Time to rock the KiwiSaver boat

Public Policy / opinion

KiwiSaver is not designed to include everybody, and the whole scheme needs an urgent shakeup to avert poverty for many. Susan St John explains

27th Dec 21, 6:47pm by Susan St John

Descending into difficult and inadequate KiwiSaver options

Susan St John*

I was recently part of a panel of experienced superannuation industry people at the 2021 Financial Services Council regenerations conference, in a session called “ KiwiSaver- moving the dial or moving the deck chairs? ”

The panel gave KiwiSaver an average of 6.5/10, so my 6/10 was on the low side. I like the provocation of the title but perhaps “KiwiSaver-fiddling while Rome burns” is more appropriate. There is a worrying lack of urgency to the pension debate.

We are over half-way through the baby boom retirement and in 8 short years we will see the first of the baby boomers turn 85. From then on, this cohort born after World War 2 will swell the ranks of those whose healthcare needs are high including the need for expensive long-term care.

This perfect storm of demographic change collides with ever growing chasms of wealth and income distribution including the impossibility of affordable secure housing for increasing numbers of older people.

We are so fortunate to have NZ Super for all as a wonderfully inclusive and non-conditional life annuity income that has largely prevented elder poverty since its introduction in the 1970s. But this rosy picture is now changing. More older people are coming into retirement with very little extra after years spent with inadequate low paid work, or time out doing caregiving. They often face a lifetime of renting in a precarious housing market.

Withdrawals from KiwiSaver for hardship reasons or first home ownership, or suspension of contributions as household income has dried up in the Covid years have particularly impacted women, Maori, Pacifica and the disabled. With more than 3.09 million members only 1.88 million contributed to their account in the last year. In this context it is timely to question whether our celebrated simple retirement income framework is fit for purpose.

As part of this it is time to ask: who is KiwiSaver supposed to be for? If the answer is for all New Zealanders then its design suggests otherwise.

(We could also ask what is it supposed to provide? If the answer is secure income to supplement NZ Super then it clearly fails but decumulation and the relative merit of drawdown and annuities is a topic for another time.)

For now, let's recognise that there is a huge bias in KiwiSaver, best revealed by looking at its construction through a gender and an ethnic lens.

KiwiSaver was designed for the stable male working environment of last century. For example, a 40 years’ full-time career enables 40 years of government contribution. At today’s rate this a possible total of $20,840. Most women and increasing numbers of men do not have this stable work pattern, the 21st century has seen the rise of the gig economy, lower unionisation, just-in- time employment, self-employment and time out for retraining.

The work of caregiving many women undertake means up to 20 years out of the workforce in the years between 20 and 40 where compounding of investments, employer and government contributions are of most benefit. Later on, part-time work may be all that is possible especially with other caregiving needs such as for older parents arises. One in three women works part time compared to one in ten men.

The government contribution stops at age 65 even though women may not have accessed the full 40 years of the subsidy. How does KiwiSaver work for them? If access to government contributions was extended beyond the age of 65 to a maximum of 40 years of contributions, women working after the age of 65 could also enjoy more similar level of state contributions as others. Note this would be good for many men too.

Those women working for wages who can’t afford to contribute to KiwiSaver, or are past 65 when the employer contribution can cease, effectively subsidise others because they don’t get the 3% employer contribution and wages overall are correspondingly lower. If employers had to contribute to KiwiSaver regardless of whether their employee was contributing, it would be much fairer. The reinstatement of the $1000 kickstart payment would also disproportionately benefit women (and Māori and Pacifica) and give a very useful signal that KiwiSaver is for everybody.

David Boyle, a panelist at the FSC conference highlighted that another key area of concern was that with growing self-employment, many are unaware they should be paying themselves an employer contribution as well as contributing themselves. With financial ruin in the Covid world for many start-up businesses, what kind of retirement can many women and increasing number of men look forward to in 2030? Improving financial literacy will only take us so far in addressing the deficiencies of KiwiSaver design.

*Susan St John is an Associate Professor at the University of Auckland Business School.

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75 Comments

by dictator | 27th Dec 21, 7:59pm 1640588386

There's a bit to process here.

Is the point of Kiwisaver really a supplement to retirement income? For some yes, for others a substantial retirement fund if they have had generous employer contributions. Given the amount of inactive accounts I would say it's not working for the say bottom 40% that aren't contributing and will be most likely to need the money.

