Kick-start for KiwiSaver best incentive to increase savers

While the Government is not progressing with a Capital Gains Tax, proposed changes to KiwiSaver from the Tax Working Group (TWG) will affect many people. These remain on the table.

However, the TWG has missed a huge opportunity to make a real difference to KiwiSaver if the intention was to provide an incentive to a low-income earner to open a KiwiSaver account. I urge the government to bring back the $1,000 kick-start.

It’s all very well to try and help low income earners with their savings by adjusting tax rates, but you can’t do that if they haven’t opened an account in the first place.

There are close to 2.9 million people in KiwiSaver but that still leaves a lot of Kiwis who haven’t joined. Many of these will be low income people and they need a clear incentive to join up and start saving a little.
That would be best done by reinstituting the old $1,000 kick-start. That kickstart was a major reason that so many people signed up to KiwiSaver so quickly – an incredibly obvious, effective and proven incentive.

An amount of $1,000 that goes into an account free is a powerful incentive. It has worked before and it will work again if the Government is serious about making KiwiSaver more attractive to low income earners.
The TWG recommendations to change PIE rates will, in theory, make the scheme more attractive to low-income members. But the changes are too complicated and technical to motivate non-investors. I question whether they will they provide enough of an incentive for non-members to join up.

However, we know that the $1,000 kick-start does work. This money going into new KiwiSavers’ accounts provides an immediate foundation. Not only does it attract people to open an account, but, once it is opened and there an immediate balance of $1,000, people start to see returns accruing and so are encouraged to save more.

Government should bring back the Kick-start.

Those lower income earners who have not yet joined KiwiSaver will be our real problem in the coming decades – they will go into retirement with little or no savings (if they cannot or will not save through KiwiSaver they are unlikely to save through another vehicle). They will be the ones who will need to be looked after by the state.

These people probably find it very difficult to find spare money to save. To get them to sign up they need an incentive that is much more real, tangible and quantifiable than some complicated tax concessions.

Martin Hawes is the Chair of the Summer Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statements is available on request and free of charge at www.martinhawes.com. This statement is general in nature and not personalised advice.

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