Cut to KiwiSaver Government contributions neither here nor there

“The Government halving its KiwiSaver contribution to $260 a year is not going to make or break deposits for first home or other house buyers.

It is not going to make a skerrick of difference for people on any level of income or change their attitude to KiwiSaver, says Hastie Mortgages director Campbell Hastie.

“Everyone has known right from the start of KiwiSaver that the extra little pickup in terms of the Government putting money in has probably been on borrowed time.”

However, he says there is little need for KiwiSaver incentives now that the retirement scheme is woven into the country’s financial and cultural fabric.

“Whether it is $1,000 or $50 there is no need for it, but halving the existing $520 a year is ‘mingy’ – it should have been left as it was or cut completely.”

In yesterday’s Budget the Government also announced it will means test its contribution to people earning $180,000 plus a year, phase in a lift in the minimum KiwiSaver deposit for employees and employers from 3% to 4% and extend employer contributions to working 16- and 17-year-olds from July. 

Retirement Commissioner Jane Wrightson said the analysis revealed New Zealanders' KiwiSaver funds could last 30% longer than under pre-Budget settings - at least for median salary and wage earners who contributed without interruption over a 40-year working life.

About 1.8 million salaried and wage-earning KiwiSaver members (90%) are expected to have higher eventual retirement savings balances, including those with incomes above $180,000.

Hastie says while people perceive the Government’s contribution to KiwiSaver as free money, it it is not free as everybody has paid for it in their tax. “It doesn’t come out of thin air. All KiwiSaver members are getting is little bit of their tax back. While it’s been halved, it is not going to change attitudes towards KiwiSaver.”

He believes the minimum contribution should be higher than the 4% the Government is now going to phase in. “The more that people put in the more they can get out, especially if they are buying a first home. The reality is that even more is going to put in from employers and that will make a big difference, especially for first home buyers. A bigger deposit for a house is always a good thing in banks’ eyes and makes borrowing easier.”

In light of the KiwiSaver changes, Financial Advice New Zealand good financial advice is now more valuable than ever to understand their impact on people's financial goals and aspirations – whether buying a first home or saving for retirement. Nick Hakes, chief executive says.

Chief executive Nike Hakes says engaging with a financial adviser is vital for making the best of this savings vehicle.

“Advisers play a critical role in making KiwiSaver work to their client’s own personal circumstances by tailoring the right asset allocation for their personal goals and risk profile.”

Better for business

The Government is also allowing businesses to immediately deduct 20% of the cost of a new asset – on top of normal depreciation – for tax purposes.

This is expected to lift all kinds of business investment, including technology upgrades.

Hakes says FANZ believes the investment boost will be good for small advice businesses as they invest in new technology to deliver advice to clients more efficiently. 

“This is good news for the many thousands of small advice practices who serve their communities.”

He says in the existing environment advisers are seeking new ways to update their technology infrastructure that will better serve more clients, potentially more cost effectively, which benefits more New Zealanders.”

More cuts urgently needed

Kiwibank is supportive of the Government’s move to lift the minimum KiwiSaver payment from 3% to 4%, but says the more pressing issue is says lower interest rates relief.

Chief economist Jarrod Kerr says the country is now at a point where an OCR cut of 25 basis points is just mucking around.

The Reserve Bank has signalled two consecutive cuts of 25 basis points are on its way, but Kerr is urging it to make one bigger cut of 50 basis points on Wednesday next week.