Rants, Raves, Reviews


KiwiSaver its Dog Tucker

By Gary R, in , posted: 28-Mar-2007 10:34

Well I looked at the scheme long and hard. It just does not work for me. You see the government wants me to contribute either 4 or 8% of my gross salary to the fund. Ok that is fine, no problem there except that what they don't tell you is this:

The 4 or 8% comes off my gross salary but I still pay the same amount of tax. Now if I only paid tax on the gross after the 4 or 8% was deducted I would be interested as I would be paying less tax.

The KiwiSaver website has a lot of information about the scheme including a section called KiwiSaver - In or Out?

Which says this:

KiwiSaver suits different people at different times in their lives. It can be a good option if you're just getting into your career, or are older and want an easy way to save.

KiwiSaver may not be right for you if:

  • you would be better off repaying debt
  • you think your retirement income from NZ Super and other savings plans will be enough.
Well that is the kicker - KiwiSaver may not be right for you if you would be better paying off debt. Given the kiwi penchant for house buying and credit card spending I would guess then that KiwiSaver is 'not right' for most of the population because we would all be better off repaying debt.

In my case (as with most home 'owners') I can pay up to $10K per year off my mortgage even though I have a fixed rate. Any extra money I pay on my mortgage makes a huge difference at the other end when it comes to interest.

Now I also have a rental property with a long serving (6 year) tenant that is negative geared (LAQC) which means I get a tax rebate each year that I then apply to the mortgage. I am in it for the long haul and consider that even if my rental property doubles in value (capital gain) every 10-15 years I am sitting on a tidy retirement sum. Of course the government is considering changing the laws around capital gain on property and the practice of 'negative gearing' but I consider that I am still on a good wicket.

I am sure that there will be people who will benefit from KiwiSaver with the 'free' $1000 hand out from the government, the compulsory nature of saving, the odd benevolent employer who contributes to the scheme along side you, the mortgage diversion option and the first home help out. But seriously most of us would be better off paying off our credit cards and throwing all spare money at the mortgage.

That is why I say KiwiSaver is dog tucker and yet another little nanny state scheme.



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Comment by mule, on 28-Mar-2007 11:08

There is one interesting feature that you did not point out, that I made made aware of yesterday. It relates to the salary sacrifice provisions. Essentially if you want to put in 8%, you pay 4% of your gross salary (which is taxed) and you say to your employer I will sacrifice 4% of my salary, but can you pay that directly into kiwisaver. The 4% paid by your employer is tax free (essentially paid by you). I understand that this is totally legit and written into the rules, etc.


Comment by sbiddle, on 28-Mar-2007 11:09

I believe we should have compulsary superannuation but taxing this is just more greed from the government. They want us to save but will tax us for saving? Yet more double dipping..

One of the prime factors behind a housing boom is that it's been one of the most succesful ways of making money without having to pay 33% of it back to the government.


Author's note by Jama, on 28-Mar-2007 11:20

you are correct Mule about the salary sacrifice provisions. I should have also pointed this out.


Comment by inane, on 28-Mar-2007 12:36

I think the scheme they have in australia is much better.

they have a prescribed amount that you pay into your savings, and there is a legislated amount upto which your employer must meet,

(cant remember exact figures.)

there is some sort of tax thing that happens, but it basically works out that
You are investing in the government, so you earn interest etc.

and its legislated so you have to pay it, but the great thing is its percentage based, and most salary negotiations look like

eg, (random amount)

$45,656 P.A. + super.

so when your salary is negotiated, you negotiate what you get in your hand.

I'm totally sick of this nanny state.


Comment by antoniosk, on 28-Mar-2007 12:42

In the UK, contributions to pension are from the gross figure and you don't pay tax on it.

You do pay tax at the end when you buy an annuity, but that's fine - no tax for contributions, no tax while the fund builds up, only tax the end.

NZ is pretty unique for taxing you all the way through, which means your funds are always 1/3 less than they could be. Most annoying - and then you wonder why people try to dodge tax in this country.


Comment by Cranny, on 6-Jun-2007 09:44

With the new rules Kiwisaver has become a lot more inviting for the NZ'ers. With the tax credits for employee contributions of up to $1040, $40 annual fee subsidy and the compulsory employer contributions rising to 4% by 2011 it now becomes a different beast. With the mortgage diversion option after 12 months you can redirect 1/2 of your contributions back towards the mortgage but at the same time you are able to recieve your employer contributions into the account. This makes it more attractive for those who really want to pay off their mortgage before saving.

