Saturday, April 19, 2008

KiwiSaver not all it's cracked up to be

The Herald reports that KiwiSaver could make a National Savings loss due to the tax breaks. It is estimated that between 9-19 percent of savings are new savings.

Of the $600 million in KiwiSaver, $300 million is from the Government, $240 million from savers and the rest is split between employers and admin costs. What is not clear is if the $240 million is new savings. Actually, it is clear, most of it probably isn't - as much as 80 percent, according to researchers. If the new savings estimate is closer to 9 percent, that's less than admistration costs, and the Government is pumping $300 million into Kiwi and employer pockets because Kiwis want to get tax breaks by saving $21 million extra, while doing nothing for the National Savings rate.

Some people are using KiwiSaver to reduce savings on other super schemes, others may reduce mortgage payments to get the tax breaks. If so, these people are paying more compounded interest on mortgages - so they are saving the same amount of money but spending more as well over the long run. But if the increased spending on compounded interest is more than the tax breaks, this means that the Government is not only effectively contributing to mortgage payments, you just can't get the money until later, and there is only one group that is better off: the banks.

Given that Cullen is more concerned with our National Savings rate than private savings, this reduction of National Savings should be of concern to him until November.




Anonymous Anonymous said...

we're putting 4% into KiwiSaver as we get 4% from work.
The work component is tax free investment.
similarly we're putting 2% into the pens fund as we get 2% from work.
so that's 6% of gross plus 6% from employer matching.
That's 12% gross.

Imagine if everyone had to do that from day one of employment.

Now that's what I call sensible for the avg person.

Yeah there's other investments out there too.

I know a guy who started in property 30 odd yrs ago buying houses to do up and rent.
He now has 60+ flats/houses now and a handful of commercial properties.
$40m worth.

How many would have the drive, nous and stickability that he has had?
So KiwiSaver is a good idea, only caveat the politicians must not be allowed to tinker.
In fact i say that pollies must have the same as us in pens fund, no special deals for them.
cancel the free flights after parliament ...
but that's another post.
so KiwiSaver probably wouldn't have helped him.

April 22, 2008 at 11:47 AM  

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