In reality it's mostly a tax break for those contributing $87 per month. In fact the whole scheme was on an irrelevant scale for me as starting up a business was more beneficial that spending time creating a kiwisaver account. It's not really for me though as I have my own investments that outstrip the fund.

Extending the tax credit for 40 years of working life isn't really going to help women or Maori. If they spent 20 years working before 65, then working an contributing until 85 is complete bull. They are contributing and drawing down and losing the power of compounding interest. If someone works a manual job from 25 to 55 and their back is stuffed then working another 10 years probably isn't a realistic option. This is more of an example of equality but not being equitable.

It's also not a fair system when you have a young population that is paying a lot of tax while working and have bonus tax in the form of student loan repayments. Then they are likely to use Kiwisaver to benefit their house purchase at the current prices so end up stuck with a large mortgage that they will be paying back for 30 years, some of which may overlap with retirement.

There also seems to be a confusion over who the boomers are and seems to include Gen X who will start retiring in 10 years. Suggesting that really getting started in retirement at 85, as suggested in the article, is perhaps a discussion that should be had. Perhaps that should be the new retirement age because many will not be able to retire by 65.

by Brock Landers | 27th Dec 21, 8:25pm 1640589912

Is the point of Kiwisaver really a supplement to retirement income?

It's primary purpose is to prop up house prices.

by dictator | 28th Dec 21, 3:25am 1640615131

The ability to draw money out for buying a house is wrong. That kills the compounding gains and restarts the clock as well as the effect of keeping house prices high. Even in the US any draw down on the fund is a loan from the fund which they have to repay with 4% interest. It still kills the gains but at least it provides discouragement from tapping into the funds.

by KH | 28th Dec 21, 8:41am 1640634075

Nah. Owning where you live has been a staple part of NZers security just about forever. Until recently.

It's the only thing where a kiwisaver drawdown can be justified.

by Dick Mortensen | 28th Dec 21, 6:02pm 1640667762

I think Bernie Madoff ran the same scheme.

by fat pat | 31st Dec 21, 10:50am 1640901006

You've forgotten the other side of the transaction. You're compound wealth in real estate, and it's a leveraged investment so arguably better than kiwisaver. The returns from real estate will be greater provided the housing goes up forever, (ie provided we don’t return to a gold standard).

by Albert2020 | 28th Dec 21, 8:46am 1640634365

Spending time creating account? It takes a matter of minutes to set up an account. You do realise that setting up a kiwisaver account and investing in a business are not mutually exclusive?

by dictator | 28th Dec 21, 8:57am 1640635064

You try having the spare time when you work seven days a week. The money made outstrips the mucking around with paperwork.

by iliketobike | 28th Dec 21, 9:21am 1640636462

You could have setup a Kiwisaver account in the time you spent reading this article, commenting on it, reading the comments, and responding to them.

The ROI would be much larger.

by pacifica | 2nd Jan 22, 12:23am 1641036198

YOU can setup an account, but NOT EVERYONE has access to do so because the Kiwisaver providers and system is INACCESSIBLE to many NZders. Fun fact kiwisaver providers heavily discriminate and setup systems that exclude and cause harm to many people with disabilities and go past the point of irresponsible.

by pacifica | 2nd Jan 22, 12:11am 1641035483

Actually there is a lot of time often manual and in person travel time included to setup an account. Not to also forget many NZders are denied access to bank facilities (e.g. disabled) and are denied access to online services for kiwisaver. YOU can setup an account, but NOT EVERYONE has access to do so because the Kiwisaver providers and system is INACCESSIBLE to many NZders. It is far easier to setup a managed fund and operate it through an accessible service than to even consider and fight to set up kiwisaver, a financial object the government designed from the outset to be inaccessible and discriminatory to many disabled NZders. I spent hours doing advocacy work supporting financial application and management of kiwisaver and even had to spend an entire day and over $100 just to get a kiwisaver account setup for a man with a brain injury because the bank required in person presentation and there was not accessible branches nearby and the transport cost to him with a wheelchair was insurmountable.

