter writers, and so on who all saw it coming.

Exhibit 1. The Way the Investment World Goes Around: They Were Managing Their Careers, Not Their Clients’ Risk

 

It's quite a long way into this article:

http://www.johnmauldin.com/images/uploads/pdf/mwo013111.pdf

 

 

He is right about a lump sum payment at 65. Changes such as you can only draw out 5% of your fund each year after reitrment age to top up your super payments as opposed to buying an annunity or lump sum payments might be a possible answer. Any way too much of the funds are in default conservative funds instead of more agressive funds with a higher portion in shares or venture capital projects. Biggest problem with the fees is all the providers are not transparent or upfront about what they are charging. If the governement made a industy standard then the fund manager would have to start working for their fees. Kiwibank has had the most upfront on their fees in the investor statments i've read so far. 

There are a lot of equally valid reasons not to like Kiwisaver that Bruce hasn't touched on but the ones he has said are excellent.  Its just a pity more people don't listen.

I have had to continually defend my position to stay out of Kiwisaver despite the "free money" so many people I know claim I am missing out on.

Fsck 'em.

That "free money" is a pitiful excuse for abdicating financial responsibility. Most people seem to feel that because they are contributing to KiwiSaver they don't have to save elsewhere, and so they don't.

Who the hell really knows what's being done with and to your Kiwisaver contributions (...Moral Hazard...), but even if you did, good or bad you couldn't do anything about it. And you can't get at it until you're 65 unless, of course, you wan't to waste it on overpriced houses...

If you're 18, have a "steady" job, little financial experience, but smart enough to put aside extra pennies outside of the KiwiSaver, then it could be an okay deal, providing successive governments haven't already pillaged the scheme and flushed it away by the time you reach retirement.

Those who can handle their own finances, and have the self-discipline and willpower to save of their own accord, are better off avoiding it, IMO.

 

Yes, but I repeat: if not KiwiSaver, what do you think should be done about those who cannot handle their own finances and do not have the self-discipline and willpower to save of their own accord?

Is the ground work already been laid for total dependance on kiwisaver?

I couldn't believe it when hearing what some friend's 6th form student was studying at school. Graphic design, photography, etc. No maths in there! So once you're past 5th form now (whatever that is now called) maths is no longer required to be learnt?? A wave of worsening numeracy illiteracy just around the corner perhaps?

I'm dead against kiwisaver for so many reason.

The 'subsidies' offered are our own money anyway. As sure as the goal posts will inevitably be moved around how superannuation is handled, so will the goal posts on kiwisaver. It's my money, why would I want to pay someone to manage my money and yet they'll walk away scott free if they lose a good chunk of it, or all of it?

I've worked with people who earn a living off their own capital, and those who live in the corporate world and what I've learnt is that those in the corporate world really what they are in control of as just monopoly money, numbers in a spreadsheet. I have yet to come across anyone in corporate land with whom I'd entrust a single dollar of mine!

Ms de Meanor,

I agree there is a problem, but it is much, much greater than "about those who cannot handle their own finances and do not have the self-discipline and willpower to save of their own accord".

Do you try treating some of the symptoms, or address the cause? Do we really understand the root problem?

I would suggest that part of the problem is that governments can be relied upon to work for thier own (and associated parties) short term gain so no-one knows what the rules are going to be when they retire. Recent history suggests the modern politicain is more than williing to steal from future generations to get elected today. When there is no more to steal from the future, where will they turn next?

You appear to be defending the worst of all worlds - something that is not going to deliver what is promised, requires bribes to encourage involvement, is inefficient, dumbs down those contributing and transfers wealth to the finance sector.

There are no easy solutions, but any are going to require changes in culture starting from the top with our governing elite. That change is not optional, but it can be delayed and extensive efforts are being directed at that.

Broadly, with KiwiSaver we can:
1. Be dumb, believe, and maintain the staus quo (your position)

2. Fix the root problems - cultural and political (a longer term but not an immediate option)

3. Question, question, and question again - then not be suckered into accepting the promises and taking the bribes.

Here's another view (not mine) too add balance to this debate. Contributor makes a point.

