KEY POINTS:
Concrete truck driver Jason Donaldson will be at the front of the queue to buy his first house as soon as he clocks up three years in the new KiwiSaver scheme in July 2010.
Mr Donaldson and his partner, Rachel Duff, pay $400 a week to rent their four-bedroom home in Mt Albert, although they get part of that back from a boarder.
Mr Donaldson does all the overtime he can get, regularly working 65 to 70 hours a week to bring in $80,000 to $85,000 a year before tax.
But the costs of three children, now aged 11, 2 and 4 months, and the need for Ms Duff to stay home with each baby, have made it impossible for the couple to buy their own house.
Until KiwiSaver. Mr Donaldson joined the union-backed Iris scheme on the day KiwiSaver started in July last year partly because his employer, part of the Fletcher Building group, offered to pay in 2 per cent from day one even though the law doesn't require that until next April.
Mr Donaldson pays in 4 per cent - on $80,000, that's a hefty $62 a week. His employer puts in half of that and the taxpayer contributes another $20 a week, on top of the $1000 kickstart.
If Labour wins the election, his employer's contribution will rise to 3 per cent from April 2010 and 4 per cent a year later. Assuming a steady income of $80,000 a year, the contributions from Mr Donaldson, his employer and the taxpayer will total $18,729 by July 2010.
At that point, after three years in the scheme, he will be eligible to withdraw all his and his employer's contributions, plus any earnings on the money, to buy his first house. On top of that, the Government will pay him $1000 towards his house for every year he has been in the scheme, boosting his nest-egg by a further $3000.
"I think we'll have enough money to buy in 2010. We couldn't have done it without KiwiSaver," he said yesterday. "Before that, we had a savings account in a bank, but we had to break into it when there were bills. When you're paying into KiwiSaver it's locked away and you can't touch it."
The Donaldson-Duff family is exactly the kind of household that KiwiSaver was designed for. The scheme is achieving its social goal of making home ownership possible, with all the benefits that go with that such as stable community links and keeping the children in the same school.
And in economic terms, simply by locking the money away, it is increasing this family's savings. Multiply that by the 812,018 people in the scheme as at September 30 and you're a good way towards the economic goal of lifting the country's savings rate.
Except it's not quite so simple. New Zealand does have a low savings rate - 15 per cent in 2006, or 22nd out of 28 developed countries. But even if KiwiSaver has lifted household savings, this may be offset by reduced savings by business and the Government because of the cost of employer and taxpayer subsidies to employees' savings. And indeed that appears to be the case so far. In the three months to September 30, people in KiwiSaver saved $220 million, but employers chipped in $61 million and the Government spent $441 million in matching subsidies, fee subsidies and the $1000 kickstart for new members.
Although the kickstart costs will reduce as the scheme matures, the Government has not yet even started paying out the extra subsidies from 2010 for first home buyers.
National's finance spokesman, Bill English, said last year that Labour's "4 plus 4 plus 4" scheme (4 per cent each from employees, employers and taxpayers up to the $20 a week cap), a total of 12 per cent, was unsustainable on top of a universal pension from age 65 which taxpayers are already partially pre-funding by $2 billion a year through the so-called "Cullen Fund".
"We believe KiwiSaver at 2 plus 2 plus 2 [National's policy] is fair and affordable and enduring," he said yesterday. He said National's scaled-back KiwiSaver would allow the Government to keep up its contributions to the Cullen Fund and maintain universal super from age 65.
But Dr Michael Cullen, Labour's Finance Minister, said the employers' and Government contributions to KiwiSaver were effectively savings, just as employee contributions were.
"The Government effectively is putting into private accounts part of what in the past have been surpluses, and we'll get back to surpluses at some point," he said.
From this perspective all three contributions to KiwiSaver, just like the Cullen Fund, are a form of pre-funding retirement income for today's working generation, making it easier for future taxpayers to cope with growing numbers of old people.