by pacifica | 2nd Jan 22, 12:21am 1641036101

Fun fact kiwisaver providers heavily discriminate and setup systems that exclude and cause harm to many people with disabilities and go past the point of irresponsible. It was during this advocacy work I found out that ANZ had been stripping and not adding the government contributions required and they had been doing this for years depriving many NZders (over 50000) of their contributions due to a database date field error (they got their dates mixed up in code). That until I had checked no one else had discovered this error over years of operation (2009-2017) in one of our major kiwisaver providers should tell you how accessible, understandable, clear and accurate their reporting systems and services are. For some NZders this resulted in none of the government contributions being added at all which for those on lower incomes is a sizable chunk of cash to miss out on alongside the compounding investment interest. ANZ downplayed it a bit, tried to make out the amount of full govt contribution would only be $50 not over tens times that and over years, and did not inform those customers of the error directly hoping it would be unseen in a news article.

https://www.stuff.co.nz/business/money/93409753/anz-admits-that-at-leas…

by Susan St John | 28th Dec 21, 10:40am 1640641229

to clarify- the large babyboom generation is all retired by 2030 and first of the babyboomers is entering the 85+ category. Not all can work passed 65 nor should as many are burned out-- this article specifically highlights how the govt contribution is built on the traditional male pattern of employment. Of course we dont expect women to work to 85-- but many are just gettng into their stride at 65 and feel they need to make up for lost time out of the paid workforce- a few more years of accumulation could make all the difference.

by Uninterested | 28th Dec 21, 6:13pm 1640668403

One thing which is completely absent from this piece is the notion of families. And joint wealth.

To not include this is absolutely disgraceful.

by Brutus Iscariot | 28th Dec 21, 10:29pm 1640683762

Yes, the author separates men and women to pose an argument about inequity, when the reality is that if a woman is having kids and taking time out, it's part of a family unit/arrangement that all parties have elected to go into.

The final pot a couple use in retirement will consist of both their Kiwisavers. Whose name it's in matters little. If they divorce in the meantime, their assets are split by the courts. If one of them dies earlier, the other gets the estate.

I just don't see the problem here. Merely another article to hype up enmity between demographic groups, as seems to be de rigeur now.

by Susan St John | 29th Dec 21, 10:39am 1640727562

One of the important things for a woman to realise is that a man is not a pension plan. Some ideal family situations work the way BI describes and good for them. In a modern world of factured and blended relationships it often works out badly for women (and for some men too lets not forget).

by Uninterested | 29th Dec 21, 12:21pm 1640733662

It must have been really hard putting that last bracketed sentence in there.

By the way there are more women succeeding at school and universities than men these days so just like the matrimonial property act laws, if your "remedy" is based on earnings, it would positively affect less women in future.

by Uninterested | 31st Dec 21, 8:29am 1640892552

Or conversely "one of the important things for a man to realize is that a woman should not be a drain on a pension plan."

Do you agree with this statement?

by pacifica | 2nd Jan 22, 1:43am 1641041030

Actually it works both ways except the women are often not being paid fair and equal wages for work. For example in many cases the rate of carer support payments for caring for elderly or disabled relatives e.g. dementia is rather low or non existent compared to the payment rates of healthcare staff doing the same work with the same responsibilities. Likewise payment rates in skilled and technical fields is different for the same work and same responsibilities (women receive often less pay, visibly seen in many tech companies). In NZ carer support roles family carers have had to take the government to court multiple times at great expense. Just so that the future environment changes for other families and back pay to be even equal to minimum wage rates at the time is received.

Payment rates for full time work is often highly disputed in complex and high skill nursing care roles where it is assumed a 16+hr/day job can be compacted down to an hour a day by assessors (who think it takes only 10min to undress, bathe and dress a frail disabled person or that high risk monitoring can consist of not being in the same building as the disabled person) when there is a high risk of medical emergencies and existing death rates are present in non family based care due to lack of service quality and provider ethics (people often going without bathing, without adequate wound dressing). Often during even the past year many elderly and their relatives have depended on the family care work arrangements because service providers responsible for food, medical wound care, medication & health checks, toileting and bathing have been no shows for days and it is frequently not provided around large portions of the year. Now most elderly people will say that food, medication, wound care to prevent sepsis, toileting and bathing is not something they can go without for a single day let alone days of non notified service no shows. Who do you think the govt wants doing most the dementia and elderly healthcare; the govt health system? Don't make me laugh.

