Why don't we pay for our own pension? Ask Susan

Got questions? RNZ has a podcast, 'No Stupid Questions', with Susan Edmunds.

We'd love to hear more of your questions about money and the economy. You can send through written questions, like these ones, but even better, you can drop us a voice memo to our email questions@rnz.co.nz.

You can also sign up to RNZ's new money newsletter, 'Money with Susan Edmunds'.

I think this whole super funding model comes down to some very basic economic principles. Back in the early 2000s when Michael Cullen was still alive I had an ongoing dialogue with him regarding the equitable source funding of NZ Super. My recommendation to him was to actuarially sequester and bank for future aged superannuation access - from each person's contributing tax take each year, a portion of the tax they paid into the NZ Super fund that he set up. He was on the right track but refused to depart from the "fiscal tax spend each year, as the Government takes" attitude. Think about it? I challenge you to question the economists you defer to, to fault this logic.

New Zealand funds the pension system with a "pay as you go" model, so people who are earning and paying tax now are funding the pension that is being paid now. That's why it is a concern that in future there are likely to be fewer working taxpayers compared to people who are retired and drawing the pension.

Contributions are made to the NZ Super Fund by Government, which it will then eventually draw from to smooth the impact of higher costs in future. If we were to make additional contributions to that fund from the tax being paid by individuals, and then ringfence it to be drawn down for those people in future, it would mean those people would either have to pay more tax, or there would be less available for the other things we currently pay for from that tax.

If we changed to a pre-funded model for pensioners in the future, we would have to find another way to pay for the people who are currently drawing NZ Super now.

You could argue that this is effectively what KiwiSaver is doing, though. Economist Cam Bagrie makes the point that if we move to compulsory KiwiSaver, we are directing a portion of each person's money to go from their income to a fund that will be available specifically to them when they reach retirement age.

I am nearing retirement age and looking at where to put the portion of my KiwiSaver funds I'll be drawing on for living expenses over the next two to five years. I'm currently with Simplicity and plan to leave most of my savings in a conservative fund, with a smaller portion that I won't need for 10or more years in a growth fund. My question is around the "living expenses" bucket. Interest rates for on-call savings accounts at the main banks are quite low. In contrast, Simplicity's cash fund seems to offer returns comparable to bank term deposits, while still keeping the money accessible at short notice. Is using a KiwiSaver or managed cash fund instead of a standard bank on-call savings account a good strategy for short-term funds in retirement? What are the potential trade-offs or risks to keep in mind?

Liz Koh, founder of Enrich Retirement, said funds that were being set aside for spending in the short term should be managed with the aim of being stable in value with a high level of liquidity not with the aim of maximising return.

"Whether the KiwiSaver fund will achieve this depends on what the underlying assets in the fund are and how quickly money can be accessed. Some 'cash' funds may include short term investments that could drop in value if there was a sudden rise in market interest rates. It's a case of doing the research and finding out what the risks are."

Where does pie tax go in KiwiSaver every day? I'm paying over $100 per day.

I've had a look at your statement and it indicates tax of $100 over the year-to-date, rather than per day.

RNZ is currently running a story about the World Food Programme cutting its assistance to Gaza due to a lack of funds. I used to donate to the WFP directly, but I wasn't able to get the tax credit from the IRD for it so I stopped the donation and now only donate to UNICEF, which I can get the tax credit for. Can you please advise how I can resume donating to the WFP and be eligible for the tax credit? The WFP in Italy (I think it was) couldn't help me with this question, so I just stopped the automatic payment but haven't resumed donating the money.

I've checked with Inland Revenue and it seems that the reason you are not able to do this is that it is not approved as a donee organisation. Organisations need to be on IRD's list to be able to qualify for the donation credit. Organisations have to either be established in New Zealand or have a very strong connection to New Zealand.

Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make and spend money