"We all know he (Bruce Sheppard) delights in being the cussing consumer crusader, but unfortunately it hinders his message.  Half of what he says is quite valid, but it gets masked by the rantings of a DIY investor who tries to insist that most people have the ability to manage their own money and personally pick their own share portfolios.  When you combine that with the ever present over-tone that you are ‘thick’ if you can’t, the end result is that he isn’t someone who helps investors, and he isn’t someone who helps the industry to create change.  He doesn’t create any real alternatives for people, to back up the words.  I wish he could put his ability to good use and provide some practical help to one or both groups. 

 

It would be interesting to see if we ever get real Kiwisaver alternative solution from Mr Sheppard.  A book entitled “A practical guide to saving $200 a month with term deposits” by Bruce Sheppard would be nice.  Worked examples showing the $200 cash payments sitting around in call accounts for 25 months earning no interest, until its large enough to add up to $5,000 lump-sums to invest in decent term rates, might have a slight drag on his self-managed theories.  It’s also interesting that DIY enthusiasts have the luxury of conveniently valuing their own time at zero and claiming that their portfolios are ‘fee free’. 

 

A well developed sharemarket needs large institutional investors, (like our Kiwisaver managers), to create stability.  Institutions have the combined power of their many underlying clients and unlike the single voice of a retail investor, they can exercise voting rights, voice opinions on management change and insist on ethical and sustainable practices.  When markets dive, institutions hold tight and don’t desert ship to the same extent as retail investors.  Claiming that ‘mums and dads’ no longer invest is pure fallacy.  To be honest, ‘mums and dads’ have never pro-actively invested.  They have mortgages, children, hire purchases and cars to pay for.  The average retail investor is 50+ and it’s the same in most other parts of the world, not just New Zealand.  A more accurate description is the ‘grandmas and grandads’.  Regular savings plans such as Kiwisaver are not diverting the flow of funds away from our sharemarket.  Funds flow has most certainly dried up from the retail sector, but that’s due to major structural issues such as the Finance Company Sector collapse, the influence of the property market on savings decisions and a rush to cash from the general recession and credit-crisis induced fear.  Had Kiwisaver never been invented, we would not be seeing any more liquidity from retail investors in the sharemarket.  Those small amounts of regular savings being snipped off the top of incomes, were previously frittered away.  Kiwisaver is not diverting from our sharemarket, it is creating real savings that never existed before.     

 

We have a Kiwisaver industry in its infancy.  Given how new it is, it’s doing really well, but there is need for progressive change.  As size builds, lower fees will be possible, but already the fees we have are lower than has ever been possible in the New Zealand market.  To get lower fees we need more competition and that means we need ‘open architecture’ (the ability to hold one account carved up amongst different fund managers).  It is preposterous to have all your money with one manager, but our scheme is new, investment sizes are not yet substantial, so little harm is being done.  In a few more years, it will become urgent.  There is also a need for a self-managed option for DIY investors.  They are a sector of the market who need catering for. 

 

Annuities are a much needed addition to the market, but need to have an element of non-compulsion.  One example would be the ability to take a percentage of your money as a lumpsum e.g. 25% or 50%.  The UK market provides lots of evidence of a loss in faith in annuities and there is a large fear about losing your fund if you die soon after retirement.  The government in the UK has just abolished the rule which forced people to buy an annuity by age 75 and back in 2006 ‘Value Protection Annuities’ were introduced.  These still have their flaws and there is a lot of discussion about the merits of proper ‘Money-back’ annuities where your estate will be given a lump-sum if your annuity income is the less than the capital amount you paid for it.   

 

Given the progress being made internationally in the annuity market, there is no point in scaremongering – the progress is very positive and in NZ we have time to learn from the mistakes made offshore.  The industry here will point out the pros and cons to the government and lobby for the appropriate legislation, to allow flexible options for investors.  Rather than scare people into believing that annuities are an evil instrument, we should be educating about the positive advancements and thinking about how those could help grow the market here."

" Contributer " is not our darling ! ......... The blog appears to be from someone , who contacted Amanda .

