OnPoint: KiwiSaver's dirty secrets - revealed!
70 Responses
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I've been snatching time to look into the salary sacrifice thing, and I can't make it work any differently than for any other super scheme. Your employer can make as large a contribution as they want, but that is subject to Specified Superannuation Contribution Witholding Tax above the lesser of 4% and your contribution. You can still get the company to put in more money for you and save on the marginal tax rate, but that is neither kiwisaver specific nor new.
If you cannot afford the reduction in take-home pay required to contribute 4% then you can always ask your employer to increase your salary by 2% and make occassional contributions to that amount which your employer then matches. The employer is somewhat exposed to your accidentally starting to pay up to the 4%, of course.
Your employer used to be able to pay your side of the contribution as well, but that can no longer count towards the 4% minimum from 2008. There are transitional arrangements involved with that which might give you some short-term advantage, and of course you can get ahead on the SSCWT exemption between July 1 and whenever the full 4% becomes factored into your salary (presumably 2011).
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Yes. Whatever he'll be seen to have got wrong, I think Cullen will be remembered for having the nerve to address both our savings and retirement issues.
Russell:
With all due respect, you address envelopes and crowds. It would have been nice to have a little more intelligent discussion about this -- and kudos to Keith for his contribution -- but I think this is a little too important to be handing out gold stars for a good try, especially when Cullen's stock response to any concerns seem to be to wave his hankie and murmer 'poo poo'. Having said that, I'd really like Key and English to stop playing Cullen's spin game - of course they're not going to write and release their policy eighteen months from the election you fricking idgits, and Mike and Helen know why - and start leading that debate.
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With all due respect, you address envelopes and crowds.
Que?
It would have been nice to have a little more intelligent discussion about this -- and kudos to Keith for his contribution -- but I think this is a little too important to be handing out gold stars for a good try, especially when Cullen's stock response to any concerns seem to be to wave his hankie and murmer 'poo poo'. Having said that, I'd really like Key and English to stop playing Cullen's spin game - of course they're not going to write and release their policy eighteen months from the election you fricking idgits, and Mike and Helen know why - and start leading that debate.
I'm not calling it a "good try", I'm calling it an era-defining achievement to have actually done something concrete about our problems with savings and the looming retirement bubble. I think it has taken political courage to do it.
Jeez, even today's Herald editorial is actually saying much the same.
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Sorry Keith, Rich of Observationz is right here - to assume a priori that Kiwisaver will drive wages down is the good old fashioned determinism that makes everyone else laught at economists and econometricians.
Wage and salary growth is far more contingent than you allow for.
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"Jeez, even today's Herald editorial is actually saying much the same."
Shouldn't you be worried then?
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Sorry Keith, Rich of Observationz is right here - to assume a priori that Kiwisaver will drive wages down is the good old fashioned determinism that makes everyone else laught at economists and econometricians.
Yes, If I am on the lookout for a new job and have two offers of about the same money, an employer with a more generous approach to Kiwisaver (or some other super scheme) has a competitive advantage. If my current employer's Kiwisaver offering is poor, there is nothing stopping me looking for another job and using Kiwisaver as one of the determining factors.
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Actually, seeing there is a skills shortage and full employment, now is the perfect time to introduce such a scheme with as minor an impact on wages as possible.
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Umm, I'm on a pretty good wage and my annual performance/salary negotiation meeting is coming up next month. Our CEO has already advised those of us in the senior management team that he'll be contributing 4% for us and that this will most definitely be taken into account in any salary discussions we will have with him next month. I'm unsure how this will not affect my wages when I can kiss that 4% goodbye for the next 35+ years
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no worries Milly, in 5 years you can pull it all out and buy your first home for $300k ($400k if you live in Auckland). And you'll have a $5k contribution from the Government too, so stop complainin' Hosannah!
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The graph is comparing saver vs tax is inaccurate as it compares a voluntary scheme with a mandatory tax reduction.
Particularly the bottom end of the graph is likely to be quite meaningless in the real world. Those on low wages are less likely to be able to reduce their existing budgets by 5% (minimum reduction in take home pay) to afford KiwiSaver. The opt out rate amoung low wage earners will be much higher.
