kiwisaver worth a punt?

[CJ]

quote:Originally posted by minimoke

CJ
You are supposed to be baffled by the numbers

good.

quote:Person A may not be really much worse off because they can’t buy the nice house. The socialist government has determined that KiwiSaver can’t be used to buy the nice house. The buyer has to buy the lower quartile house.

they can still take out their contributions and buy any house, they just wont get the government hand out.

quote:Additionally Person A shouldn’t be striving to improve themselves because if they start earning over $50,000 they run the risk of loosing all these housing benefits (The household income can’t exceed $100,000 for two people).

Again, the threashold is only for the government hand out. Say you put $1000 in a year for 5 years. Then you buy any house you want. You can take out your $5000 but because you earn too much or the house is two nice, you dont get the hand out. That is the same $5000 Person B has. However, Person A still has $6000 ($1000 initial plus government matching of the $1k pa). Not sure if employer contributions can be withdrawn but this goes into either the house money of the passive savings. Person A then goes on a contribution holiday. That seems to be better than Person B?? You have the same money for the house plus you have a retirement fund (small) where fees should hopefully be less than the annaul return.

[rmbbrave]

Michael Littlewood: Potential pitfalls of Kiwisaver

KiwiSaver appears too good to miss. Everyone who can afford to join should. KiwiSaver isn't just for employees. All under-65s should join, including children, beneficiaries, stay-at-home parents and even visiting Australians (they are entitled to work in New Zealand indefinitely).

All locals over 18 should contribute $20 a week, even if they aren't working, because that will be doubled by the tax credit. If they can't afford it, perhaps their spouse, parents or grandparents can.

So what could possibly be wrong with this rosy picture? Won't we all be better off in retirement and isn't that a good thing?

Like any major complex policy change, there are worrying unintended consequences.

One of these is policy instability. Even if a new government doesn't abolish it, KiwiSaver II will be changed. KiwiSaver I lasted 8 months. Perhaps KiwiSaver II will last less than 18 months. National isn't saying.

Policy instability also relates to unclear links between KiwiSaver and the problem it is supposed to solve. Is it a national or retirement saving problem? For retirement, the best data we have is that New Zealanders are generally saving enough.

Even if Kiwis weren't, Budget secrecy is no basis for such initiatives. It is simply unproven that the KiwiSaver changes will do anything but shift money from one pot into another. That's what overseas evidence suggests will happen.

The national saving problem is a different issue. Increasing saving to facilitate increased consumption in retirement will not reduce our overseas indebtedness, nor correct our propensity to spend more than we earn as nation.

There is a long list of further worries. First, borrowing to invest in KiwiSaver can now make sense. It's possible, in limited cases, to justify credit card loans to finance contributions. So, while KiwiSaver balances rise, we may also see rising household debt.

Anyone with a home can put the contributions on the mortgage. Suspending capital repayments to free up money is one way. After 12 months, they can also reduce mortgage payments further through the mortgage diversion scheme.

Students should think of using their interest-free loans to finance their contributions. And they will get most of it back soon enough to help pay for their first home.

The help for first home-buyers may have unintended consequences. Demand (and prices) for bottom quartile housing will go up and help intended for buyers will be partly captured by sellers. High valuations will be placed on chattels to slide the house price into the subsidised zone. Salary sacrifice arrangements may be used to lower pay (but not remuneration) to qualify for the Government's subsidy.

However, the biggest issue concerns New Zealand Superannuation's future. The Government says NZ Super will be unaffected. Really?

On reasonable assumptions, a KiwiSaver on the national average wage for 40 years will end up with about $320,000 in today's money. That's the annuity equivalent (for a male at 65) of about $22,000 a year after-tax for life (inflation-proofed). Of that, about 33 per cent has come from taxpayers. Using today's NZ Super, our KiwiSaver's total income will be $36,407 a year or 105 per cent of after-tax, pre-retirement pay.

Future governments could say taxpayers have helped pay for the KiwiSaver nest egg so why should the full NZ Super be paid?

