Opinion: Kiwisaver — think about it

Matteo Di Maio / Images via CC

By Peter Carr

I am becoming increasingly concerned regarding the number of early withdrawals from the government’s Kiwisaver Scheme.

But first a background.

The right to some form of financial recompense for a lifetime of work was first enshrined in New Zealand in 1898. When the then government brought into law the Old-age Pensions Act. Richard John Seddon’s government created a world first as the initial country to provide pensions out of tax funds. Germany had earlier introduced a contributory scheme. This had the effect of supporting, through their latter years, New Zealand people who were not able to sufficiently provide for themselves.

Initially the quantum of government largess was minimal. It carried some strict rules. Firstly, the recipient had to be a New Zealand citizen. Annual income had to be less than £34 (about $6,400 today) and total property held had a ceiling value of £50 ($9,500). Applicants had to be over 65 and Chinese people were excluded. Further, the age criteria were harsh on many Maori whose births had not been formally registered.

Those who met the foregoing targets were granted an annual stipend of £18 ($3400 today).

Oh, yes, and the applicants had to have resided in this country for at least 25 years.

But it was a start, and from that moment on it became a political football the value of which never caught up with earnings reality – or more importantly, household spending reality.

In 1938 the situation was eased so that those at 60 years of age could apply if they met the means test rules, if not then it remained at 65 years. Then the referee blew his whistle, and the football began.

Enter the Third Labour Government which created a compulsory super scheme where employees and employers all chipped in four per cent to a new scheme.

Along came Rob Muldoon – the great protectionist – who abolished the Labour arrangement and in 1977 set up a universal (non-means tested) scheme that paid 80 per cent of the average age – to married people over 60. Between 1993 and 2001 the commencement age of eligibility was slowly increased to 65 years. National and New Zealand First tried to stitch a compulsory savings retirement scheme together in late 1996 but this was dumped with a large negative referendum indication by 92 per cent of voters.

And then we moved back to Labour who, under the 2001 guidance of Michael Cullen, the Kiwisaver scheme came into being – with a front-end kick-start gift of $1000 from the government, a scaled percentage choice of employee contribution with employers topping the fund up with three per cent of employees’ wage equivalents.

I will not dwell on what has happened since except to say this gave people choices as to how and where they placed their funds – including the degree of risk applicable to the funds employed. Since the banks have deteriorated into an earnings farce for their customers it is apparent Kiwisaver has something worthwhile to offer.

But the point of this lengthy piece of history surfaces regularly with the number of people – of the wrong age – who approach me to help them finalise withdrawals of their Kiwisaver money.

It is a great sadness that there is much short-term thinking out there. The funds are, if you choose the right supplier, doing very well in a market scenario that rides the waves of bear and bull to create an average growth that is meaningful, measurable and satisfying.

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