It appears that this scheme is primarily a vote catching ploy aimed at the $40,000 to $70,000 bracket that benefit more under it than the tax cuts and are likely to be able to afford the cut in take home pay with minimal sacrifice. It could have been so much better - if the KS had been introduced in parallel with a substantial cut in the lowest tax rate it might well have added an impetus for lower incomes to join the scheme.
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Yeah Angus, I've always wondered why in the ongoing frenzy for tax cuts no-one has talked about mirroring Australia and making the first $5-$10k of income untaxed, thus giving everyone a tax cut and especially helping out the poorest of the poor.
I guess Cullen or someone important at Treasury must really be against the idea for some reason...
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Managed to catch one of Gareth Morgan's seminars recently in which he gave his opinion on both what seems likely to occur in broad terms to the NZ economy in the coming years and specifically Kiwisaver.
Whilst Gareth more than most knows the importance of investing for the future, he was scathing about the number of sharks in superannuation game and the lack of foresight in not attempting to sort things out before channeling massive volumes of cash towards this industry. In Gareth's opinion Kiwisaver is little more than a political football being kicked around for brownie points.
With regards to inflation expect that post election steps will be taken to bring inflation under control in a way that won't be tolerated prior to an election (true the Reserve Bank is supposed to be free from government influence, but I can't see the government implementing policy that will soften the blow post election). Interest rates are sure to rise and it seems to me that anyone with skills will be forced to look for an income that will help them meet their financial commitments. To me this means either trade up your current role, head offshore where pay rates are better, or lose your mortgage/millstone.
With regards to wage rates in NZ, we seem to be lagging behind the rest of the world already. Enough's enough around slowing inflation by stopping inflationary pressures due to rising wages.
All the growth due to the property value is massively inflationary. If wages don't catch up then there are uncertain times ahead.
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Now we can lead the world in deflating wages and salaries... and upskill to manual labour in alleys to make up for it. Excellent.
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mirroring Australia and making the first $5-$10k of income untaxed
For anyone with kids, tax is negative up to a much higher level than this. Working for Families benefits more than outweigh tax.
This is a big propaganda own goal though, because few understand WfF and the headline tax rates are what's quoted. If our tax system were aligned to Australia (medicare levies, state witholding tax, compulsory super levy) then each corresponding rate would be massively lower (at the price of a system more complicated, bureaucratic and unfair).
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Now we can lead the world in deflating wages and salaries... and upskill to manual labour in alleys to make up for it. Excellent.
For someone who reports on IT you sure miss a lot, Juha. Is it an Auckland thing?
Can you show me clearly how you have arrived at this pithy conclusion?
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Yes, Don, it's an Auckland thing called "humour". We have to have it here to cope with the traffic and insane house prices, etc.
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I've always wondered why in the ongoing frenzy for tax cuts no-one has talked about mirroring Australia and making the first $5-$10k of income untaxed, thus giving everyone a tax cut and especially helping out the poorest of the poor
I think there was some commentary about this prior to the last election and the tax cut thing then. I think doing that, or any sort of meddling with the bottom tax threshold was going to cost waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaay more than the planned tax cuts, or anything else. Tonight, I can't be bothered googling for the answer...
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don christie. Cullen has benefited from a global boom. His policies have caused the decline in productivity growth from a positive growth in growth trend 93 to 2000 to almost no productivity growth in last recorded numbers.
He has also been responsible for the decline in the average real income of New zealanders in the most recent recorded year. Total NZ economy has grown but foriegners have taken an increasing share of it through interest and dividends.
Real National Income per capita has declined. by more than 1% with nothing to suggest things will change for the better
That is by my definition ignorant economics. An overly cautious policy that has stunted growth.
FWIW I support the establishment of this de facto compulsory private superannuation. It is just overly generous at the top end. That would seem to be a deliberate decision by Cullen to try to ensure that National do not destroy his legacy. It is a shame that he could not have approached it in a more open and collegial way rather than presenting a fait accompli. Just more of his arrogance and ignorance.
