Government ignored official advice in ramming through proposals to poke two new withdrawal leak points in KiwiSaver.
Under the yet-to-be-legislated government plan, members will be able to make withdrawals to fund farm purchases through trusts or corporate entities while employees in ‘service tenancies’ can tap their KiwiSaver accounts for a first-home purchase without living in the property (and rent it out in the interim).
In new official papers, the Ministry of Business, Innovation and Employment (MBIE) advised the National-led government to retain the status quo or risk undermining the core retirement savings purpose of KiwiSaver.
“Foundational KiwiSaver documents clarify that these conditions were intended to ensure that early withdrawals support retirement outcomes rather than being used for investment properties or other business purposes,” the MBIE document says.
According to the published advice, departmental analysts failed to find any evidence that current KiwiSaver settings had held back farm purchases or stopped workers entering the agricultural sector.
Furthermore, MBIE was “unable to find evidence to indicate the scale of this issue for service tenancy workers”.
“The proposals have arisen out of lobbying from the farming sector (specifically Federated Farmers) and seem to be based on anecdotal observation more than evidential analysis,” the official advice notes.
“… There is no evidence suggesting that the proposals are a more effective way to support the farming sector into farm ownership than other possible interventions, such as a targeted education campaign for farmers, developed in partnership with industry players, to provide financial advice to those saving for a farm, or a bespoke product for that purpose.”
MBIE highlighted concerns the policies could serve as a precedent for KiwiSaver withdrawals to help fund other business purchases in another blow to the regime’s fundamental retirement savings purpose while imposing potential liquidity squeezes on providers.
“… foundational KiwiSaver papers note that the scheme will not work optimally for everyone. It is meant to be a simple savings scheme—easy to understand, easy to use, and straightforward to provide,” the departmental advice says. “Amendments to make it work for everyone, for every purpose, could compromise both the simplicity and the purpose of the scheme set out in the KiwiSaver Act.”
Commerce Minister Scott Simpson said in a release that the proposals would redress the alleged town-country imbalance in KiwiSaver.
“These are targeted, practical changes that maintain KiwiSaver’s core purpose while making the scheme fairer for rural communities,” Simpson said.
The MBIE analysis notes that the policies, due to enter parliament mid-year, would also impose administrative costs on providers that “may be passed on to members in fees”.
If implemented, the KiwiSaver changes would clash with global retirement scheme practices, too.
“International comparisons are not straightforward, as KiwiSaver is unique in its design and purpose,” the MBIE advice says. “However, we are not aware of any comparable defined contribution retirement savings schemes in other countries that allow early withdrawals for the proposed purchase of a business or an investment property.”
Government eschewed a broad consultation on the proposals with public feedback to be limited to the select committee phase if the bill proceeds.
Both first-home and hardship withdrawals – the two main early-exit ramps in KiwiSaver – have spiked higher in recent years, hitting a record joint high of more than $2.3 billion over the 12 months to June 30 last year.
From June 30, 2011, through to the end of February this year, KiwiSaver members have withdrawn some $15.2 billion on hardship grounds or for first-home purchases with the majority (circa $13 billion) attributed to the latter, according to Inland Revenue Department data.