Monday, May 28, 2012

Labour's KiwiSaver plans [Updated]

Is Labour considering expropriating the retirement savings of the internationally mobile? Here's Alex Tarrant:
Labour is calling for a discussion about not allowing people to move their KiwiSaver savings out of the country, meaning KiwiSavers could only access their funds if they lived in New Zealand.
... "On the savings front, we’re going to have to consider whether we make our savings sticky, rather than having open borders - people being able to take their savings pool with them to Australia," [Labour Finance Spokesman David] Parker said.
...Currently, people moving overseas permanently from New Zealand can apply to have their KiwiSaver funds paid out to them, minus the government's tax credits. There is a minimum 12 month wait to get the money. 
I really need to see more detail on what Labour's here considering. Right now, those who have contributed to the New Zealand Superannuation Fund via their income tax payments are eligible to receive superannuation even if they live abroad. While the government could perhaps save a bit of money by cutting payments to Kiwis retiring abroad, there are more than a few problems. First, the countries where Kiwis retire might get annoyed by suddenly finding themselves with a bunch of destitute Kiwi elderly who were admitted on the understanding that they'd keep getting a NZ pension. Second, other elderly wouldn't choose to retire abroad; costs to the NZ health system would increase. Changing the default with enough forewarning wouldn't be unconscionable; it's just not that great a policy.

But if they're actually proposing that for KiwiSaver...oh boy.

Recall that KiwiSaver is a government scheme providing up to a $521 annual tax credit* for contributions to a designated retirement savings scheme. Employers make matching contributions into employees' KiwiSaver accounts, though we know by standard tax incidence theory that the statutory division between employer and employee contributions doesn't have huge effects on real incidence. The tax credits were meant as a nudge to get people into private retirement savings; Treasury found that KiwiSaver mostly displaces other savings. Folks have flipped a ton of their private personal retirement savings into these vehicles. If Labour's proposing expropriating them on exit, well, I'd really like Labour to make that explicit, campaign on it, and give me an option to pull everything out of KiwiSaver before they put it into effect.

I really hope that Labour's David Parker was misquoted.

UPDATE: Alex sends me the full transcript. Here's the relevant bit.

PAUL [Holmes]            OK, ideas to stop it [out-migration to Australia]. 
DAVID [Parker]            Capital gains tax, improved savings. You know, on the savings front, we’re gonna have to consider whether we make our savings sticky, rather than having open borders, people being able to take their savings pool with them to Australia. Someone suggested to me the other day - a senior business person - that we’re going to actually have to have a closed system that says once you get universal savings you actually can’t take them with you to Australia. We’ve got such a problem now between income differentials between New Zealand and Australia that we’re gonna have to do better. We’re actually also gonna have to move on inequality, Paul. You know, inequality in New Zealand is rising to atrocious levels, and a capital gains tax helps fix that as well.

So now I'm hoping this was just a silly off-the-cuff answer from an opposition Finance spokesperson rather than Labour policy. Labour's proposed making KiwiSaver compulsory; that, I think, is what Parker's referring to when he says "universal savings". Oh dear.

* Prior to 30 June 2012, the maximum tax credit was $1,043.

8 comments:

  1. Well, with tens of thousands of working age people moving to Oz each year and quite a few then coming back, I can see plenty deciding that finance houses aren't as shonkey in comparison with NZ Super!

    JC

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  2. "Right now, those who have contributed to the New Zealand Superannuation Fund via their income tax payments are eligible to receive superannuation even if they live abroad."

    Income tax contribution is not relevant to New Zealand Superannuation. Residency details are what matters.

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    1. You're right that the regs are based on how long you lived in NZ, which for most folks will mean how long they've been paying into the Super system. Full details here:
      http://www.workandincome.govt.nz/documents/retired-and-going-overseas.pdf

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  3. I think this relates to a similar process in Australia for their compulsary savings.

    In Australia, if you have compulsary savings, you cannot access it until you turn 65. However, if you leave the country permanently (and a few other obscure situations - I think a terminal illness may be one) you can get the money in a lump sum.

    Presumably Kiwisaver is similar. But there is an argument that says if you go to Australia, you actually cannot have it in a lump sum, you still have to wait till you're 65 before you can have it.

    The problem with compulsary savings is that you prevent people accessing their own money. And have to make funny rules around the edges.

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    Replies
    1. The current KiwiSaver rules let you move your account to a similar locked savings vehicle abroad, so a Canadian RRSP or the Australian scheme would work. Parker wants to keep people here by preventing them from taking their savings with them.

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    2. If that's the case, then this is basically expropriating people's money - one of the key aspects of Kiwisaver is that it is an individual savings account. They may as well declare that you can't take the money you have in the bank when you leave NZ.

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    3. @PaulL It's not Labour policy, but Parker seems to like the idea. Hopefully, somebody in Labour shoots it down.

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  4. Typical socialist econotards... not content with mugging the wages of the working during their productive lives, but they want to mug them of their savings too... its more of the same old same old, socialice simply cannot let one crab out of the cage in case that crab shows them up to be lazy thieving morons

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