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Whilst Gareth more than most knows the importance of investing for the future, he was scathing about the number of sharks in superannuation game and the lack of foresight in not attempting to sort things out before channeling massive volumes of cash towards this industry.
He wrote a 3 piece article for the NBR a few months back that was immensely scathing, detailing how Insurance/Superannuation companies take your premiums/contributions and funnel the money out of 'your' account and into 'theirs'. It's all in the fees and performance bonuses they award themselves.
What spooks me about Kiwisaver (a concept I agree with in principle) is how it really does hand your money over to private institutions and lock it in (to their coffers) for a verrrry long time. I pity the fool who puts their money in the wrong fund because it will be many years before you find out. As I've noted previously, these guys are very slick at making it seem they're performing brilliantly when in fact they're not. -
Nobody Important:
Well, as far as I can tell, Cullen's response is "well, there is no investment that is totally risk-free and anyone who tells you differently is a damn liar". Which is perfectly true -- just as there's a real distinction between saying an operation or a medication regime has very low risks and none at all - but we don't actually live in a totally unregulated investment market, and I don't think Cullen can just say 'poo poo, trust me.'
In the end, everyone should remember that nobody should be making any investment decisions without independent advice, based on a conservative and realistic assessment of your own long-term fiscal situation (and remember there's no such thing as a 'one size fits all' superannuation fund), and careful consideration of the assumptions that are being brought to the table by all parties.
I'll concede that the politics of Kiwisaver are brilliant, but I hope people are going to look a little deeper before making decisions they're going to have to live with long after I'm fedethe only beings who care about me are the bacteria and and creepy-crawlies chowing down on my corpse.
I'd also throw this out for discussion: Does anyone really think, intentionally or not, there's going to be the political expectation that if enough KiwiSaver accounts go boink that the Government - of whatever partisan tint - is going to bail them out? I just don't see any future Finance Minister fronting up to an election year Grey Power conference and saying "Well, you roll the dice and sometimes it comes up snake eyes. Stuff happens, move on."
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Why would Cullen preface his request for trustiness so coprolalicly ?
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Sagenz... what the *hell* are you talking about?
[Cullen's] policies have caused the decline in productivity growth from a positive growth in growth trend 93 to 2000 to almost no productivity growth in last recorded numbers.
What last recorded numbers? *These* last recorded numbers?
He has also been responsible for the decline in the average real income of New zealanders in the most recent recorded year.
*What* decline in the average real income? *This* real income?
Real National Income per capita has declined. by more than 1% with nothing to suggest things will change for the better
"Real national income per capita" is not even a real statistic! Are you talking about GDP - a measure of productivity, GDP per capita - a measure of average productivity, or average income? When the hell has real income - or real productivity fallen by 1%? Over what period? Are you just pulling some monthly fluctuation out of context?
Look, Sagenz, everything you've said is flat out wrong. Where are you getting this stuff from? This is not the place to be extrapolating "trends" out of thin air. You know how I get worked up about these things.
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Yes, Don, it's an Auckland thing called "humour".
Relief. I was beginning to worry :-)
Just to follow up on Keith's response to sagenz, I also heard the other day that despite the high dollar, media hype and F&P moving some production offshore New Zealand is experiencing a manufacturing upturn. Right now there are a record number of people employed in manufacturing (and probably just about every other industry sector as well). Sorry, I should find a source to link to back up that claim but as I said it was just a short item in the news.
The stuff from Morgan is interesting, but he is also hardly a disinterested party. He is slagging off an entire industry with which he is directly competing. Wise he might be but independent he is not.
Craig, according to your first sentence Cullen is saying the opposite of 'poo poo, trust me.'. He would be agreeing with your advice to get independent advice. That is also my point about Morgan, he is not independent (although he may be very good).
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Why would Cullen preface his request for trustiness so coprolalicly ?
Just someone's way of coping with the traffic and insane house prices, etc?
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Real national income per capita" is not even a real statistic!
Gross National Income (GNI) = GDP plus income received from other countries (notably dividends and interest) less such income repatriated to other countries.
It can doubtless be adjusted for inflation. And population. Perhaps giving real national income per capita...
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