Hence the govt has openly diminished the wages for home based carer supports, cut the support of food, wound care and bathing to below a safe minimum and removed safety and medical needs activity support e.g. support to visit a doctor. They have also removed the kiwisaver contribution support and placed that as an additional financial burden on the disabled person, often unable to work & receiving care, to pay for the workers kiwisaver while they have nothing for their own. A perverse arrangement the government has created to make people lose access to the means to finance adequate and necessary carer support which the government should have been paying for in the public health system. For many elderly and disabled people including those with dementia the burdens of having to pay out kiwisaver from funds they do not have and cannot afford while having no money for their own kiwisaver means the decades of inequality widens the gulf and results in lost medical care. It helps that the government often puts down deaths due to lack of medical care and support as "natural causes" without coroner investigations even though the family complain that a fault with the health service caused and contributed to the death. Such as missed wound care causing sepsis, cut food prep, bathing and home care support & no shows leading to severe ill health contributing to death. One relative had a necrotic bowel condition missed, multiple days of food no shows, missed home care, and could not access health care support until too late. The lack of nursing care continued so that the surgical wound support was missed resulting in terrible sepsis etc.

by pacifica | 2nd Jan 22, 1:06am 1641038814

by mangoes_for_me | 29th Dec 21, 3:45pm 1640745904

I found your comment more informing and thoughtful than Susan's, how can that be? But anyway, well done.

by MortgageBelt | 27th Dec 21, 8:19pm 1640589551

The current govt is not interested in encouraging individual responsibility & reward. This govt is focussed on dismantling small business and their owners through lockdowns and mandates so KiwiSaver contributions for business owners will be the last thing on their mind.

This Govt would prefer to bump up Super payments and means test it for those with assets over 500k then they can take care of everyone.

The aim is to make all NZers beneficiaries - jobseekers, Super-annuitants, govt employees, media grants, business/job COVID grants, UBIs, etc. Remove all business owners & self-employed and the govt will take care of everyone so no need to worry about retirement income.

by EdwardD | 28th Dec 21, 9:05am 1640635500

I totally agree with your comments. Sadly, it has taken me awhile to reach this point. All encouragement to get ahead is being deminished.

by fortunr | 28th Dec 21, 10:09am 1640639344

I agree 100% with your comment. We need a complete change of direction, and urgently. The current Government has no clue when it comes to running a business, personal accountability, entrepreneurship and the real economy. Well, it could have been worse: a Government with the Greens in charge of the economic portfolios - that would have created more damage than the last 2 years of Covid combined.

by AndrewRiddell5886 | 29th Dec 21, 6:24am 1640712266

Government decision making is then lets have a lockdown so we can destroy initiative and small business. No public health driver.

Yeah, right.

by JohnTrz | 28th Dec 21, 7:31am 1640629907

I agree entirely that employers should be required to contribute to every employee's KiwiSaver, regardless of the employee's age and whether the employee contributes or not. However, I think the Government should not make any contribution to a person's KiwiSaver, neither the former $1000 kickstart that Susan St John would like restored, nor the $520 a year now given to under-65s who contribute twice that, nor the greater amounts (I think of up to $2080 a year) that some have begun to advocate as a government subsidy. (These state subsidies amounted to $891 million in the year ended March 2021, money that would have been better invested in the NZ Superannuation Fund for the future payment of equal state pensions to all.)

No matter what fiddling is done with KiwiSaver, it can never fairly provide for everyone's retirement, precisely because it is dependent on contributions, usually from worked-for income, and that, as Susan St John notes, will tend to discriminate against those who are not able-bodied NZ European males who work and contribute from the age of 20 till 65.

The real solutions to averting poverty in retirement lie elsewhere. Chief among them is the work Susan St John and Claire Dale have done in their proposals to reform NZ Superannuation. In their paper NZ Superannuation as a Basic Income 2021 they propose paying every superannuitant, whether married or not, a nontaxable fortnightly benefit, but taxing all other income at a higher rate than the income tax rates now (for instance, a 20% tax on the first $20,000 of other income, and 45% on everything above that). This would be easy to administer, and discourage people over 65 with high incomes from applying for NZ Super, which would be a huge saving to the country.

Where the St John-Dale proposal falters is the amount of the benefit, and the extent of the taxation. With house prices rising spectacularly, more and more people will never be able to afford their own home, or if they do manage to buy one, to have paid off their mortgage by the time they retire. The benefit, therefore, to be a true 'universal' benefit, must cover all the no-frills costs of living including rent, say a nontaxable $600 or $700 a week per person. To balance this, taxable income needs to include the presumed income or gain of all assets, including the rent saved by homeowners living in their own dwelling.