Many people will think they will save after they have paid off the mortgage, which is financially sound. But when will the mortgage be paid off? People always tend to do renovations or get a bigger house once they have paid off their mortgage. Most NZ'ers don't have the discipline to save once they have paid off their mortgage. By paying yourself first by setting up an agreed savings plan and living off the remainder it puts good saving principles into practice.

Doing it the other way round - I'll save what is left over - never works.

Interestingly a Survery of Older People in 2000 From Statistics of NZ showed that 20% of the population over 65 years had no other income other than the Nationa Super. And 52% had up to $5000 p.a. to spend plus the National Super. When you see that well over 10% of couples over 65 cancelled insurance because they need to economise you start to get worried.

For a couple currently NZ Super will provide $426 a week to live on - but this is not guaranteed to be around in the future,

It is all very well having paid off your mortgage but if you don't have any liquid savings you house isn't going to provide you an income - you are asset rich and cash poor.

SO WHAT IS KIWISAVER WORTH ?

Together with the existing Kiwisaver incentives such as tax-free employer contributions, the new benefits make Kiwisaver a very attractive way to save and will encourage many employees to opt in.


SIGNIFICANT BENEFITS OVER TIME

Thanks to the power of compounding interest, saving through Kiwisaver can be very worthwhile. The table shows the extra savings possible for an employee on $40,000 per year contributing 4% of salary. The figures shown include investment earnings over the 35 year period. Assuming 6 % pa returns net of tax and fees and assuming inflation at 2%.


GOVERNMENT MATCHING CONTRIBUTIONS
Under the new rules all Kiwisaver members will have their contributions matched by the government. These matching contributions will be made on a dollar-for-dollar basis, up to $20 per week ($1,040 per year) and are additional to the $1,000 that will be provided to kick-start each member's Kiwisaver account.

EMPLOYER MATCHING CONTRIBUTIONS
Employers will also be required to match their employees' Kiwisaver contributions, under an arrangement to be phased in over four years. The table shows how much employers will be required to contribute.


Comment by Cookie, on 17-Jun-2007 10:12

Thanks for all your comments. I am in the process of deciding wether or not kiwisaver is for me, 42 with wife and 4 kids to support and big mortgage doesn't leave me with 4% to put in. I wish that we could have started at 1% and worked our way up to 4% like the employers. I have also found that not all shecmes are equal and there is alot of confusion over the mortgage repayment option that i would take up. AMP on there website say they will not allow Mortgage diversion, but the advisers say that they are now recosidering this and will not charge for it. AXA will allow mortgage diversion, but wait they want to deduct 2.5 % of the amount transferred to do this, they say due to all the paperwork each week, But how much does it really cost to do a automatic transfer, next to nothing.The banks don't know if they will allow you too put that money from the kiwisaver into a mortgage yet as it is not going to be a problem for 12 months.

And then theres the membership fee, Tower is under $3 a month, AMP is $3 a month and AXA is over $3 a month.Why are they charging us membership fee and then add ther mangament fees on top. How many banks charge us a membership fee to invest our money? and the fact that after three years the providers can increase thier charges on the management fees is also a bit scary when once your in your bound in.

I quite like the schme as realistically i will not be able to ever afford a rental property as an investment but, but theres to many loopholes that really haven't been tightened. and the scheme will probably not realy now how it will run until the 12 months are up and the mortgage diversions start to see all the problems with it.



If the govt had made it compulsory, i suppose we would all coplain about interferece but when most of the country is debt burden like myself to provide for a better future for all our family, it make it hard to squeee more blood out of our stone, I mean wages.


Comment by anna webster, on 17-Sep-2007 17:33

Hey, I joined Kiwisaver in July, and the IRD have made a complete mess of things. First I get a letter full of typos saying they enrolled me in one scheme, then another letter saying another scheme and then they get my employer wrong, and after all this time they still haven't started taking anything out of my pay. Son then I ring them up saying I don't want to join anymore and they say I can't get out because they haven't got a first contribution from me and suggest I pay them $1 at the bank. So much for Kiwisaver - more like Kiwijoker


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Gary R
Wellington
New Zealand


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