The CFFC's David Boyle wants KiwiSaver members to have the choice to fill a rainy day savings bucket, before contributing to a fund for their retirement or first home 

There are calls for KiwiSaver to play a greater role in preventing New Zealanders from being kneecapped by expensive debt.

The Commission for Financial Capability’s (CFFC) education manager, David Boyle, wants KiwiSaver members to be able put money aside for an emergency, as well as for retirement or a first home.

He wants members to have the choice of putting a certain amount of money in a cash fund with their KiwiSaver provider, which they can draw on if they deem necessary.

The idea is this would prevent people taking out expensive loans or withdrawing all their KiwiSaver savings under the hardship exemption if they run into financial difficulty.

It would also give those concerned about not being able to afford being in KiwiSaver a buffer, should they need cash.

Around 44% of those surveyed by the CFFC can't access more than a month’s income from their savings.

Boyle, who used to be ANZ Wealth’s funds management general manager, but now works for a taxpayer funded organisation that operates independently from the government, says the infrastructure for making such a scheme work is already there.

What’s more, he believes it could be done without an overhaul of the law.

He proposes any rainy day contributions be collected just like regular KiwiSaver contributions by the Inland Revenue Department (IRD), before being passed on to members’ KiwiSaver providers.

Enabling providers to collect contributions from a single source should keep costs down.

From there, providers would put the contributions into a cash type of fund. While most providers already have such funds, Boyle admits some would have to create them.

He accepts that while the “rainy day fund” isn’t legislated, providers wouldn’t be forced to do so, yet his hope is that competition encourages them to.  

Once a KiwiSaver member’s rainy day fund hits a certain level, contributions would be directed into their regular KiwiSaver fund.

When a withdrawal is made, future contributions would get diverted back to the rainy day fund until it's full.

Boyle admits that while the concept has been on his mind for some time, the detail would have to be fleshed out.

He isn’t clear on whether the rainy day fund threshold would be set at a dollar amount (IE $5,000), or a value equivalent to a certain portion of a member’s income.  

He says the fund should be capital protected, in that whatever is in it doesn’t reduce in value. He notes 30, 60, or 90-day bank bills for example aren’t going to change in price, but are fully liquid.

Without bringing the rainy day fund idea under KiwiSaver legislation, Boyle admits that the only way to ensure providers don’t over-charge fees to members would be to get them to come to some sort of an agreement around fee levels.  

“We don’t want providers gouging the cash,” Boyle says.

Once again, without coming under the KiwiSaver legislation, Boyle says members would be able to make withdrawals from the rainy day fund at their own discretion.

Yet to discourage unnecessary withdrawals, he says providers would need to ensure it isn’t too easy for members to make withdrawals. For example, they shouldn’t be able to simply log in to their internet banking and transfer whatever cash they think they need.

Once again, the details around this would have to be smoothed out.

“The product would evolve if there’s a genuine interest,” Boyle says.

He believes the extra layer of cost and complexity providers would incur by making a rainy day fund available would, at least to some extent, be offset by a reduction in members applying to make hardship withdrawals from their KiwiSaver accounts.

He says hardship withdrawals have grown by 25% over the last year - and we aren’t even in an economic downturn.

While Boyle is selling his idea to the industry - talking about it at the CFFC’s Summit on Tuesday for example - he also wants support from the Government.

The reality is that those who could benefit the most from having a rainy day fund - perhaps people who don’t have much savings or are under-insured - need to be incentivised to go for it.

“We have to sell it,” he says.

Boyle hopes the Government is open to exploring ideas like making contributions to a rainy day fund tax free.

He is also keen for new KiwiSaver members to automatically be enrolled into a rainy day fund, which they could top up before starting to save for their retirement.

The rainy day fund concept isn’t one the Government has explicitly talked about, however people vulnerable to spiralling into debt are front of mind for Commerce and Consumer Affairs Minister Kris Faafoi.

He is currently considering capping third tier lenders’ interest rates and is looking at credit card interest rates as a part of his review of the Credit Contracts and Consumer Finance Act.

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21 Comments

Sounds like a bloody good idea.

Last night I watched an American Movie to unwind after reading about New Zealand's horrors. The first advert break pretty much told me the story, with three consecutive ads for debt;
A story before bedtime:
1. ANZ now have a mortgage coach, who in the absence of the buy-to-debt speculators and Chinese buyers will let young kiwi's borrow a £1,000,000 for a leaky Auckland shed, so long as they don't mind going to Auctions in the rain. I was a little concerned because the young people in the advert didn't look old enough to have finished school, but hey we need those First Home Buyers from somewhere!
2. The next advert featured the handsome actor Alec Baldwin, I repeat, an actor and not a renowned commentator on compounding interest, he told me how I deserved that holiday and that Gem finance could make it happen for 18.9% interest...... brilliant, I'm in to beaches and my kids looking like they are behaving themselves because its sunny, this is me I thought until I saw advert number three.
3. Wowwwww! A sparkly new SUV on offer at 0% percent finance and zero deposit (subject to conditions ---- I own a house that must mean me) .... I didn't even need to go to ANZ from the first advert to borrow the money to get that 4 wheel monster I've always dreamed of......0%... and if the proverbial hit the fan, I can go to ANZ and get some money out of the house anyway (if there is any in the house still, not checked for a while)...