The Government's dollars should be going not to subsidising the savings of those who can save, but to the provision of an adequate universal pension to ensure a dignified retirement for women, Maori, Pasifika, the disabled, and all others less likely to enjoy a near-half-century of well-paid work that allows them to retire with their own home, and the same amount again tucked away in KiwiSaver.

by Brock Landers | 27th Dec 21, 8:40pm 1640590813

There is precisely zero chance of reforming the problems with super until the cohort of boomers have safely received theirs.

As we have seen throughout history with education, housing, etc... the ladder will be kicked away shortly afterwards.

If you are 45 or under you you can expect to wait until the age of 70 or more and it will most certainly be means tested by then.

New Zealand would be a much better place if we could stop infantilising various groups of people.

We are all New Zealanders.

by Gen X-ploited | 28th Dec 21, 1:41am 1640608896

Every home owning kiwi is changing into a gollum like creature that sits there clutching their precious front door keys. They look at renters and poor people and feel the smugness of being 'on top' of someone else. The greed is a sickness and this nation is turning into a community of boring twisted selfish poor people who think they are rich sitting at home refreshing homes.co.nz and waiting for the latest CV values to come out. Funny how the millionaires all drive 1998 carollas? When did NZ turn from a community minded free spirited friendly place to this mess we have now?

by Halfway To Paradise | 28th Dec 21, 8:04am 1640631883

If you read The Millionaire Next Door by Thomas J. Stanley you would know why they drive 1998 Corolla’s.

by Gen X-ploited | 28th Dec 21, 11:16am 1640643411

Yes, I am sure they have all read that book and are genius investors. It's obviously not that their mortgages are too high and the costs of living is too high and they are struggling financially.

by Carlos67 | 28th Dec 21, 3:26pm 1640658365

1990 Toyota and still got it parked in the garage. The money went elsewhere and you only get one guess into what.

by Halfway To Paradise | 28th Dec 21, 4:50pm 1640663416

Smokes and women?

by tomjones_04 | 28th Dec 21, 5:51pm 1640667096

Butt plugs?

by Uninterested | 28th Dec 21, 6:16pm 1640668576

Daniel Boon raccoon skin hat?

by Gen X-ploited | 28th Dec 21, 10:28pm 1640683720

A mirror.

by Susan St John | 28th Dec 21, 10:46am 1640641616

Thoughtful comments here and agree that the suggestions modify but do not solve the problem of the workbased focus of KiwiSaver. I think that diverting the subsidy money to NZ Super fund is misguided however as the fund does not ensure the futue of NZSuper in its current form

PC 2021-2 New-Zealand-SuperFund.pdf (auckland.ac.nz)

by JohnTrz | 28th Dec 21, 2:19pm 1640654349

That paper argues well against the NZ Superannuation Fund. I still don't think the state should be spending $891 million a year subsidising the KiwiSaver accounts of those who are able to save, separating them further from those who need to spend every dollar just to survive. Rather, that money should be spent now on health, and education, and social welfare, to better enable people to work and survive to enjoy a healthy retirement.

by Uninterested | 28th Dec 21, 6:17pm 1640668662

The govt contribution to kiwisaver now is very low.

by GV 27 | 29th Dec 21, 7:53am 1640717593

"including the rent saved by homeowners living in their own dwelling."

Cool, can I offset against that the huge amount of interest it's costing me to own it? Because there's a fair few years of imputed rent before that risk that I've taken off is offset by deemed income, especially given the size of a mortgage compared to incomes.

by speckles | 28th Dec 21, 6:07am 1640624845

Some good points however still a myopic view of the entire picture. Interesting some desperate comments coming through from certain posters, on various topics, highlights mental health is an issue more coming into play, those working 40 years are usually trading more than their time today..also risking their health with the constant stress involved.

by Susan St John | 28th Dec 21, 10:49am 1640641775

Agree- the old model is not good for the mental health of many of its victims-- we need a new fresh approach that makes men's lives more like women's with a sharing of the paid and unpaid work.

by Brock Landers | 28th Dec 21, 11:30am 1640644256

If we are going down the inequality of the sexes route we should start with the 3-4 years of lower life expectancy that men suffer.

by streetwise | 28th Dec 21, 6:38pm 1640669927

Susan

How do your 'artificially-contrived models' for society square-up with your university colleague, Brian Boyd's 'tooth and claw' evolutionary theories which he incorporates into his literary theories. (Admittedly he does include the necessity of altruism to make cooperation work for the betterment of society, but he makes clear that, say, mental illness is just something that happens and that's the end of it; no more can be said or done about it.)

