John MacDonald: The KiwiSaver divide that needs sorting

I think it would be very easy to push-back on Retirement Commissioner Jane Wrightson’s call for changes to the KiwiSaver scheme to make it easier for self-employed people to save for their retirement.

But I’m not going to.

She wants to see changes because people who work for themselves are contributing nowhere near as much as employees —partly because they don’t get the benefit of an employer making contributions— and she says that could mean they end up living in poverty when they retire.

A tax expert agrees, saying a retirement savings scheme must work for all New Zealanders, regardless of how they earn their income.

According to a new survey, between April last year and March this year, only 44% of self-employed New Zealanders actively contributed to KiwiSaver compared to 78% of employees.

And of those self-employed people who did contribute, 41% of them didn’t get the government contribution because of irregular income or low earnings.

I say it would be easy to push back on what the Retirement Commissioner is calling for, because people who work for themselves are sometimes seen as having it made.

That’s, generally, the view of people who have never owned a business or have never been a sole trader. I've been a sole trader before and it's not easy. And I think we should be doing more to help these people get ready for retirement.

The question we need to ask ourselves is whether someone who goes out on their own in business —knowing full well that it’s a risky thing to do— should have some sort of backstop in the background for their retirement, or more government support for their retirement.

If you were to look at it in a very black and white fashion, you could say they shouldn't be supported. You could say to a business owner or a sole trader that, if they want the freedom and benefits of working for themselves, then it’s on them to save for their retirement. 

But I don't see it that way.

Because even though there can be big opportunities and positives working for yourself, quite a lot of people still get burnt financially. And, as the Retirement Commissioner says, what happens to these people?

People who have next to nothing saved because they’ve just been focused on keeping their business afloat.

So wouldn’t it be better to help them out sooner rather than later?

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Episode Transcript

Speaker 1 (00:06):
You're listening to the Canterbury Mornings podcast with John McDonald
from NEWSTALKSB.

Speaker 2 (00:13):
You know, I think it would be I think it
would be very easy to push back on Retirement Commissioner
Jane Wrightson's call this morning for changes to the Kopy
Saver scheme to make it easier for self employed people
to save for their retirement. It would be easier to
do that, but I'm not going to Jane Wrightson. She
wants to see changes because people who work for themselves

(00:34):
are contributing nowhere near as much as employees as people
who work for wages and salaries, partly because they don't
get the benefit of an employer making contributions for them,
and she says that could mean they end up living
in poverty when they retire. A tax expert, he agrees,
saying that a retirement saving scheme must work for all

(00:57):
New Zealanders, regardless of how they earn their money. Here
are the numbers for you. According to a new survey,
between April last year and March this year, only forty
four percent of self employed New Zealanders actively contributed to Kiwisaber,
compared to seventy eight percent of employees so kind of
getting close to half. And of those self employed people

(01:22):
who did contribute, forty one percent of them didn't get
the government contribution because of irregular income or low earnings. Now,
I say it would be easy to push back on
what the Retirement commissioner was saying, because people who worked
for themselves they're sometimes seen as well. They're sometimes seen
as having it made. Aren't they living off the duck's back?

(01:43):
Well I'm not quite, I mean, but generally the view
of people who have never owned a business or who
have never been a sole trader is that it's a
bit of a lark. I mean, I've been a sole
trader before, so I've got some idea. But you know,
some people see the self employed, they see them claiming
back business expenses and other things, and they think, well,

(02:04):
it's the path to wealth and rich guaranteed, which was
certainly the message in that book that came at years ago.
Remember this rich dad, poor dad. Now, the message in
that book was, you know, don't work for a salary,
you sucker. Get a business going, or buy a business.
And the theory behind that was it a business owner

(02:25):
or a sole trader only pays tax on the money.
That they have left after all their expenses, unlike a
wage or salary owner who pays tax on their money
from the minute they earn it. But having your own
business or working as a sole trader, it's not easy.
It's not a walk in the park. And I think
we should be doing more to help these people, the
business owners and the sole traders. We should be doing

(02:47):
more to help them get ready for retirement. And I
thought the Retirement Commissioner explained the retirement saving's dilemma for
people who worked for themselves. I thought she explained it
beautifully earlier this morning.

Speaker 3 (03:00):
The self employed and sole traders have always got this
trade off. Haven't they to go to invest in the
business or have I just doing enough to cover my overheads?
I'm not really sure. What employeees have got, of course,
is the employer contribution, and there's nothing there for self employeed,
so they've got to kind of pay themselves if you like,
and they could pay themselves through their business. But they
also need to think a bit more about the future,
because don't we all, And it's going to be a

(03:22):
bit tricky for them. And the reason this is important
is you don't want them rocking up to pension age
and having basically nothing put away, particularly if the business
has failed or something else has happened, because then you
start talking about what they need in terms of additional
government assistance. So it starts getting an important conversation.

Speaker 2 (03:38):
It is a very important conversation. In fact, it's more
than that. It's also a philosophical discussion. And that's what
I'm interested in today because the question we need to
ask ourselves is whether someone who goes out on their
own business, knowing full well it's a risky thing to do,

(03:59):
whether they should have some sort of backstop on the
background for their retirement, or whether they should have more
government support for their retirement. And if you were to
look at it in a very black and white fashion,
you could say no. You could say, bugger them, it's
not them. You could say to a business owner or
a sole trader that if they want the freedom and
if they want the benefits of working for themselves, then

(04:20):
it's on them to save for their retirement. You could
say that, But I'm not seeing it as a black
and white thing, because even though there can be huge
opportunities and huge positives and working for yourself, quite a
lot of people still get burnt financially, don't they? And
as the Retirement commissioner saying today, what happens to these people,

(04:42):
people who might have next to nothing saved because they've
just been focused on keeping their business afloat. What happens
if the business goes under and by the time they
reach retirement age potentially impoverished as the as the Retirement
Commissioner was saying today, Well, that happens. We all end

(05:03):
up paying for that, don't we. We all end up paying.
So wouldn't it be better? Wouldn't it better to help
these people out sooner rather than later? Or do you
think people who work for themselves need to save for
their retirement just like the rest of us, without expecting
any support from the taxpayer. Do we lead them to

(05:23):
it or do we help them out?

Speaker 1 (05:27):
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