Students and KiwiSaver

Michael Littlewood looks at the pros and cons of KiwiSaver.

He had one suggestion which was novel I thought. Students should max out their interest free loans, and stick it into Kiwisaver. They’ll get tax credits for it, and get a return on the money the taxpayer has lent them.

Littlewood also picks up the point I have bene making about how KiwiSaver will affect National Super in the future:

However, the biggest issue concerns New Zealand Superannuation’s future. The Government says NZ Super will be unaffected. Really?

On reasonable assumptions, a KiwiSaver on the national average wage for 40 years will end up with about $320,000 in today’s money. That’s the annuity equivalent (for a male at 65) of about $22,000 a year after-tax for life (inflation-proofed). Of that, about 33 per cent has come from taxpayers. Using today’s NZ Super, our KiwiSaver’s total income will be $36,407 a year or 105 per cent of after-tax, pre-retirement pay.

Future governments could say taxpayers have helped pay for the KiwiSaver nest egg so why should the full NZ Super be paid?

An interesting calculating that the average person will have a higher income in retirement than they have had while working, with the combination of KiwiSaver and NZ Super. This I suggest makes it a near certainty that NZ Super will be changed in years to come – either converted fully into KiwiSaver, or means tested, or modified to an inflation linked benefit instead of wage linked benefit.