New Zealand must be surely one of the most democratic societies in the world but I think it was the renowned American black philosopher, Thomas Sowell, who said that even democracy comes up against the fact that 20 to 30 % of any population are made up of nutters, morons, and ar*e-holes which we have seen demonstrated in our Covid crisis. (Buy nutters I don't include those with a genuine mental illness, but only those who are perversely uncooperative for whatever specious reason.) This situation must surely weigh heavily against the practical realization of any artificially constructed economic theory put forward by any economist such as yourself.

by mangoes_for_me | 29th Dec 21, 3:53pm 1640746383

Yep, Sowell was thinking. And to add to that half the population has a below average IQ by definition which means his 20-30% is the base to which must be added those who are outside that cohort but who nevertheless are likely not to be able to successfully plan or fund their retirement in financial terms. And that is likely exactly what we see in NZ today.

Nothing bad as such, just the reality of the numbers.

by Brutus Iscariot | 28th Dec 21, 10:40pm 1640684426

We might well, but it's not the job of a technocrat to dictate that.

What happens in a household is that household's business. Unless you are suggesting there is violence or coercion in a household, an economist has no special authority to comment on any aspect of a domestic arrangement. If such statistical anomalies such as quoted exist, they're the product of the collective set of individual decisions made by consenting couples. It's not imposed by government or anybody else.

You might as well be opining on the sexual habits of married couples and suggesting governmental reform to address.

by GV 27 | 29th Dec 21, 7:40am 1640716816

Yep, the idea that once a bloke leaves uni he works until he dies is terrifyingly regressive, but something that we're apparently to be thankful for? No wonder so many men struggle with mental health and the middle class grind.

by Let me be Frank | 28th Dec 21, 8:00am 1640631643

Aside from the obvious support for real estate/share prices, is Kiwisaver in effect a de facto sovereign wealth fund?

Those in most need of superanuation in their later years are as noted those least able to benefit from the scheme....and all retirement discussion (or lack of) continues to assume an ever increasing ability to work ad infinitum (a white collar/academic perspective).....some real world thinking needs to be applied,

by KH | 28th Dec 21, 3:53pm 1640660012

# Make it universal.

# Step upcontributions to 16%

# Cease government incentives.

# Don't tax it at all.

# In about thirty years it can replace super.

# For those on benefits, lift rates so they can pay their contributions.

# No withdrawals with one exception. House ownership. No holidays.

It's a mindshift. Take NZers from a nation of borrowers to a nation of owners.

by dictator | 28th Dec 21, 9:02am 1640635364

If someone is on the second highest tax bracket at 33% they have 12% student loan repayment and 16% kiwisaver contribution that means 33+12+16 = 61% of their income gone before they receive their net pay. People would be better off leaving NZ so that they could afford to pay their rent (they may want to pay bills and buy food too).

by redcows1 | 28th Dec 21, 9:16am 1640636184

No, that would be 61% of anything above $70,000. Having paid about 25% on the first dollar.

by Susan St John | 28th Dec 21, 10:53am 1640641985

NO the effective marginal tax rate problem does not begin at 70,000. A sole parent with a student loan is taxed at 12% above 20,000 and above 48,000, when Working for Families abates faces an EMTR of at least 30+12+27+ ACC= 70%

by redcows1 | 28th Dec 21, 12:06pm 1640646411

No disagreement on that, marginal rates sux. But that's not what dictator said.

by GV 27 | 29th Dec 21, 7:31am 1640716286

Agreed, there's only so many compulsory taxes and levies that people can sustain on their income before their net income becomes impossible to survive on. Huge, mandatory KS rates on top of SL repayments AND proposed unemployment insurance would probably see many paying their marginal rate AGAIN in extras, and all of this in a low-wage, high-cost economy. If live was cheap enough for this to be viable then we wouldn't be in this mess in the first place, but it isn't and we are.

by KH | 2nd Jan 22, 8:20am 1641064814

You would not be happy then dictator to be in Switzerland where my friend has nine compulsory deductions from his pay.

Tax, health, accident, unemployment, welfare, retirement etcetc.

