Sunday, 24 May 2015

Guest Post: Saving incentives

Many thanks to Rebecca Fraser, manager of a community organisation that works with single parents, for this post.

The Budget released this week described an almost immediate end to the Kiwisaver $1000 kick-start incentive.  We know that inequality is growing within our current system and unless we start to look at things very differently, it will continue to grow. However, even within the system, sometimes there are mechanisms that work against unfairness. The Kiwisaver $1000 kick-start incentive was one of these. Income based retirement schemes like Kiwisaver tend to perpetuate inequality, because they don’t level out the playing field for people. The disappearance of the kick-start incentive makes the system worse.

Who is disadvantaged by the disappearance of the $1000 kick-start? They don't collect ethnicity stats about Kiwisaver take-up so we don't have any data about which ethnicities are enjoying the extra $1000. My reflection of this is based purely on what people I know have told me, when I asked them. Almost always I have heard from working Pākehā that they are enrolled in Kiwisaver and from working Māori that they are not, and I have noticed this trend amongst people I have employed. It might be different in different workplaces and sectors - I hope.

Because why would you save for a retirement when you're more likely to die before you get there? Māori are expected to live 7.3 years less than non-Māori. The gap is reducing, but not quickly. Having money in one's retirement inevitably prolongs life where lack of money shortens it but due to lifetime employment and income patterns, women are more likely to live in poverty in retirement than men, and Māori more than European. People who might not make it to retirement are not naturally incentivised to join a retirement savings scheme.

People who do not expect to own their own home are not naturally incentivised to join a scheme that can help them with the deposit on their first home. With Māori home ownership rates at 28.2% vs. European at 56.8%, people’s expectations that Kiwisaver would prove useful might understandably be different.

 And people who are struggling to make ends meet right now are not naturally incentivised to join a retirement savings scheme. Fair enough too, a bun in the hand is worth more than a loaf in the trees, as it were. According to the indicators about inequality for Māori and Pacific people put forward by the Victoria Business School, Māori end up with $96 a week less than European, on average. And this is only one small measurement of the current inequalities of our system.

 All the little inequalities add up. The tricky little fact that children who are not earning any money could sign up to Kiwisaver and gain the $1000 incentive was, in my experience, a piece of information shared across monied connections. A mortgage consultant looked at my daughter when I brought her into the bank and handed me a sheaf of forms that required signatures and proof of ID from both parents to sign her up for Kiwisaver. But people who don't have regular discussions with bank managers, people whose negotiation with the other parent of their child can barely cope with whose turn it is to drop them at school, let alone which Kiwisaver scheme to opt the kid into, people whose daily existence is in the 'Let’s get through it' mode rather than 'Let’s think about what happens when you're 70' mode - these people could all have done with the $1000 kick-start that isn’t available any more.

People who might not have natural incentives to join a retirement savings scheme is anyone for whom life is not an orderly procession from school to university to a job to marriage... home ownership, a couple of kids, a regular holiday in Fiji, the eventual divorce, the delighted remarriage, honeymoon in Europe and a peaceful retirement.

People who, in other words, distrust that the system will work for them, with good reason.

And they *are* perfectly good reasons not to take up Kiwisaver. But 'perfectly good reasons why not' are EXACTLY why incentives need to be in place. Incentives like the $1000 kick-start. I am gutted for us. I watched John Key on TV last night dismiss concerns by saying something to the effect of 'Well, it has been around for ages and they've had the chance, so if they haven't done it by now then they were never going to.'  He is wrong.  Incentives are not in place for the people who can get over the finish line first, but to encourage the people who feel like they’re not even in the race to begin with.

I bet his retirement still feels pretty cosy.


Jenny Kirk said...

Thanks for putting this up. It helps to remind us all that life is not cosy for many.

Mercy Seat said...

Kiwisaver has always been middle class welfare. Its rewards are explicitly set up to go disproportionately towards those who save more. I can't really mourn the disappearance of the 1000NZD starter fund because the whole system was ridiculosuly skewed towards the comfortable even with this starter.

AnneE said...

An excellent piece - thank you. I don't think the "ordinary" Kiwis so beloved of speech-making politicians ever really include anyone outside the Pakeha middle class, even though, thanks to the determined efforts to reduce wages and worker protections, this group is rapidly shrinking. But all the "others" - including most Maori - are implicitly ignored at every turn.