............. Some reckon that Bernard is our " darling " , but the constant " bad-hair-days " wreck his chances of being a real sex-symbol , like Tony Alexander or Gareth Morgan .

You're talking to a journalist. I am well aware brevity is an artform but sound bites and snides remarks don't always hit their target. I assume most of the participants herein are well enough caffeinated to handle more.

Cheers

Well I thought that was a really helpful and well argued contribution from Contributor and a good call to reproduce it by Amanda

So good that they are not prepared to have their name used? So good that they need anonymity beyond that provided by a login with a pseudonym?

The anonymous article does not appear to be a response to my comment so why it is posted as a reply to it escapes me. Basically it is an attack on Bruce Sheppard and in that it is either ignorant or being disingenuous- the link in the story is from June 2008 includes this from Sheppard:

"Now could this have been done better? Could KiwiSaver be turned into a structure to transform our economy, our people’s attitude to money and our capacity individually and collectively to participate in the world economy? Could it be used to create a property owning democracy of free and independent households?

I wonder if National will try this, Cullen won’t:

• Make it compulsory for all workers to be in a KiwiSaver plan but not be compulsory for a worker to contribute. Only the employer would be obliged to contribute, a worker would not be obliged to.

Fix the contributions at 4% of payroll and the employer receives a subsidy of $2080 pa or the amount of the contribution whichever is the lesser. In effect the crown would be paying the contribution for all workers on $50k pa or less, and the employer is paying the 4% on workers who earn more than $50k pa but only on the excess above $50k.

This is the same cash cost per person as Cullen has offered; just more people will be getting it and more importantly those who need it.

Workers will love it, those who could not afford to save but actually needed to will now be saving at no cost to them. It will be simple and low cost to administer so we could sack the 400 new employees in the IRD that were engaged to run it.

• Allow any worker to negotiate with his employer a salary sacrifice of up to $100k pa into his KiwiSaver account. For each dollar of salary sacrifice the worker saves the tax on the income.

• Also allow any non-workers under age 65 to establish a KiwiSaver account and make contributions of up to $100k pa with any such contribution being deductible against other income.

• And finally allow any KiwiSaver who has accumulated $250k or more in their KiwiSaver account to elect to self manage their KiwiSaver account. At a minimum this would likely be at least two years into the plan before anyone would have sufficient money to self manage. This gives them time to get used to the issues before they attempt self management. KiwiSaver investments should be restricted to fixed interest, listed securities, managed funds or listed property funds. If private equity or property is to be included it must be through a properly constructed managed fund. If you don’t do this people will just buy his or her own businesses or homes and strip the system."

Lastly, Bruce Sheppard answered the interviewer's questions. I am uneasy about the ethics of a journalist posting anonymous criticism of the interviewee for not providing answers to questions the journalist didn't ask.

Hamish, since you would not trust one corporate to manage your money where do you put it? Not in the sharemarket as those company's are controlled by corproates, not in finance company's as there track record (controlled by corporates) is not flash, not in the government, where? Property I presume or under the pillow.

I agree Kiwisaver is one vehicle to save money, and you need others , but for some (a large amount of population)  it is the only way to teach them to save money, even if you put it under your pillow it may get stolen.

 

Hi FCM.

Where would I put my money if not in a corporate? With the other group of people I mentioned, i.e. those with their own capital and assets in their business. They are inherintly more motivated to make money and understand to a greater degree the risks they are dealing with, than some suit in front of a spreadsheet on a more than healthy salary.

Would I invest in property. No. I wonder how many recent retirees or soon to be retirees are realising just how illiquid a property as an investment can be?

I agree with you that a saving culture needs to be nurtured here (government has a lot of work to do on this front given the state of the NZX and the recent fall out of finance company meltdowns with seemingly random inclusion to government guarantee is some of the stories are much to go by on some that were allowed in). My point of argument is that to make kiwisaver compulsory is just plain wrong and I think dictatorial. Going back to small business owning people, I can't imagine many of them being happy being forced to divert capital into some managed fund through kiwisaver when they are already astute enough to be making a good return off it in their own business.

