Tuesday, March 4, 2008

KiwiSaver to create millionaires?

New Zealanders are such notoriously poor savers, I can't imagine more than a few of them becoming millionaires. Yet Mary Holm (http://www.maryholm.com/), writing in The Dominion Post today, predicts a rich retirement for young people who join KiwiSaver. Under a headline that reads Join KiwiSaver Now or Forever Hold Your Pence, she says an 18-year-old earning $50,000 a year who joins it in 2010 will accumulate "about $1.27 million" by age 65.

(For the information of those outside New Zealand, KiwiSaver is "a voluntary, long-term savings initiative" whose members' contributions are administered by Inland Revenue through the PAYE system. Workers who enter one of the KiwiSaver schemes receive a Government "kick-start" in the form of a tax-free contribution of $1000. Other incentives include "a member tax credit", paid into the member's account each year if he or she is 18 or over, and a fee subsidy.)

"But if [our 18-year-old] joins [KiwiSaver] now," Holm continues, "he'll get two more years of growth on that big total - as well as two more years of contributions from himself, his boss and the Government. That brings him to more than $1.43 million. It's powerful stuff."

Holm's calculation is based on 4-percent contributions to KiwiSaver from the worker's pay, which rises by 3 percent a year, and earnings by his KiwiSaver fund of 5 percent a year after fees and taxes.

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