Mary Holm: Beneficiary feels locked out — is it time for govt to help with retirement saving?

While many people are getting on board the savings movement, for some, the bus just never arrives. Photo / Getty Images

COMMENT:

Q: I opted into KiwiSaver when the scheme began and accumulated a few grand, which I never noticed was missing from my income. Nearly a decade ago, I suffered a complete emotional breakdown and was diagnosed with PTSD and agoraphobia — the term "debilitating" fits well.

I am now a recipient of a supported-living payment from Winz, due to the fact that my disorder is severe, degenerative and permanent. I am unlikely to ever be an active participant in the economy again.

Winz does not make KiwiSaver contributions and I've been advised that, if I were to make voluntary payments, it would be seen as an unnecessary expense and would be assessed as a cash asset. This would result in a disproportionate reduction in my benefit.

Winz benefits are too low to support a healthy and fulfilling life in the short term. For the thousands of New Zealanders who face a lifetime of subsistence on the dole, even a few dollars a week is a lot of money, when you consider that many of us never visit a doctor, go hungry for days each week, never leave home for recreational purposes and basically live in economic purgatory.

Going on past trends, by the time I reach the pension age at 85 (I'm 37 now) there will be no superannuation in NZ. I won't survive that long, of course, because I live in weekly fiscal deficit and cannot afford the medical care I need to stabilise, so my health and wellbeing has been steadily declining since I became incapable of working.

Being highly vulnerable, I am often targeted by thieves and con artists. I was burgled twice last year and robbed of $175 recently.

I pay more for things because I cannot take advantage of bulk purchasing or specials that aren't within walking distance of my home. I shed a remarkable amount of wealth to theft and vandalism every year and I don't get enough income to cover the basics. I'm sure it's lovely to have a growing KiwiSaver account but they do not exist in my world.

I get it — I have no value to NZ society. That's what discussions of KiwiSaver remind me of — Kiwis value financial security but not those with disabilities and chronic illnesses. "We" are lucky to have KiwiSaver — I'm not part of that "we".

Sorry to be such a bummer — it's who I am. Please forgive the burden of my existence. Peace.

A: Thank you for your moving letter, which I'm sure will get a lot of people thinking — and has actually already contributed to a push to get beneficiaries into KiwiSaver.

The Review of Retirement Income Policy 2019, released by the Commission for Financial Capability (CFFC) on Wednesday, includes a recommendation to automatically enrol all beneficiaries in KiwiSaver.

The government would contribute 3 per cent of a person's benefit, and the beneficiary would contribute nothing.

"We think that this 3 per cent contribution would be fairly modest in cost terms to the Government, as at jobseeker rates of $245 a week, or $12,740 a year, 3 per cent would be in the order of $382 a year per member, at a total annual cost to the taxpayer of about $114 million," says the review.

"We know that KiwiSaver exacerbates the wealth gap over time, as some New Zealanders can't afford to save and so miss out on the compounding benefit of saving even a small amount of money, but over time. Our terms of reference stress the importance of providing options to lift retirement outcomes for the most vulnerable."

The review includes an edited version of your letter above — which you originally sent to my fortnightly RNZ personal finance segment. I worked with the commission on its KiwiSaver recommendations, and gave it your letter, with your permission. Here's hoping the Government picks up on this idea.

Meanwhile, are you correct that, if you make contributions to KiwiSaver — as opposed to the Government contributing for you — your benefit will be reduced?

"Generally, this would not affect their benefit unless it was income earnt through working," says George Van Ooyen, group general manager client service support at the Ministry of Social Development.

"However, if someone makes significant lump sum deposits into KiwiSaver, this might be considered deprivation of income."

He adds, "Funds in KiwiSaver will generally have no impact on benefit entitlement until a person reaches 65 and is able to withdraw funds from it. At that point, KiwiSaver funds will be considered for income and asset testing.

"However, regular KiwiSaver contributions might affect a person's entitlement to hardship assistance; for example, Temporary Additional Support. Clients applying for hardship assistance are expected to take reasonable steps to reduce costs/increase income.

"We encourage people who have questions about their KiwiSaver contributions to give us a call and discuss their situation with us."

By the way, there's no way that the age when NZ Super starts will rise to 85 — as you suggest — within the next 30 years. The CFFC's review calls on the government to keep the age at 65.

"The economic context changes over time — from Treasury's most recent publicly available projections, NZS looks affordable on current settings for the medium term, even though it did not necessarily look so in earlier years," says acting Retirement Commissioner Peter Cordtz.

Still, even if you receive NZ Super at 65, it's clear your income is too low in the meantime. I hope the Government takes heed.

