Thursday, October 20, 2011

Problems with Kiwisaver

The talk in New Zealand over the past few days is whether we should make our national Kiwisaver program compulsory.

There are a number of comments I would like to make.

Firstly, if you want people to save, then how about making the incentive juicy. Currently the incentive to save isn't there. The economy is between a rock and a hard place. The economy needs growth, read increased consumerism and debt, to keep it sustainable. Growth is required for the whole system to keep working. Therefore, interest rates are kept artificially low so that people will borrow. On the other side of the coin, inflation rates are high. Low interest rates plus a high inflation rate equals negative interest rates. Negative interest rates are not the cure for low savings. Instead it's a cure for more debt and consumerism. Negative interest rates mean your money is losing value.

Remember too, that with negative interest rates government debt is devalued away over time. Great for the boys and girls in politics doing the spending, but stink for your wealth over time.

Secondly, the Kiwisaver scheme is a bad idea. Yes, it helps people forget about saving and might provide income for retirement, but try telling politicians to keep their spending little hands off your money? Already we have had changes to the scheme here and people are getting nervous. Already we are seeing local governments and large banks producing bond programs that may require kiwisaver fund managers to invest your funds. Do you really want your money going into that new bridge, or local park. Good luck with getting a decent return on investment with that.

Thirdly, Kiwisaver is arguably quite deceitful in it's promotion. The government gives the punter a $1000 kick start and further tax incentives on contributions which can add up to over $1000 per year. This the carrot. That's all it takes to separate millions from their wealth. How many realise that they then lose almost total control of their wealth for up to 40 years.

Fourthly, let's mention the fact that each year your fund manager gets commissions for investing your money. Whether you win or lose, they get paid. Others decide, with largely good intent where your money best goes.

The incumbent governing party here appear to have some sense in waiting until the country's books are in surplus before making Kiwisaver compulsory. This is an admission that the scheme is unsustainable in it's present form and will require changes. A recognition that borrowing overseas to pay government kiwisaver contributions is shear madness.

The current world market volatility is causing a great disruption to all markets. Now is not the time to be bold. Fund managers look good in their suits and ties, they give off an air of confidence, but in these times, no one really knows where best to invest. They are simply playing games with your Kiwisaver contributions; your wealth.

Gold in New Zealand dollars: $2074.81 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.33 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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