I was so excited by this stage that I could barely concentrate on the film... When the same series of adverts repeated themselves in the next break I was beside myself.... Oh what a country of opportunity I thought, I know why I'm here......land of milk and honey and everything else you desire on the Never Never! And then I got offered a lazyboy on 60 months interest free... I can't tell you, I was so excited that I didn't sleep last night..

Yes this is a good idea.. Regards Nic

The question I ponder is what kind of timeframe is it all going to go tits up in?

Fast... people forget that when the GFC happened people had access to lots of information but the I-phone had only been released a month before Northern Rock collapsed. Most people didn't really get into smart phones until this decade, long after the bubble had exploded. This time around anyone with a property app will get the chance to see prices falling daily on their phone.... and as we're seeing in Melbourne's crash (5% off in 3 months already) - when things keep getting cheaper you tend to wait. it's a bit like Rebel Sports, no-one ever buys there until they have one of their 30-50% off sales weekends.

https://en.wikipedia.org/wiki/History_of_iPhone

I think this would be a good idea if everyone was like me, an Ebenezer Scrooge clone, unfortunately most people are spendthrifts and the money would be gone in a flash on some new mag wheels or something.

On second thoughts Ebenezer Scrooge types always have their own 'rainy day' funds so they don't need it. Seems like this would only work in some alternative universe. Or else an expert panel would need to make the decision to release the funds.

Ebenezer Scrooge was not that well off, more just landed gentry who was sitting on the increase in existing property, a SME business with poor staff productivity with out of date practices a generation before, and an antisocial hermit, (or going senile & likely to be affected by dementia soon), who had little to no human emotion or family. Scrooge McDuck had a lot of money, invested in business as well, would be classed as an extreme hoarder right down to every piece of string in his life saved & tied to a ball, but the investment & security was a bit lacking.
The message having wealth at one stage is good, so long as you can secure a good place to live, & continue to upskill with developments in technology, investments, and business. Stay fixed in any one an you could be left with just the good place to live (in cases like financial crashes, theft, business failures etc). In the great scheme of things a home could still enable a good life, but carry too much debt or environmental damage, (or even damage from other sources), and that house may disappear as well.
Family also works as a aid for retirement, because trusting strangers, even underpaid staff, with managing your life & medical care can be deadly.

To further enhance this idea of accessing part of your Kiwisaver funds along the way, the Super age could be lowered to 60, with access to all of Kiwisaver funds at 60 also. This would boost the economy with increased spending, while the ‘retirees’ could keep working to keep income coming in.

Mortgagebelt, That's just kicking the can down the road for all the muppets that borrowed too much for buy to debt, it was silly but they were told it always goes up!

Shergar was a magnificent horse to back, everyone jumped on the bandwagon and lots of people made a few quid, told their mates to do the same and he kept winning,,,,, everyone was winning, happy and doing well... Then Shergar disappeared, disappeared and possibly got made into sausages... After the butcher had made his money, there was no more money to made from Shergar! The moral of the story is that when the horse has died, there is no point trying to ride it, and if there is no greater fool prepared to buy the 'dead horse' off you...... It's time to dismount.

How does the Government pay for all that extra super? Borrow the money or take it off of taxpayers? If the latter, then all you're doing is rearranging the spending, not increasing it. If the former, then you are bringing the spending forward and reducing future spending. The real question is whether even 65 can be maintained as a super age or whether it should be pushed back.

I personally think it does need to be pushed back, but in conjunction with other moves. We can't keep privileging the older generations at both ends of their life while making things harder for the younger Kiwis at both ends of theirs.

E.g. combining a raise in the pension age with full funding of tertiary fees would be fair. You get two years' less pension but you don't get saddled with a debt burden now so the oldies can enjoy a lower tax rate by cutting provisions for others.

Great idea. Even better yet why not lower the KiwiSaver access age to 18 and issue each member with a membership card they can use at any time of day to withdraw their emergency money from any one of thousands of automatic money dispensing machines. Perhaps the scheme could be re branded to KiwiBank.

Bit of a snag there. Your emergency funds need to be accessible fast in an emergency, say 24hrs, KS requests take days, if not weeks to process. Top that with no clear use case for the longer term but still necessary funds needed for daily living, (will petrol, a standard GP visit, or extra food during unemployment still be classed as an emergency), even processing WINZ applications would be a nightmare & lengthy process. Another point is that any savings above a tiny threshold at all would discount WINZ assisting, so if KS is classified as savings instead people could lose access to necessary supports at all for having a KS amount above the threshold. The poor still will not have a large amount in KS for their retirement, (because even 3% can be high for them especially if you cannot even afford a doctor bill, but very small in real long term needs), and they will still be getting assistance like WFF, accommodation supplements from the government which is not funnelled into KS either. Just lots of issues with this idea. Not to mention the enormous cost in managing and processing emergency savings applications. Say for the car example to ensure it is reasonable emergency the govt would need a report from the mechanic, checks on the persons pay & other savings, a statement for what they use the car for, invoices, direct payment accounts etc. Every emergency case will be different and without signing on to similar risk and damage assessment processes of insurance it is a lot of corporate hoohah for taxpayers to set up.