Saving and struggling

Q: I agree with most of what you say in your column, but there's one point that I disagree on. I think you recommend most people getting into KiwiSaver, even those on low incomes?

I wonder if there's any point for those on benefits who are struggling. Putting $5 or $10 in a week doesn't seem wise because NZ Super will often pay out more than their current benefit.

It would be good for them to put it towards an emergency fund for car breakdowns, etc.

But KiwiSaver is locked up until retirement except in extreme cases, or house buying, which they are unlikely to be able to afford. So they have a higher need for that money now than later when they're receiving the pension.

A: The CFFC review addresses this issue.

"It is sometimes argued that beneficiaries are not the target for KiwiSaver," it says.

KiwiSaver aims to help New Zealanders maintain much the same standard of living in retirement as they had in earlier years. And "when beneficiaries move from a benefit to NZS, they usually receive a rise in income.

"Some argue that they are used to living on a low income, and so don't need extra retirement income above NZS.

"However, many beneficiaries don't stay on a benefit permanently ... For those who do remain on a benefit throughout, it seems reasonable regardless that they are provided full opportunity to benefit from KiwiSaver's compounding effect..."

A key difference between what you're talking about and the review recommendation is that beneficiaries wouldn't have to contribute.

And it seems to me that enabling beneficiaries to take part in KiwiSaver might help them feel more like part of society. Also, it might be encouraging to know they are doing something to make their future brighter.

You mention people's need for an emergency fund, and the review also considers that.

"We propose that the default creation of a side account to the main KiwiSaver account is explored by government. This could be achieved through setting aside an extra 1 per cent employee contribution, so that every saver who chooses not to opt out has an 'emergency fund' of up to $3000 available, thus protecting their main savings while enabling access for shorter-term needs.

"Once the $3000 is reached, contributions above that would then tip into the main KiwiSaver account."

I like this idea. It would reduce KiwiSaver hardship withdrawals, and give people one more reason to belong and contribute to KiwiSaver.

Injury gets in the way

Q: My son sustained a brain injury that meant many changes for him and the family. With so much on my plate, I overlooked KiwiSaver, so he no longer met the minimum payment each year to receive the government contribution. Likewise for myself when I, too, sustained brain injury. So for some years neither of us was benefiting as we might.

I suspect that with the nature of health and injury impairments, maximising government KiwiSaver contributions often falls by the wayside, especially when you become a beneficiary no longer receiving wages, further impacting on our finances.

A: You've had a hard run. But thanks for making another argument for government contributions to beneficiaries' KiwiSaver accounts.

Clearly, affordability isn't the only reason why some beneficiaries might find it hard to make their own contributions.

Learning to spend

Q: Thank you for publishing my letter and your reply. (Last week's first letter, about the reader's difficulty with spending money now that she has it.)

This year I decided the best thing I can do with our money is to buy myself more time to do the things that I love (getting outdoors, arty pursuits and spending time with friends).

So I have organised to get myself a cleaner, which is pretty damned exciting, and will make a bigger difference to our lives (mine in particular) than anything else we could possibly spend money on!

The other thing to add is that we have a teenage son. So it's not just a matter of us being freer with money as a couple. I guess I feel happy that we are passing the idea of careful money management on to our son, rather than being splashy with boats, baches, boys' toys, fashion and overseas trips, etc.

As I try to spend more on things that matter, I hope that I can also show him that it's okay to spend money on himself if it's for things that are going to improve the quality of his life, not just keeping up with his mates. At the moment, he's just dead keen on saving for a car!

Also, I feel that going secondhand or borrowing is fine in terms of sustainability, even if we can afford otherwise. And you are definitely right about the feel-good factor of giving to others.

A: Buying time to do what you want is a great idea. With so many things in life, you can spend either time or money, and it makes sense to spend the one you have more of.

On money and teenagers, it can be surprising how much they learn by watching their parents — although it must be confusing if one parent is a spender and the other a saver.

It's great that your son has set himself a goal. Getting there, with some sacrifices along the way, is a skill some people never learn.

I gave my teenage son a yearly budget for "toys" and clothes — except his school uniform and undies — that he could spend however he wanted. If he blew the lot in January on one garment, that was that. It was hard to watch him do that without interfering, but he learnt some useful lessons.

Other readers may have suggestions — but please just ones that actually worked, as opposed to what "should" happen.

PS. I noted your "mine in particular". Too many men still haven't realised that in many situations it's only fair for housework to be a 50:50 proposition. Hiring a cleaner, if you can afford to, is one way around that issue!

- Mary Holm is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.