Q I have been in KiwiSaver since I started my current job five years ago. I have been pleased with the way it's growing, but it sounds like there's going to be some changes after the election. Why do they keep changing the rules?
A There is a public perception that "the Government keeps changing the rules".
I hear this most often from people who have not yet joined KiwiSaver, who use it as a reason not to join. Despite this perception of frequent change, KiwiSaver has changed very little since it started in July 2007.
KiwiSaver is governed by the KiwiSaver Act 2006 and changes are not made lightly. Arguably the biggest change since inception was the reduction of the annual Member Tax Credit from $1042 to $521 in 2011. If anything, that is a reason for people who have not yet joined to get a move on, so that they can at least get some Member Tax Credits while they are still on offer. For those aged 18 to 65, all you have to do is contribute $1042 into your account over the year, and the Government will top it up by $521. So far none of the political parties are threatening to reduce it further, so make the most of it while you can.
The other changes we have seen have been relatively minor. There was always an intention to gradually increase the rate of contributions, introduce employer contributions and help new home buyers with KiwiSaver. While some of the rules around the latter have changed the overriding principles have not.
It is unfortunate that politicians have been talking about proposed changes to the KiwiSaver scheme in their campaign for votes. It has been difficult for Kiwis to make long term financial plans, particularly in the aftermath of the global financial crisis. The best way to support and encourage confidence in KiwiSaver is make as few changes as possible to the scheme.
The Retirement Policy and Research Centre at the University of Auckland has done excellent work in the area of retirement policy. They believe saving and retirement income policies are too important to be tossed around in the lead up to an election. They should rather be the subject of a research-led debate after the election. According to a spokesperson: "New Zealanders deserve a full debate on all issues associated with the financial implications of an ageing population. KiwiSaver must be part of that debate, but cannot be seen as independent of the whole retirement income framework."
Although KiwiSaver has been going for over seven years, many people still don't know much about it. One misconception is it is one big fund managed by the Government, when in fact it is a savings account in your name run by one of several private fund managers. Another misconception is your KiwiSaver money will go to the Government when you die, when in fact it is an asset that you can leave to your next of kin in your will.
Changes proposed by National to KiwiSaver are mainly around the first home deposit subsidy. They propose doubling the subsidy if the money is for a new build rather than an existing dwelling and increasing the price cap in some areas. The first home deposit subsidy is one of the least understood areas of KiwiSaver and these changes are likely to add to the confusion.
Labour's KiwiSaver policy includes gradually raising the contribution level to 4.5 per cent for employers and 4.5 per cent for employees between now and 2021. They also propose making KiwiSaver compulsory for all but those on very low incomes. Labour expects this will help to curb inflationary pressures because people will have less disposable income. In addition, after 2021 they also plan to use the "variable contribution rate" to control inflation, rather than relying solely on interest rate hikes. This proposal has not been received with great enthusiasm as it turns our retirement savings scheme into a monetary planning tool, which was never the intention.
Dr Claire Matthews is Massey University's director of financial planning. In her opinion, "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."
• Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 870 3838. The information in this article is of a general nature. Send your KiwiSaver questions to email@example.com.