Bruce provides a valid view of the social and macoeconomic issues with Kiwisaver. Kiwisaver is a response to the moral hazard of universal superannuation and social welfare that prevents people having to take financial responsibility for themselves. Look to many countries (some we condescendingly label 3rdworld) where people are building massive personal savings and securing their future. It’s not to hard to learn even for NZdrs.

The individual issue with Kiwisaver is you are locked in and the rules have and will keep changing. Don’t be fooled by the $1000 kickstart (soon to change) and $1043 (will also change) top up “free money”, these amounts will pale to very little over the decade(s) till you see the money. And all the time you will be paying the fees etc and getting the to date very poor returns. Oh you can take a holiday you say? Well the holiday is at the discretion of the IRD (whose policy will change) and the holiday does not stop the fees.

If you are nearly 60, earning less than $50k then join and you will get about $12k at 65. Should just about upgrade the car depending on inflation.

I would certainly agree that with a much less generous welfare system people would save more, as is the case in developing countries.   But do you seriously imagine that massive cuts to welfare and saying to those who find themselves in danger of starvation, "tough, you should have saved more while you had the chance" is going to keep any Government in power for more than twenty minutes?

I also wonder how people in developing countries save .  Are they really all sophisticated financial managers, well able to cope with the same level of choice of investment options, and hence risk of losing money if you make the wrong call, as here?

Finally, of course KiwiSaver isn't going to deliver a comfortable retirement income for somebody aged 60 earning less than $50k. How could it? Presumably you think they shouldn't have NZS to look forward to either. What would you suggest they or the Government do instead to ensure that they don't starve in their old age?

 

Welfare need only revert to where it was when conceived by Dick Seddon and run up until the 70’s. It’s only in the last few decades that it’s become a voter bribe and lifestyle of choice. Not to dramatic to make this adjustment tho it may soon be foist on us aka Greece, Ireland etc.

Plenty of people worldwide live (including so called developing nations) within their means and save/provide for their future. NZdrs should also. I would contend that a large number of people in various countries I have visited are far more financially realistic and astute than your average NZdr.

Kiwisaver will provide very little for you in retirement. The best % return is for the 60yr old example. Returns and surety diminish with fees, ravages of inflation, policy and rate changes et al for those that join before 60. Kiwisaver is a very inefficient retirement saving vehicle, has no tax incentive and very little control. You are in the hands of the fund managers. Good luck with that.

I'm staying where I was:

 

1.  It is not politically realistic now to expect any Government to cut back welfare to the point where it was forty years ago. It is a pity, but it is true - too many voters actually like being bribed. Despise the "pollies" all you like, but they can't do anything if they don't get elected. By all means form a political party and compete in the forthcoming election if you disagree.

2.  Even if everybody could be forced to save by making it the only alternative to starvation, as it is in some developing countries, it is not socially realistic to throw people in at the deep end of a developed-country financial market and imagine that all, or even most, of them will be financially sophisticated enough to ensure themselves an adequate retirement income. Wouldn't you rather a plumber spent his time improving his plumbing skills than worrying over the relative merits of this or that equity? Do you think the people you have met overseas are a fair comparator to "the average" New Zealander?

3. So you'd still need to ensure that there was some reasonably safe savings vehicle available for those who don't know any better, and some means to encourage them towards that rather than leaving them to misguide themselves to the wrong options. Yes, the results will not be as good for the average saver as a well-motivated, well-resourced financial wiz could achieve for himself. But it's a considerable improvement on nothing.

I don't claim that KiwiSaver is incapable of improvement. That is hardly to be expected in such an innovative approach. It costs far too much in Government subsidy, fees are too high, it risks giving people the impression that 2% is an adequate saving rate and it may well be subject to political change (although arguing that it is a poor scheme and at the same time criticising Government if it wants to change it is hardly fair). Nor do I think it should be made compulsory. But I do maintain that there has to be something like it in a democratic and socially responsible society.

What Bruce has hinted at here without directly mentioning is the the laws of gold, transcribed for those who care to read in "The Richest Man in Babylon".

Gold accumulates to those who know it's rules.

