Shelley Hanna: Many benefits from KiwiSaver

QUESTION: I haven't joined KiwiSaver because I don't trust the Government. I'm 45 now and I think that when I get to 65 only those without KiwiSaver will get NZ Super. My friends tell me I'm missing out on all the benefits but I think I'll be the one laughing in 20 years' time. Who is right?

ANSWER: If you really don't trust the Government then I suggest you save as much as you can now for your retirement so that you don't have to rely solely on NZ Super (if it is still available) in 20 years' time.

The Government has to allocate all the money it receives in taxes to health, education, social benefits, infrastructure, oil spills, earthquake recovery and so on. Currently there's not enough, so it borrows $200-$380 million a week. Allowing the borrowing to continue (or get worse) will put us in the same boat as countries like Greece, ie broke. The baby boomer bulge is a big problem for the Government, as the number of retired folk getting NZ Super is going to increase exponentially over the next few years. Enter KiwiSaver.

KiwiSaver is designed to do more than just take pressure off the Government purse in 20 years' time. Australia has had compulsory superannuation since 1992, and their super funds are now worth over $1.6 trillion. Some of these savings are invested in Australia, providing huge benefits to the economy.

You also can't underestimate the confidence that individuals feel, knowing they have a hundred thousand or more in their retirement account. As balances have grown, the level of interest in investment markets has increased and financial literacy has improved.

Here in New Zealand, our KiwiSaver accounts amount to $10.5 billion, with 1.8 New Zealanders enrolled. The largest group are children, which brings the average balance down to $5500. KiwiSaver funds are expected to exceed $60 billion by 2022. Our KiwiSaver scheme has been going for a mere four years, so we are a long way behind Australia. But at least we have made a start.

You are not the first person who has said that they haven't joined KiwiSaver because they "don't trust the Government". But compared to any KiwiSaver commitment, you pay far more in tax to the Government - and get no say in how it is spent.

KiwiSaver involves a commitment of no more than 2 per cent of your salary. That would be $900 per year (if you are on a salary of $45,000) going into a savings account in your name, which will be topped up by around $450 by the Government and $900 by your employer. Compare that modest sum to the amount of tax someone on $45,000 pays to the Government - a hefty $6895 every year. Not to mention GST when we spend our after-tax income.

Investing in KiwiSaver does not require trust in the Government as the savings will be in your name. It is also one of the few ways taxpayers can get some of their tax back - the $1000 "kick start" and the annual tax credits of up to $521.

Perhaps it's time you took a closer look at KiwiSaver.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free by calling 8703838. The information in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.