KEY POINTS:
Kiwisaver, the workplace retirement savings plan, is starting to gather traction. More than 381,000 people have signed up since the scheme began in July.
Finance Minister Michael Cullen says nearly 20 per cent of KiwiSavers are younger than 25 and more than 33,000 are teenagers.
He says that
is good news for the country's savings record. New Zealand was recently ranked 108 out of 131 countries for its national savings rate. "If that poor performance were to continue the consequences for our economy and living standards in retirement would be significant," he says.
Cullen says KiwiSaver will help address the imbalances in the economy, create a domestic pool of capital to help local businesses and lift living standards in retirement.
But the large take-up is starting to have a negative effect on corporate super schemes, most of which are more generous than KiwiSaver because of company contributions to the schemes.
They are dwindling away as companies appear to be dumping their own schemes in favour of the cheaper alternative.
Just last year, Hewlett-Packard announced it wanted to close down its workplace super scheme; 30 of its employees took out a personal grievance claim against HP and went to the employment relations tribunal.
Workers challenged the company shutting down the scheme without compensating them and questioned if company super scheme contributions were part of the terms of employment at the computer-maker.
The case ended in November when a confidential agreement was reached between HP and its staff.
The closing of company super schemes is a trend that started in the 1990s when legislation changed the way they operated, says Bruce Kerr, executive director of the Association Superannuation Funds of New Zealand.
ASFONZ, as it is known, is a national, not-for-profit organisation that represents the interests of employers who offer workplace super schemes.
Major banks are among the organisation's supporters.
Kerr said in the 1990s there were about 2000 workplace schemes, but, by last year, that figure was down to around 500.
"My prediction is that within five years there will be just 50 workplace super schemes available," he says. Kerr doesn't give KiwiSaver a glowing report, though.
"It is prescriptive in that it restricts people in the amount of money they can invest in the scheme," says Kerr.
"It also carries a lock-in of accumulated funds until the person gets to retiring age.
"But private schemes deliver the benefit to the employee when they leave the firm or a date that often precedes retirement."
In other words, if you want to retire at 50 and get a lump sum from your employer, KiwiSaver may not be the best option.
The Government wants you to carry on working until you are at least 65, not go fishing with a wad of cash in your back pocket.
This may be an issue for some people.
On one hand, the Government wants all hands to the pumps to help the country cope with the skills shortage.
But on the other, people aged 65 and over can't join KiwiSaver and benefit from its tax breaks.
That's the view of one reader, who said he was just over 65 when KiwiSaver was launched.
"All my workmates joined up and they get a KiwiSaver contribution from my employer," he said.
"But because I am not allowed to join, I get nothing extra - so I feel discriminated against."
David Kneebone, marketing manager for the Retirement Commission, says the primary purpose of KiwiSaver is to help younger workers save for their retirement.
"Anyone below the age of 65 can join," he says. But people can't contribute to it after they are 70.
"Joining the scheme after age 65 is not an issue we have focused on and it is not one we intend to [look at] at this point."
Kerr says the anomaly may be up for discussion by some KiwiSaver providers, but there are more pressing issues. One is how the banks can make money from your lump sum payment.
Kerr says that KiwiSaver is designed to deliver a lump sum at age 65 and not an ongoing payment.
"People do not spend their lump sum the day they get it. That is an area that providers will be addressing.
"It is an area that will be on the drawing board as KiwiSaver matures and we have people with their cash nest egg who do not want to manage it themselves."
Kerr says there are alternatives to KiwiSaver, including the country's favourite investment - property.
"New Zealanders have a love affair with housing stock," he says.
"And that has been even more popular during the past few years.
"But products like KiwiSaver, where people will accumulate wealth over their working life, are reasonable for most employees because you can join up and basically forget about it. KiwiSaver will be a good product over the long run.
"That said, we believe that people will make the choices that best suit them and our advice is that if you can afford to join KiwiSaver then you should.
"There isn't another scheme that is as tax favoured in this country."
Kneebone says his organisation is encouraging workers to look at all investment options.
"Many workplaces are operating several schemes, many offer more generous subsidies than KiwiSaver. They are giving their staff the opportunity to go in either scheme," he says.
"We are encouraging people to have a look around at not only what's on offer at work but elsewhere too. And then do the sums.
"KiwiSaver may be the default scheme but some workplaces offer far more generous schemes. It all depends on the employer's subsidy."
Kerr admits, though, that there will be some people who can't afford the 4 per cent of salary - the minimum that KiwiSaver requires.
And he warns that although KiwiSaver schemes are operated by large independent institutions, a government down the line could alter the playing field.
"The scheme isn't at the mercy of politicians per se," he says. "But what may be at the whim of the government of the day is the level of subsidy that's offered to savers and employers.
"And that's because there are three tiers of subsidy."
The first is the $1000 grant savers get on the day they join, then there is a matching contribution from the Government to savers of $1040 a year.
And after this April, once compulsory employer contributions come into place, employers will also get a tax subsidy of $1040 to offset the cost of compulsory contributions.
And all these, says Kerr, are at risk.
"Those three things may be subject to review should there be political change, on the basis of the sitting government being able to afford it. But the design of KiwiSaver is certainly at arm's length of the politicians."
* www.kiwisaver.govt.nz
* www.stevehart.co.nz
