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Moving your pension to NZ
So if you are moving your pension to New Zealand from the UK you may soon be met with a pleasant surprise – the system there is not that different from at home
That is, it will be, if plans to alter the UK state pension system to match that of New Zealand's new voluntary, work-based proposed scheme get the go ahead. Britain's arguably antiquated system is well overdue for a makeover, and it is said that the model favoured by experts is New Zealand's KiwiSaver scheme, a yet untested programme itself due to be launched in 2007 after being announced in last year's budget.
KiwiSaver enrolls employees when they begin a new job, but can stop the scheme if they want to within three weeks. The government pays NZ$1,000 (£400) into each new scheme. First-time homebuyers will also be subsidised up to NZ$5,000 (£2,000) towards their new property.
Contributions will come out of your pay cheque through the PAYE system at no less than four per cent of gross salary, although participants can choose to put aside up to eight per cent. Employers already offering superannuation savings schemes like KiwiSaver will not have to join the programme and companies have the choice of whether they will put money into their employee's plans.
A British equivalent – the aptly named BritSaver – would offer a low-cost savings scheme which deducts your earnings, or pay-as-you-earn (PAYE). The controversial KiwiSaver was introduced in the belief that New Zealanders will need more money in the future – to be clear, their retirement years – than the state can provide. Currently, the state pension is worth about £8,000 per year for a couple, or £5,200 for a single person.
The reaction of Geraint Davies, managing director at Montfort International Independent Financial Advisors is, quite simply, "here we go again". Davies says that ultimately the government cannot control an individual's decision to save for retirement, and that is where the plan is flawed. "Governments must go back to basics. Not everyone can afford to save and not everyone wants to save – it's the reality of the situation. Unless the person in the household who wears the financial trousers wants to save (and pre-supposing they can afford to), only then will voluntary savings take place." He says the compulsory Australian superannuation plan was successful because "the message got through". "There, employers reduced annual wage increases by one per cent per annum and gradually workers got nine per cent going into superannuation paid by the employer – note the employee gave up one per cent per annum of his pay increase to fund it."
Davies goes on to say that, should a voluntary scheme be introduced to New Zealand and Britain, then the vital key is that people are persuaded to actually take part. "If it's not compulsory then it's got to be sold – the onus on making it work is the need for a sales force which would turn seemingly voluntary funding into neo-compulsory." This, he says, would be a downfall in the UK. "Selling is bad news as far as [Prime Minister] Blair is concerned, but to have successful voluntary [participation] requires excellent marketing and an active, well-rewarded sales force. In today's UK culture this would never work." Additionally, critics say the New Zealand government does not have a real picture of how much people are saving for retirement, because there are no reliable statistics to back up the worst fears and therefore they cannot claim that Kiwis are not saving enough. The same could potentially happen in the UK. "When people say they cannot afford to save, perhaps they are not earning enough. If people cannot earn more then the governments must provide incentives to people for retirement planning manifestos. Blair or Cameron or Kennedy – whoever – all need to bite the bullet," says Davies.
The New Zealand National Party, Labour's opposition, also claim the scheme does not address the fact that Kiwis do not earn enough to begin with and are overtaxed, leaving them little incentive to make savings. Suggestions for the British scheme so far include having an annual employee subscription of six per cent and annual charges of 0.2 per cent. Davies is not convinced the UK has the right idea in looking to use the KiwiSaver model here, although he does stress that it is definitely time for change. "Governments must try anything they can. Certainly stakeholder pensions have been a disaster. So it's back to the drawing board and both the UK and New Zealand must look to Australia – they got it right."
For further information:
Montfort International
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