The upside of course is you don't need to pay these things through slushfund taxing.

by Dick Mortensen | 28th Dec 21, 6:09pm 1640668192

I think you mean, leave government out of it.

by pacifica | 1st Jan 22, 11:59pm 1641034788

Fun fact many, indeed most of women with disabilities do not receive an income or income benefit. So 16% of zero is still zero. I had a friend who was blind and had income support cut completely because they had started dating another friend. Neither shared housing but the implication was it was ok in the governments eyes to completely make the disabled person destitute and homeless for even thinking they had the right to seek emotional contact with another human. Most of those with disabilities do not have access to work income and often do not have access to accessible housing, are frequently denied transport access and have to forgo urgent and necessary medical appointments because they cannot afford them. Over 48% of disabled youth do not have access to education, employment or training (NEET rates). You would need to completely reform the entire system of support for people with disabilities and allow them all the opportunity for work before you can force a 16% tax cut on benefit rates (which for many would put them in debt before they even had a cent of actual income; here we see the problem with assuming a benefit available to all those disabled unable or denied work, and the problem assuming a benefit is enough to live on or indeed comparable to minimum wage).

by murray86 | 28th Dec 21, 9:23am 1640636608

There are so many flaws in Ms St John's points here it find it very frustrating.

Firstly she says that soon we will see boomers reaching 85 years of age. no mention that many of them will never see that age, and many more will be dying soon after. This perspective alone suggests that this is in this respect, an anti-boomer diatribe. She also fails to mention that with increasing numbers of boomers falling off their perches, they are not being replaced with the same or more later generations.

She also has failed in this article, as she does with most of her other ones, to identify that the failure of NZ's super schemes is primarily due to politicians meddling with it. In the first instance she fails to identify that for generations our politicians told us that we need not concern ourselves about retirement as the Government would ensure we were adequately cared for, but that later generations of politicians have systematically reneged on those promises. It is very much a parallel to the Treaty of Waitangi failures, where Government promises are made and then tacitly ignored, over turned and the people bluntly betrayed.

She fails to identify the flaws of the free market economy that has meant that in the 70's households had a reasonable standard of living with one bread winner, to today where many with two earners are still struggling. Part of an overall scheme to drive down living standards.

And finally her suggestions for improvement are ignoring the structural issues underlying these issues so much that she doesn't realise they won't work, without a dramatic change in policy direction.

by lastlegs | 28th Dec 21, 10:32am 1640640722

yes,and life expectancy in 1946 was around 71 years,so if there are so many 75 year old boomers around collecting super then likely the majority of them werent born in the dominion of new zealand.crafty ones jumped the queue and came in their late 40s when their kids were ready for a university education so maybe susan could target that group as they contributed very little in taxes for what they extracted.

by Palmtree08 | 28th Dec 21, 11:31am 1640644281

"Firstly she says that soon we will see boomers reaching 85 years of age. no mention that many of them will never see that age, and many more will be dying soon after." True that. More than half will be dead by then. At least as they go, they can be happy they are making the books look better.

by Carlos67 | 28th Dec 21, 3:32pm 1640658750

True considering are not half of all men dead by the age of 78 ? not that many will reach the age of 85, probably like 30% or less. If your lucky enough to get to the age your receive the super you deserve it.

by kiwiana02 | 28th Dec 21, 10:32pm 1640683945

Superannuants are wellcared for, compared to other beneficiaries like disabled or unemployed people. There is very little poverty among pensioners who own their own homes. A single person gets about $ 430 per week after tax in an inflation adjusted pension. They are eligible for accommodation supplement. There is a $20 per week winter top up for power. Those living in cities with pt enjoy free public transport. While the pension is subject to income tax, they do not lose their pension if they continue to work or have other income.

by Palmtree08 | 28th Dec 21, 11:19am 1640643575

"this cohort born after World War 2 will swell the ranks of those whose healthcare needs are high including the need for expensive long-term care." Expensive? Well yes, possibly. But remind me again how this money disappears, never to be seen again? I would have thought it would remain in circulation through taxes/wages paid by the care/medical industry?

by pacifica | 1st Jan 22, 11:42pm 1641033770

Say it with me now : Consultancy and third party service provider "fees". Just look at the rort of the homecare nursing system where most the money magically disappears overseas, never to be seen by the staff and nursing workers often referred to as "contractors". The over 65 carer support system is a rort that the staff often are so underpaid they cannot even afford housing for themselves in a group rental bording scenario when working over 60hrs/week

by ddporter | 28th Dec 21, 4:19pm 1640661573

Sadly various National governments have, been playing with the settings of Kiwisaver, it was be an employer contribution of 4%, the Key government STOPPED this from happening and yes TAXED some of the contributions.

