When KiwiSaver was first launched in 2007, one of the concerns voiced was that as fund values grew, politicians (of all parties) would not be able to resist the temptation to dip into this pool of wealth or change the rules in some way to serve their own agendas.
For a generation of New Zealanders, these fears were not unfounded. In 1974, a compulsory government superannuation scheme was established by the then Labour government.
It was a separate fund with individual member accounts, structurally not unlike KiwiSaver, but with only one state run fund manager.
With the change to a National government in 1975, led by Rob Muldoon, the scheme was closed and the funds were absorbed into the government’s general fund.
When KiwiSaver was launched more than two decades later, I acknowledged the risk of this happening again, but it did not stop my support for two main reasons.
First, in 2001, the role of the Retirement Commissioner was established under the New Zealand Superannuation and Retirement Income Act.
That legislation was born out of the realisation that New Zealanders needed certainty around superannuation policy, so that it did not become a political football.
The independence of the Retirement Commissioner is set out in law.
The commissioner’s responsibilities are in three main areas: reviewing and reporting to the minister of commerce every three years on the retirement income policies implemented by the government; leading and co-ordinating the national strategy to improve the financial literacy and capability of New Zealanders; and monitoring the effects of retirement village legislation and administering the retirement villages disputes process.
More broadly, the commissioner’s role can be thought of as an independent advocate for all New Zealanders in regard to how government retirement policy impacts us.
The other, and perhaps just as powerful, reason I thought KiwiSaver would endure was once the fledgling fund was under way and seen to be successful, it would be politically unpalatable to undo. I was only partly right.
With all KiwiSaver accounts, we make personal contributions and, for those of us who are employed, our employers also contribute on our behalf. The government does make a relatively small (but still important) annual contribution of $521, if we contribute the minimum amount of $1042.
New Zealanders now hold more than $87 billion in KiwiSaver and there are more than 2.9 million members. These figures reflect the fact that KiwiSaver has been hugely successful.
For many New Zealanders, KiwiSaver is their primary form of retirement savings and is a critical part of their long-term financial security.
As I mentioned in the introduction, we recently experienced one of the fastest political U-turns in history. As part of a wider proposal to add GST to a range of financial transactions that are at present exempt from tax, the Government wanted to add GST to KiwiSaver management charges.
It was anticipated that this increase in cost would be passed on to members and could ultimately lead to lower balances at retirement.
How impactful this change would have been is up for debate, and thankfully we are never going to know as the proposal has been withdrawn.
The aspect that surprised me was that the Government was so tone deaf and was willing to inflict a new cost on many New Zealanders at a time when we are enduring a significant spike in inflation.
However, in the interest of political neutrality, I must point out that it is not just Labour that has been tempted to tinker.
In 2012, the National government halved the annual tax credit on KiwiSaver and started to tax the contributions the members received from the employer.
The combined impact of these two changes was considerably greater than the impact of GST proposed by the current Government.
These changes were implemented with only muted public comment. I am surmising that, at that time, member balances were smaller and the future impact of these changes was not given the same media coverage.
I was delighted to see that this time both the popularity and growing value of our KiwiSaver balances has immunised KiwiSaver against further attack. I am grateful that we live in a functioning liberal democracy. A democracy where politicians are not so partisan that they are completely intransigent in their views.
For me, the lesson is when it comes to KiwiSaver and potential government interference, we must always be aware of this risk and be prepared to voice our concerns.
However, it does not change the fact that KiwiSaver has been a positive game changer in allowing more Kiwis to plan for their retirement.
Peter Ashworth is a principal of New Zealand Funds Management Ltd and is a Dunedin-based financial adviser. The opinions expressed in this column are his own and not necessarily that of his employer. His disclosure statements are available on request and free of charge.