I do budget advice, and knowing the people I work with, this is a really good idea.its the unforeseen, but fairly predictable one-offs that put them in the hands of the extortionist lenders. This often isn’t beneficiaries but people in decent jobs who we would once have called middle class. The car dies, the fridge dies, etc, etc.They want to save but they also have very little to come and go on, and all sorts of pressures to stay afloat, and still have a life. Most comments here come from people living in a pretty different world.

The problem i have with the idea is that those with no monetary discipline will be continually raiding the "emergency" fund for things that aren't really emergencies and they will never build up a balance in their kiwisaver for retirement. The only way to stop this is to have somebody filtering requests for access to genuinely good reasons, which is adding bureaucracy and costs (which will be spread across everybody). Not sure there is a good answer to this problem, apart from teaching people financial responsibility.

Stupid idea. People should have both. Full scale untouched Kiwisaver AND a rainy day fund. Boyle's crank idea just caters for Kiwi's fantasy that you can spend it all and have it all. And when they see an investment find a way to turn it into spending money. Lets protect Kiwisaver

It sounds Mr. Boyle has Singapore's "Central Provident Fund" in mind. That is a system where a person saves into the fund for retirement, housing, and health. I don't know the details 100% but it appears a person can withdraw from the fund for a house deposit when it reaches a certain level and the same goes for retirement. Mr. Boyle's idea sounds like it has some potential - anything that gets people to save is a good thing. The only concern I have is that people who already have a rainy day fund, like myself, will do it and those that don't now won't.

People out there find it difficult to build up an emergency fund and using the operational elegance of KiwiSaver to help with this is sensible.

One thought I have is that future Member Tax Credits could be diverted into such a fund. The more contributions you make to KiwiSaver, the more is credited to your MTC account every July/August.

I think this should be voluntary and managed online via the IRD. If you do nothing, the provider gets the MTC payment just as they do now. Of course, lots of people would take the money as soon as they can. But to get that money in the first place they have had to actively save into KiwiSaver.

The balance of the fund will be on the IRD website (not the provider's). I would say that very few people look at "My IRD" every day - certainly not as regularly as they do with their bank balances. Keeping this to one side will help keep it out of mind. Handlng it via the IRD also means that you don't need to sell it to providers. It can just be done.

It takes guts to stick your head above the parapet with new ideas, so I think David's idea is great and well worth exploring.

And just where will this Rainy Day Fund be held? With the same bank that could see you become a creditor in a debt for equity OBR swap? How is that going to help? Now if it was with the RBNZ, well, that's (slightly) different. ALL Kiwis should be able to 'bank' with the RBNZ; have an account. It gets away from having to have Deposit Insurance etc. and leaves the Banks to do what they do best - peddle debt....

Nanny state bollocks. Having a store of resources used to be basic survival behaviour for any species that endures winter. Even squirrels store food for the winter.
There is already a way to set aside 3% of your income it's called a bank account. For the young people who have no savings yet... guess what there won't be any savings in their kiwisaver anyway!
If people are so short sighted to figure this out then they need to sort out their life in general. Just another step towards idiocracy. Next step... TXT your IRD number to NO-TP (6687) if you have a toilet paper emergency.

There are calls for KiwiSaver to play a greater role in preventing New Zealanders from being kneecapped by expensive debt.

The Commission for Financial Capability’s (CFFC) education manager, David Boyle, wants KiwiSaver members to be able put money aside for an emergency, as well as for retirement or a first home.

He wants members to have the choice of putting a certain amount of money in a cash fund with their KiwiSaver provider, which they can draw on if they deem necessary.

The idea is this would prevent people taking out expensive loans or withdrawing all their KiwiSaver savings under the hardship exemption if they run into financial difficulty.

It would also give those concerned about not being able to afford being in KiwiSaver a buffer, should they need cash.

Translation:

You are all too stupid to look after your money, so we will need to do it for you.

The main problem with all this is that Kiwis don't have enough income to save. Our economy in fact is built on the idea of ever expanding private debt. Good luck with that.

A brilliant idea, although I would rather see this as an add on to KiwiSaver, with the 3%+ going into KiwiSaver and an ADDITIONAL amount going to the Emergency Fund. This would be optional, so those who already have a fund, or who are more disciplined with their money would not need to participate. For those who are not at good at saving, or who need something which is a little further away than an online bank account, why not give them this option. Surely savings are better than no savings?

For use as a true emergency fund - illness, an unexpected bill etc, you usually have a couple of days notice at least for requiring money, so any small hurdle the KiwiSaver provider put in place (expected to be less onerous than a financial hardship withdrawal), wouldn't be too much of an issue in most cases.