KiwiSaver was meant to increase financial literacy. One of the secondary hopes for our national retirement savings scheme was that it would make more people familiar with the 'whats' and 'hows' of investment and improve our financial capability.
And so it has: I think that people today are much better with things like selecting the right fund and getting their contribution rates right.
Sure, there are still plenty of examples of people managing their KiwiSavers poorly, but we are a lot better today than we were when KiwiSaver was first launched 12 years ago.
One issue that has received very little coverage until recently is KiwiSaver and tax. The IRD has sent letters to people who have been on the wrong "Prescribed Investor Rate". Some of these have been paying too much tax while others have not been paying enough and have received a bill.
The IRD thinks that there could be 450,000 people on the wrong rate, but it is possible that the final number could be a lot more than this.
It's hard to work out who we should feel more sorry for: the under-payers or the over-payers. The people who have not paid enough tax have received a bill for the tax that they should have paid last year. It is easy to feel sympathetic for these people because many are going to have to find a few hundred dollars from their own resources.
However, the IRD has said it is not going to look at under payment back beyond last year. In this respect those who have under-paid are very lucky because it is likely that many would have under paid for some years and their tax bill could easily have blown out to thousands of dollars.
Those who have over-paid get my greater sympathy. These will largely be people who need every dollar in their KiwiSaver accounts but they have robbed themselves because they had not been on the right rate.
Many of these over-payers will not have put in their Prescribed Investor Rate when they joined KiwiSaver and so will have been placed by default on the top rate of 28c. Had they put in the right rate, they might have been on the 10.5c or 17.5c rate and their KiwiSaver account balances would have been higher.
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That means that these people have paid more tax than they needed and, given that there is no refund, they will not see that money again.
In fact, I have sympathy for both the under-payers and the over-payers. The PIE regime that controls KiwiSaver and most other managed funds is complicated and, when it was enacted in 2007, there was very little public education about it. Even when KiwiSaver started in the same year, I remember only a little help for KiwiSavers to get their tax right.
There is plenty of information available regarding the PIE regime but at a glance none of it looks simple: there are algorithms swimming in an alphabet soup but not much explanation that makes it easy.
If a KiwiSaver is faced with the choice of spending the evening watching a movie or getting their KiwiSaver tax right, most would choose the former.
So, what's to be done from here? We could play the blame game: the IRD, KiwiSaver providers and KiwiSaver members would all be players in that game.
I do think that the letters that the IRD is currently sending will by itself help. Many recipients will contact their KiwiSaver providers and get on the right rate.
Beyond that, two things would be helpful: first, is a small legislative change to require employees to give their correct rates to their employer. The employer would then pass that on to the IRD as a part of the KiwiSaver process.
Second, a full-scale public education campaign, driven by the IRD and www.sorted.org.nz and buttressed by KiwiSaver providers, to explain KiwiSaver tax to people.
KiwiSaver has improved financial literacy but tax has not been a part of that conversation. With hundreds of thousands of people feeling the hurt, now would be a good time to put it at the centre of the discussion.
Martin Hawes is the Chair of the Summer Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statements is available on request and free of charge at www.martinhawes.com. This statement is general in nature and not personalised advice.