Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. His KiwiSaver has been with Milford Asset Management since 2014, when he finally switched from the Tower Asset Management default he’d been in for several years.
You can’t blame finance minister Nicola Willis for raiding the KiwiSaver cookie jar to try to balance her books.
Cutting the government’s contribution in half for most KiwiSavers and dropping it altogether for the people we now dub rich – those earning more than $180,000 – is one of those easy line items that won’t immediately show up in people’s thinking.
And it gives her an extra $500 million or so a year to put in other areas as she shuffled the Treasury deck to magic up a forecast surplus by the June 2029 year.
It’s been a time-honoured tradition to go raiding future savings when you have pressing needs to meet from an agitated public, who are more beset by today’s woes than tomorrow’s. Her mentor, Bill English, was more than happy to do so when he had Treasury at his beck and call.
And the quid pro quo to the industry was the staged increase in minimum contributions from both employees and employers, with each bumping up their proportion of near-compulsory savings to 4% of someone's pre-tax salary to be managed by our best and brightest.
Make things and break things
For those in the financial services space, it’s a trade-off they’re willing to swallow to get more money under their watch to help provide better retirements for their members and some sweet fees along the way.
What’s more, it’s a double-boost for the government’s coffers in that the increase to the employer superannuation contribution tax more than offsets any reduction in the company tax take that comes from firms’ bottom lines getting squeezed by them carrying more of the can for the nation’s retirement.
It’s nothing to sniff at either. The 2024 KiwiSaver report compiled annually by our friends at the Financial Markets Authority shows employers put in $3.3 billion to KiwiSaver schemes in that March year, less than half that of staff who saved $6.9 billion, and dwarfing the government’s $990 million contribution.
Oh, and let’s not forget that the government gets its sticky fingers into KiwiSavers’ retirement, merrily taxing it along the way to the tune of $591 million last year – not far off the $708 million pocketed by investment managers who at least could claim some credit for the $13.06 billion of investment income generated that year.
As veteran commentator Brian Fallow put it so eloquently in his recent column on Jenny Ruth’s Just The Business Substack, the 36-year-old tax treatment of retirement savings schemes – where income is taxed before it’s saved, investment income is taxed and it’s only the distribution that’s exempt – has perpetuated the entirely rational behaviour of people to borrow to the hilt to bid up house prices.
Those property owners can then enjoy the tax-free imputed rent of being an owner-occupier – the theoretical value they get by not paying taxed rent to a landlord – or claim the various deductions available if they rent it out.
Oh, plus they get to pocket any capital gains tax-free.
Crash parties in Maseratis
It makes you wonder why we hate non-property investment and savings in New Zealand and it brings to mind the over-riding goal of Michael Cullen when he first introduced KiwiSaver 20 years ago: “Saving and investing is the foundation of the future wealth of our country and of us as individuals.”
Cullen’s unspoken hint through the 2000s was that people of a certain age won’t be able to rely on the nation’s universal pension in their dotage.
The New Zealand Superannuation Fund was set up to help fund the rump of baby boomers when they shuffled off to the local Ryman Healthcare retirement village and KiwiSaver was a very strong nudge to wide-eyed 20-somethings that they’d have to chip in to their pensions if they wanted to live the high-life promised to us through glittering cable TV channels.
Nicola Willis has done the same with her one-hand-giveth-and-the-other-taketh-away budget.
Young New Zealanders tracked in the Massey University longitudinal financial literacy study already see KiwiSaver as a key portion of their retirement, with the bulk of the now-youth adjacent Kiwis doubting the universal pension will be enough to live on when they hit the increasingly young-seeming age of 65.
And even then, that might not be enough, with some very helpful qualitative work by the Retirement Commission on the latest changes noting a sense among younger employees that KiwiSaver alone won’t be enough for their retirement and will need to be topped up with other investment options.
Those kinds of anecdotes really need to be teased out with some more empirical work, because the timebomb of New Zealand’s ageing population is ticking.
Help old ladies cross the street
It’s easy to gloss over the fact that the Treasury’s predicting the nation will have more than a million superannuitants by the June 2028 year, with 1.05 million people on the pension at the end of its forecast horizon in 2029, draining $28.96 billion from the Crown’s coffers.
Another $20.97 billion will go to other transfers, such as the Jobseeker benefit, accommodation supplement or Working for Families tax credits and, much like now, only the $34.34 billion health budget is predicted to exceed the pension.
What’s more, forecasts on school, university and polytech enrolments only have about 1.09 million kids in education and training in the 2029 year – not really the virtuous demographic cycle you want in building a wealthy and harmonious society.
Which brings us back to KiwiSaver and understanding just what the social contract is when it comes to New Zealand’s ageing population and superannuation.
We’re already on a pathway to directing more of those investment pools into financing the nation’s woefully inadequate infrastructure and getting them more active into backing promising young businesses that might just turn into billion-dollar unicorns.
But are we asking too much for them to stand ready to step in if and when it’s time to start whittling down the universality of New Zealand super?
The sacred cow of superannuation might just have turned up to a barbecue.
Image from Photo by Andre Taissin on Unsplash.
