Beware your Employer come bearing gifts...
KiwiSaver, the new government superannuation scheme, is a great a idea. It's not only good for the individual but also good for the New Zealand economy. I'll explain why. If the average kiwi signs up for the default 4% they get a government kick-start of $1040, 1% from their employer from the 1st of April 2008 rising 1% each year to a final amount of 4%, $20 for annual management fees and a $20 a week tax rebate. That tax rebate works out at another $1040 per year which the government gives you as a lump sum at the end of each year your are a KiwiSaver participant.
This saving will give most kiwis a comfortable retirement and also means that money that might have been spent on imports, which affect our balance of trade, or "invested" in the non-productive housing industry will be at worst saved in the local economy and at best invested in local and international equities.In the long run equities provide the best return and if you've got more than say 5 - 10 years to retire then I would recommend it. Also, investing in our local economy gives us back control of our profitable companies, this means more profits are kept in New Zealand raising all out living standards. It also means new companies and IPOs can be financed internally to a larger degree. Take Piker River Coal mine (PRC), this company is mining some of the highest grade coking coal down in the west cost. Now a large part of this company (at least 70%) was bought by overseas investors (India comes to mind) who need access to the coal for steel production. Recent coal prices, like many commodities, are at all time highs. If New Zealand had been more focused on investing in our local infrastructure rather than property we may have been able to maintain more of this company in local hands. It's likely this company will start producing a profit in 2009 and 70% of that will most likely end up overseas. KiwiSaver will give us more of this focus, a focus that's been happening in America, Australia, Canada etc.. for a much longer time. By investing overseas we do one better, we get a slice of foreign profit coming into the New Zealand economy.
So far so good ... you may be wondering why the title then. The reason is because, although KiwiSaver is great in principle, it may not be so in practice. There are couple of issues I see with it and for the ignorant it is possible they may be being swindled by their scheme provider and/or employer. First you have to be careful who you choose to invest with. I don't think there is any regulation on what a scheme provider has to invest in so they could, theoretically, invest your 4% in lotto tickets and hope you strike it big. Okay, this is an extreme example, but how many of you know exactly what your KiwiSaver money is invested in? Maybe you should ask your scheme provider. Second, beware management fees and investment styles (a fees calculator is available here: http://www.sorted.org.nz/calculators/kiwisaver-fees/). There is quite a large difference in fees here and you can expect to pay 3 times as much in fees from the higher end than from the lower end. This can equate to tens if not hundreds of thousands of dollars by the time you retire. Also, beware (most) actively managed funds. Most managers, around 75% don't/can't beat the market (see http://en.wikipedia.org/wiki/Index_fund) and if they do it may only be for one year and then they slip back into the pack. I would recommend a passive index fund which just tracks an index e.g. SmartFonz (FNZ) which tracks the performance of New Zealand's top 50 companies. These have the advantage that they are likely to beat 75% of managers year in year out, they have lower management fees, which I've shown before can make a big difference and also active funds have to pay tax every time they buy and sell shares whereas a passive index does not. I personally use SmartKiwi, the NZX's KiwiSaver scheme. They use only index funds and have one of the lowest management fees around.
Now for the employer angle. Some companies are trying to claim that the employer contributions are part of your salary package and will be taken into account in future pay negotiations. One notable example is one of New Zealand's largest Telecommunications and ICT providers ( not naming names ;) ). To me this is unethical in the extreme. I have heard claim that they are only trying to treat all employees fairly i.e. those that haven't opted for KiwiSaver and aren't getting the 1% top up should not be unfairly disadvantaged. Yes, they should!!. If they choose not to sign up to Kiwisaver, it's their own, DAMN, fault. Don't penalize me because they're stupid. They have a choice, the government has set up this scheme and it's their choice not to take advantage of it. And anyway these companies are given a tax rebate to cover their contributions and now their trying to claim more off their employees? (see http://www.radionz.co.nz/news/latest/200804121741/3cbc8ab4) Talk about wanting their cake and eating to too. These companies are trying to use their employees ignorance of the KiwiSaver scheme to rip them off. My fellow kiwi's, why would you want to work for an employer that has such little regard for their own people. If they think we're that stupid why did they hire us in the first place?!?. They can GF!!
I guess what can you expect from companies that are largely overseas owned. They have no love of the Kiwi people, all they see are dollar signs. So for your own good and the good of our country join up, lets take control of our own lives back and the control of our country's future prosperity.
I'm a Kiwi and I'm proud to call my self a Kiwi ... Saver.