So if people don't learn the rules, ie:Kiwisaver, then why the hell do we expect them to make sound decisions with it when the get the lump sum payout.

On the question of what else if not kiwisaver, then that becomes more of a question of our dysfunctional sociology.

What of the ESFJ in Myers-Briggs typology, the 'Provider'. This personality is likely found in professions such as nursing, and because of their caring nature is just as likely to give their money away to someone more needy.

Other personalities are also well documented for poor management of personal finances.

So instead of the question being "how do we make these people save?" It should be "how do we as a society provide for them when they are no longer able?"

Thats right scarfie, if we dont get them to save now, save something, somehow, then a few will be paying for the rest (the larger population) so is'nt it good that these individuals are at least saving something, even if we disagree on if it is the correct vehicle or not. Better in Kiwisaver than a new LCD screen/ new furniture..sure it is not the cure, but it is a start.

Unless the cost in government subsidies, government & employer running costs, lost wages (which is all an employer top up can be) and savings which would have otherwise be saved outside of kiwisaver drastically exceeds the amount people eventually get out of it.

Doesn't need to be an either/or, can be both making your own investment decisions and having Kiwisaver

"The only way you can make an annuity work is this: the members account is held sacrosanct, and they’re allowed to draw off their own account on an actuarial basis and the amount that is consistent with life expectancy and if they live beyond their life expectancy there is an insurance premium paid that allows that to continue on. If they live shorter the balance in their account get reallocated to their dependents."

How exactly does an annuity differ from that?   (That's a genuine question).

Assuming there's a good answer:  Why doesn't he go into business and offer such a product himself then?

 

So two people are sitting in an office, both earn the same, one does Kiwisaver, one does not, one earns 2% more than the other by doing Kiwisaver..over 5 years one has earnt 10% more. Considering both live until 65-67 plus, one has saved nothing as she thought she could save but needed to take it out to pay for this and that, wanted that holiday overseas, the other knew she could not touch it..which one is better off?

'which one is better off?' in what terms? Cash or some life memories from doing a bit of travel when they were younger?

Third person wasn't living in an office, didn't put any cash into kiwisaver, built up a viable business and is able to sell it for plenty. Maybe they are better off? Or maybe they were a slave to their business for 20+ years?

 

You are all making the assumption that these funds will still be there in 30+ years time.  Ask the UK pensioner who thought they had a pension because they had 'saved' by contributing to a pension plan only to find there wasn't the money there to pay it when it was needed,how they feel now.

 

Exactly! Is there not history in N.Z. of workplace super schemes collapsing in the 80's too?

I certainly wasn't, and you won't need 30 years.

Well ask the same question to the Hanover investor or the bridgecorp investor..etc etc etc..banks go broke too..so do many many many businesses..nothing is for certian..but as part of your investment portfolio makes since to get an extra 2% out of your work place..but guess that is indivduals choice..i  dont think in 15 yrs time there will be and form of super unless you have saved for it yourself.

I agree with your sentiment FCM (I think). I would not factor in national super to my retirement plans. I wouldn't dare bet that it'll be there in 20 odd years time. Not at all. Yes, also agree that there is risk everywhere.

What is really irking me at the moment are the murmurings about compulsion to join kiwisaver. If they want to go for compulsion and force me to hand MY money through their schemes, to be locked up for however long, then if it is compulsory then I would expect a government guarantee on that money that is taken from me. If there is no guarantee, then let me manage my future and take on the risks myself.

The trouble with Kiwisaver is it is too long-term to have faith in, especially for the young.

May be okay for those in their  50s because within 10/15 years they stand a chance to get back at least their contribution, taking into a/c a worst case of loss in the investment.

There is some truth in the contention that right now it looks like a massive infusion of blood to the managed funds industry and they are making the most of it in fees, commissions, even the thrill of playing with others' money.

After the GFC, all financial investments through such schemes are somewhat suspect.

The government should manage the funds, using them for infrastructure and development projects which will boost income and employment and assure some decent return and guarantee the capital. Even allowing partial withdrawals at regular intervals would be a necessary step to keep the faith going.

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