Saturday, February 24, 2007

Kiwisaver - Take the money and run.

Its supposedly saving the economy by making us all good little savers but the governments new superannuation scheme offers little incentive to keep saving. When first signing up for the savings program you will be gifted $1000 to the saving account. I expect most people will sign up for as long as it take to get the $1000 credit and then stop.

For one there are no tax incentive for individuals to save into the kiwisaver program. Its 4% of your pretax salary and you still get taxed on that 4%.

Its also inflexible. Its 4% or 8% and thats it. Low income earners should be able to start with a lower amount and gradually build up to 4% and for middle income earners 5% maybe a better option. For me the difference between 4% saving and 8% saving is $74 or $148, while I cant afford $148 I can afford more that $74. So I have to sign up for a private super scheme if I want
to invest more. Or make the manual extra lump sum payments by writing a cheque to the IRD or making payments to my kiwisaver provider. It seems very redundant.

I can already get these savings products. The money from kiwisaver is going to be managed by AMP, ING, ASB and a few others. I can already save regular amounts with these companies and I can have more flexibility, I can put in exactly how much money I want.

Kiwisaver does make it easy for average people to save for retirement. Filling in a form at work is easier than the daunting task of picking a financial institution to invest with and setting up automatic payments and so on. However only new employees get signed up, if you are already employed you have to approach a kiwisaver provider yourself and then take a form to your work and get them to make the necessary deductions.

"All existing employees, including Government employees working overseas, can join KiwiSaver by contacting a KiwiSaver scheme provider directly. They will then need to ask their employer to start deductions at their chosen contribution rate."
I suppose $1000 is incentive enough to get off my arse and do that.

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