Australia has a far better retirement saving system than us, when Covid finishes, there will be a large number of young people leaving NZ in there droves, they feel there is NO future here. This Labour government has seen to that. Hopefully a NEW Government with Luxton, will be elected and may reverse some of this. He has much business experience, however it will take a while to fix the problems this present government has created.

by GV 27 | 29th Dec 21, 7:36am 1640716580

Where do you think an employer contribution comes from? It's just deferred wage increases that employees never actually get - it's not something that employers dip into their own pocket to actually pay. You just get less in your actual pay because an employer factors that cost into hiring you in the first place. If anything, given the government's relentless taxation of inflation AND contributions as they are earned, not when they are paid out, that 3% should be coming from them.

by stacking_cheddar | 29th Dec 21, 5:21pm 1640751713

Don't underestimate the power of collective bargaining in Australia. This year, my workplace will pay 17% employer contributions to super, a 1.7% annual pay increase and a yet to be negotiated, inflation adjusted cost of living salary adjustment of a couple of % points. Does my employer want to pay any of these? They most certainly do not. But our sector is unionised and the bargaining over new collective agreements is fierce.

by GV 27 | 30th Dec 21, 10:24am 1640813063

I'm not underestimating it in Australia. It's just not that relevant to NZ.

by EpsomArtsandCrafts | 29th Dec 21, 2:28pm 1640741331

Australia Super is like a Tesla and NZ Kiwisaver is like a Toyota

10% v 3% employer contributions

Actually call it 12% v 2% (explanation #1 below)

Tax is EET in Aus which is awesome v our TTE which sucks so much out before its paid out - (explanation #2)

#1 Australia employer contributions will move to 12% in 2025 without tax at source whereas New Zealand has our miniature 3% employer contribution less a contribution tax (ESCT) of 30% if earning over $48K or 33% if earning over $70K essentially taking it down to approx a 2% contribution percentage

#2 Most countries in the OECD have an Exempt, Exempt Tax (EET) system on contributions/returns/payout but the Finance minister in NZ at the time went for a Tax, Tax, Exempt option which is way worse for the individual but gave the govt some short term tax take even though the long term tax take for the govt would have been the same.

I suppose the tax treatment might be locked in? or is it?

We need to be more ambitious as individuals and a govt with contributions % and taking retirement savings seriously

Susan I know you have been in working groups and published useful info about kiwisaver so might have some more info on these points - or perhaps a follow up article?

Why is there never any comparison to super in Australia - are we too self-focused as a nation or are commentators too embarrassed for NZ to try and compare the two?

https://www2.deloitte.com/nz/en/pages/tax-working-group/articles/taxati…

https://www.industrysuper.com/understand-super/super-basics/compulsory-…

by stacking_cheddar | 29th Dec 21, 5:26pm 1640751961

If Australia Super is like a Tesla, NZ Kiwisaver is more like one of those Wellington busses that cost you $3.60 for a ticket, clip an extra $3.60 in subsidies from your rates via the city council, and still never seem to turn up.

by Wrong John | 29th Dec 21, 5:25pm 1640751931

To my knowledge Kiwisavers haven't started paying out yet. When does it start?

by pacifica | 1st Jan 22, 11:56pm 1641034594

A looong time ago. Many people retired and got their payments in the previous decade. Look up some of the articles even dedicated to how people are spending their Kiwisaver (often spending it in a short space of time while expecting to also still fully take the pension and still receive wages). You only need to have contributed to it for 5 years before withdrawal but a lot of people were forced to join before 2016, (KS inception around mid 2007) and retired long ago.

by David Murray1 | 30th Dec 21, 4:39pm 1640835595

Is the Employer Contribution considered to be income for the employee and taxed as income? Or is it Fringe Benefit Tax, and taxed for that? Or is it taxable in some other way?

How much of that 3% is supposed to be being deposited by the employer into the employee's Kiwisaver?

by GV 27 | 30th Dec 21, 4:52pm 1640836355

Employer contributions attract ESCT. Businesses pay it as part of your DED obligations.

by pacifica | 1st Jan 22, 11:50pm 1641034253

If you want the easy solution to calc the amount of tax required around KS you get a xero account to do the bulk of payroll and use the ird site to double check and pay it a few days after filing. However still waiting on the IRD site to become more usable and accessible than a brick you have to keep banging your head on.

by kevin@insuranc… | 31st Dec 21, 11:25am 1640903134