You can't eat your house

  • Michael Cullen

A new Treasury study on household savings reinforces the need for most of us to start saving for retirement earlier, rather than later in our working life, Finance Minister Michael Cullen said today.

The working paper released today finds that on average households have about 70 per cent of their wealth tied up in their own home.

Dr Cullen told a business audience in Havelock North this morning that owning your own home was a key part of securing your standard of living in retirement.

"However, the Treasury report makes clear that your house should not be relied upon to replace other saving. Many people plan to downsize the family home once retired, believing this will free up enough capital to generate additional income.

"The report finds that the effect of selling down your house is 'modest; it is only noticeable when households halve the size of their home.' Equity withdrawals once retired 'should not be viewed as a substitute for adequate levels of retirement saving.'

"This is a timely reminder for many New Zealanders to think beyond their investment in the family home if they are to secure their retirement dreams.

"It underlines the value of a savings scheme like KiwiSaver which is designed to make it easy for many low and middle income households to develop a savings habit earlier in life.

"This government recognises how hard it is for many households to save when juggling other challenges in life. And we recognise that many people want to have a standard of living in retirement beyond what New Zealand Superannuation can provide.

"When KiwiSaver launches on 1 July it will give many the helping hand they need so they can continue to enjoy life in their twilight years.

"It is clear we have a savings challenge as a nation. Statistics show we have one of the lowest savings rate in the developed world and it has been getting steadily worse over the last twenty years. Households on average are spending around $1.15 for every $1 they earn.

"The 2001 Household Savings Survey showed that only 15 per cent of individuals and 17 per cent of couples in the $15 - $50,000 income bracket had superannuation assets. KiwiSaver is designed to help these groups.

"I am pleased awareness is growing. A recent AXA survey found that a third of Kiwis now realise their retirement income from savings and New Zealand Superannuation will be insufficient to meet their needs.

"Saving to achieve a certain standard of living in retirement becomes much harder the longer you delay it. It is easier to start putting a small amount aside now, earlier on in your working life, than wait.

"KiwiSaver, by encouraging people to put aside 4 per cent or 8 per cent of their income now, makes the savings challenge that much easier.

"The challenge is clear and the government is rising to it with KiwiSaver."

Note: KiwiSaver is a voluntary, work-based savings initiative to help New Zealanders with their long term saving for retirement, starting on 1 July 2007. Inland Revenue will administer the scheme through PAYE. Individuals will be able to elect to save 4 per cent or 8 per cent of their pay in approved KiwiSaver schemes with an initial contribution of $1000 from the government. Those who start a new job will be automatically enrolled. Employers who contribute up to 4 per cent to a worker's KiwiSaver scheme will receive a tax exemption.