KiwiSaver: next generation

I was born during the Rogernomics revolution. My whole life, politics has been shaped by people the same generation as my parents. Ah, baby boomers, you’re still at it, and your blinkered perspective is getting more and more annoying.

Labour announced some new policies around KiwiSaver yesterday. It’ll be compulsory. Contribution rates will increase. And someone will be made to do a bit more work on a left-field idea to use variable minimum contribution rates as a macro-economic tool to increase household savings and reduce inflation.

Nowhere is the boomer bias more obvious than KiwiSaver policy. I don’t care about my retirement income. It’s not that my head is in the sand; it’s that a whole lot of other financial goals come first. Get through this incomeless next nine months without eroding savings too much. Pay off student loan. Buy a house. Pay off mortgage. Save for my children’s tertiary education. Help them buy houses of their own. All of these will (hopefully) occur long before I retire.

Having a little earmarked pot of retirement savings is irrelevant, what matters is the overall financial position someone is in when they stop working. The KiwiSaver settings partially acknowledge this: since inception, it has been possible to use KiwiSaver to accumulate a first  home deposit. That’s the reason I joined in 2007. But this feels like an add-on, not an integral part of the policy. It makes intuitive sense, but is not a conceptually principled component of the scheme. What is KiwiSaver? Is it primarily a mechanism to promote saving, or is it primarily a personal retirement fund?

There are sound policy reasons to encourage workers to save for a rainy day. It is less clear that we should all be siphoning off a large chunk of our wages for use forty or fifty years down the track. It’s very different if your retirement is close; mine isn’t. I’m struggling to avoid the conclusion that KiwiSaver policy has been developed without much thought to the financial needs of young people, or the impact of young workers on the economy.

My KiwiSaver balance is nearly double my outstanding student loan debt. After four years of fulltime paid work, this would be a common scenario among young people who joined KiwiSaver early. I’ve paid off $14,000 of student debt already, but based on revised projections given maternity leave and part-time work over the next few years, I won’t finish paying off the rest until 2022. Before I went on maternity leave, my marginal tax rate was 30%. Add on KiwiSaver of 3% and student loan repayments of 12%, it felt like paying 45% marginal tax. In this context, a higher KiwiSaver payment would have been nonsensical. If KiwiSaver become compulsory and the contribution rate was raised, sooner or later politicians would have to catch up with the strange implications for young people with student loans.

I prefer a gutsy approach. Reconceptualise KiwiSaver as a fund for specific life stages, not just retirement. Let us use KiwiSaver contributions to pay down student debt. This would be easy to administer, IRD is already responsible for dealing with both loan payments and KiwiSaver payments. An extra 6% since 2007 would have eliminated my student debt towards the end of 2012. This policy would be great for the government books – after all, student debt is effectively government debt that graduates pay down through additional tax.

And if we’re thinking about life stages where extra money would be useful, we might also want to consider allowing KiwiSaver to be withdrawn while on parental leave. Sound crazy? That’s only because the scheme was designed by people who were already past this stage of life and preoccupied with the next one. 

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