Claire Matthews: Why must politicians tinker with KiwiSaver?

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The announced policies from National, Labour and NZ First all seek to use KiwiSaver for non-retirement related purposes. Photo / 123RF
The announced policies from National, Labour and NZ First all seek to use KiwiSaver for non-retirement related purposes. Photo / 123RF

National has now joined the KiwiSaver policy party with an announcement of proposed changes to the scheme at their recent 2014 election campaign launch.

While it has limited itself to tinkering around the first home benefits available as part of KiwiSaver, it is still disappointing to see yet another party proposing changes.

What KiwiSaver really needs is to be left alone by the politicians and allowed to get on with its purpose of helping New Zealanders save for their retirement.

The first home benefits were included in the KiwiSaver scheme when it was launched to address the public's concerns that young people saving for their retirement would find it even more difficult to buy their first home. Home ownership continues to be seen as a Kiwi birthright, and National would argue that its policy enhances the assistance provided.

But in reality it will assist some, and make it more difficult for others.

Massey University's Claire Matthews.
Massey University's Claire Matthews.

National's policy assists first home buyers by allowing them to withdraw the accumulated member tax credits, as well as their own and their employer's contributions, providing more funds towards the home purchase. While this might be seen to be assisting home buyers, it is disadvantaging them in terms of their retirement savings.

One of the advantages of the existing scheme is that members who withdraw funds to purchase their first home are not sent back to square one in terms of retirement savings.

Some funds, in the form of the kick-start and the accumulated member tax credits, remain in their KiwiSaver account. Allowing the withdrawal of the member's own funds and their employer's contributions could be justified on the basis that it is 'their money' - but the member tax credits are not and should not be withdrawn.

Read more:
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Your Views on National's first-home policy

The other form of assistance comes with the doubling of the first home subsidy and lifting the house price caps for which the subsidy is available. However, the change to the subsidy will disadvantage some first home buyers because it is only available for the purchase of a new home and not for a pre-owned home.

Why should first home buyers be forced to buy a new home to get the subsidy? If a change to the subsidy is seen as desirable, an alternative that does not appear to have been considered is to offer a two-tier subsidy - leave the existing subsidy as it is for those wishing to buy an existing home, but offer the larger subsidy for those wishing to buy a new home.

Unfortunately National has fallen into the same trap as Labour in looking to use KiwiSaver for non-retirement related purposes. Helping home ownership can be seen as enhancing retirement, but this does not extend to a requirement that home ownership be started with a new home.

The proposed changes to the subsidy are to encourage the building of new homes, which is housing policy and financial policy and unrelated to retirement. There are doubts as to how effective the policy will be in terms of alleviating the issues in the housing market, including concerns it will exacerbate the issue of rising house prices.

Read more:
Inside Money: National messes KiwiSaver house rules
Inside Money: Keep KiwiSaver tidy - why it doesn't need messing with

KiwiSaver has been in place for seven years now. Politicians of all hues need to accept it is good for the country, and recognise that it is designed to help New Zealanders prepare for retirement and stop trying to use it to achieve other objectives. When it comes to KiwiSaver, the key message to all parties is they should stop messing with it.


KiwiSaver policy summary

The announced policies from National, Labour and NZ First all seek to use KiwiSaver for non-retirement related purposes:

• National's policy allows members to withdraw the accumulated member tax credits, as well as their own and their employer's contributions, providing more funds towards a home purchase. National's policy has the least impact because it only affects the first home buyer benefits, which are not available to all members.

• Labour's policy includes compulsory membership and increased contribution rates, which would enhance KiwiSaver, but this is more than offset by the proposal to vary the contribution rate as a monetary policy tool.

• NZ First's policy goes the furthest by allowing withdrawals for education and a home. This has the potential to significantly disadvantage members at retirement, especially if they fund both their own and other family members' education.

- NZ Herald

Dr Claire Matthews is a KiwiSaver expert from Massey University.

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