Employers' contributions from April 1, 2008, are not more money. They will be part of employees' pay but locked up until age 65.

If employees' future incomes reflect KiwiSaver's compulsory, deferred pay, we will see a permanent reduction of 4 per cent in members' wages and that will affect the national average. NZ Super will rise less quickly (because the rate is based on the average wage) affecting all superannuitants, including the retired. Indirectly, they will help pay for KiwiSaver II by reducing NZ Super's future cost.

Tax incentives are distortionary, regressive, expensive and complex. But those are not

[Hommel]

The problem I have with Kiwisaver is locking up my money for at least another 21 years (until I'm 65) in a poor performing investment with high fees. I don't think the tax rebates are worth it.
I am in an employee super scheme at present and I'm certainly exploring my options but at present it's not clear to me what the best course is. Kiwisaver or not....

[Tok3n]

I have about 38 years of working life (till 65), so I think I'll join.

I've never used fund managers before (always been a DIY person), but yeah after researching, I see what you mean by "poor performing investment" lol.

[minimoke]

quote:Originally posted by Hommel

The problem I have with Kiwisaver is locking up my money for at least another 21 years (until I'm 65) in a poor performing investment with high fees. I don't think the tax rebates are worth it.
I am in an employee super scheme at present and I'm certainly exploring my options but at present it's not clear to me what the best course is. Kiwisaver or not....

Hommel
Your money is not locked in until you are 65 - it is locked in until the official retirement age (currently 65). By the time you reach 65 the retirement age will be 85!

And you probably have 18 months with a Labour govt to make up your mind because then you will be a KiwiSaver like it or not!

[CJ]

Has anyone actually seen an investment statement? the only one I have seen is Gareth Morgans.

You are meant to be investing starting 1 July aren't you??

[Halebop]

quote:Originally posted by CJ

You are meant to be investing starting 1 July aren't you??

New employees are automatically enrolled in Kiwisaver from 1 July but have a period where they can actively opt out (so essentially people will passively opt in - this more than anything else might determine Kiwisaver's success at attracting savers).

Existing employees can choose to opt in whenever they feel like and will not be automatically enrolled. I haven't read the fine print on this approach as to the consequences towards the "free" government contribution though.

[Cooper]

quote:Originally posted by minimoke

Hommel
Your money is not locked in until you are 65 - it is locked in until the official retirement age (currently 65). By the time you reach 65 the retirement age will be 85!

And you probably have 18 months with a Labour govt to make up your mind because then you will be a KiwiSaver like it or not!

Yeah, that's a genuine concern. Your savings are reliant on future regulation, which at the moment only looks likely to result in an increase in the working age.

My personal response is to have one kiwisaver scheme and one scheme which I can draw upon if I decide to retire early. I'm only going to put the minimum into Kiwisaver until these things become a little clearer.

[CJ]

quote:Originally posted by Halebop

quote:Originally posted by CJ

You are meant to be investing starting 1 July aren't you??

New employees are automatically enrolled in Kiwisaver from 1 July but have a period where they can actively opt out (so essentially people will passively opt in - this more than anything else might determine Kiwisaver's success at attracting savers).

Existing employees can choose to opt in whenever they feel like and will not be automatically enrolled. I haven't read the fine print on this approach as to the consequences towards the "free" government contribution though.

So what you are saying is that the funds have 8 days to get out an investment statement if they want employees to opt in? I think they are cutting it a bit fine.

[fundir]

My wife, who doesn't work in payed employment will be signing up and making voluntary contributions of $20pw which the government will match so she will be making a 100% return before the fund managers and fees kick in.

I already have my personal super which at worst I will suspend payments so that I can cash that in at 55 to fill the gap years. I will also probably sign up to kiwi saver as my employer is happy to let me do salary sacrifice to maximise the tax advantages. If combined with paying some back to the mortgage and suspending my existing super payments I could even end up with more cash in the hand each month, although I understand there is a 12 month delay on the mortgage payments and both the fund provider and mortgage provider have to agree to the mortgage payments component.