Call to suspend $800 million KiwiSaver subsidies during Covid-19 crisis

Thursday, 26 March 2020

Should the Government be borrowing to subsidise KiwiSaver accounts during an economic crisis?

The Government should suspend KiwiSaver subsidies to help pay the economic costs of the coronavirus crisis, some pensions experts believe.

They also say people in financial distress should be given immediate access to money in their KiwiSaver accounts.

In the year to the end of June 2019, the cost to the taxpayer of Member Tax Credit subsidies going into individual KiwiSaver accounts was just under $800 million, with each KiwiSaver getting up to $521.43 put into their accounts by government.

But pensions experts Michael Littlewood and Michael Chamberlain said it made no sense for the Government to be borrowing to subsidise KiwiSaver during the coronavirus crisis.

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'It (subsidising KiwiSaver) was a silly idea at the best of times. It becomes even sillier at the worst of times,' said Littlewood, an honorary academic from the University of Auckland's Retirement Policy and Research Centre.

'It would be very easy for the Government to stop member tax credits,' said pensions expert Michael Chamberlain, founder of KiwiSaver provider Superlife.

Simplicity KiwiSaver founder Sam Stubbs did not want to see KiwiSaver undermined.

Chamberlain said KiwiSaver was always 'a solution for a problem which did not exist', and did not believe the taxpayer should ever have been funding private savings accounts.

Chamberlain believed that instead of funnelling money into KiwiSaver, which was being funded by government borrowing, the Government should move to immediately allow people who needed their money to withdraw it.

'What we should be doing is allowing people with KiwiSaver to take out $2000 a month providing they give us a certificate that they have reduced income, or have been laid off because of coronavirus,' Chamberlain said.

The NZX New Zealand sharemarket has benefited from money flowing into KiwiSaver being invested in shares.

The move would be timely given the hardship application process to get money out of KiwiSaver is unworkable in lockdown.

But Sam Stubbs, founder of the Simplicity KiwiSaver scheme, worried even putting a temporary hold on KiwiSaver taxpayer-funded incentives would be a nail in its coffin.

'The Government needs KiwiSaver to continue to be a success. One crisis cannot be allowed to derail the most successful savings scheme in New Zealand ever, which helped purchase almost 40,000 first homes last year, and could help fund the retirement of over 3 million Kiwis over time,' he said.

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'However, the presence of a $778m subsidy by the crown, in the form of member tax credits in 2019, is clearly going to be up for review. It's simply too large a sum to be ignored in this environment.'

If the subsidy was ended, Stubbs called for Australian-style compulsion, requiring everyone to save from salary or income, delaying the introduction for 12-18 months.

'Any successful national savings scheme needs either an incentive, or to be compulsory. In Australia they've chosen compulsion, and look how successful that's been,' he said.

'In New Zealand, we've chosen incentives in the form of the $1,000 kick start (now not in place) and the member tax credit of 50 cents for every $1 a member contributes, up to $512 a year maximum.

'If the Government takes away the member tax credit, and doesn't make the scheme compulsory, the rationale for many members to save simply won't be there any more,' Stubbs said.

Stubbs believed a large part of Australia's economic success was its massive pool of home-grown capital, and losing KiwiSaver would deprive the country of money that could be invested in developing the economy and infrastructure.

James Grigor, chief investment Officer, at NZ Funds believed even temporarily suspending the member tax credit subsidies would damage people's belief in KiwiSaver.

Continuing it could may well prove a great investment decision as share prices were now low, so any more invested would benefit from price recovery when the post-coronavirus crisis economic recovery took place.

'I think we need to stay optimistic,' Grigor said.

He did not believe stopping the taxpayer contribution temporarily would have a big impact on the NZX sharemarket, which has suffered large falls.