KiwiSaver is shaping up to be a key issue of Election 26, with National, Labour, NZ First and the Opportunity party all suggesting changes to the scheme. But what do the experts say? Frances Cook reports.
Election season has turned KiwiSaver into a bidding war.
National wants to make it compulsory, with workers and employers each putting in 6%, and babies getting $1500 to kick off their savings.
Labour wants to make only the employer contribution compulsory, but also bring that up to 6%.
And don’t think the minor parties are going to miss out on the retirement savings debate, with NZ First pitching for both employees and employers to contribute 10%, while The Opportunity Party wants KiwiSaver 2.0, a brand new scheme where (as with National) employer and employee contributions rise to 6%, the difference being that balances in KiwiSaver 2.0 cannot be withdrawn for financial hardship or first-home deposits (although balances in the original scheme will still be accessible under the old rules).
The devil is in the detail, but basically everyone is looking at a version where you need to put more into your KiwiSaver.
It comes as KiwiSaver hurtles towards its 20th birthday, now firmly established in our financial lives. Making bigger savings, and possibly compulsory ones, would transform how New Zealanders approach retirement.
Done badly, it hurts the people who can least afford it.
Done well, it eases the looming problem of unaffordable retirement years.
So what do the experts think?
Compulsion needs a carrot
Independent financial commentator Bernard Hickey sees KiwiSaver as a big part of the solution to our retirement headache, but isn’t impressed with the solutions on offer so far.
While Australia’s compulsory and high-contribution system is often used as a justification for changing ours, he points out there are also sweeteners that aren’t being included in the current New Zealand system.
“There’s no way the Australians would have got that scheme across the line in the early 90s unless they had an incentive to save.
“In Australia you contribute money to your compulsory pension scheme and you don’t pay tax on it.
“Kiwisaver, you pay the tax first and then you put what’s left over into the scheme. There’s no incentive.
“So National and Labour are both now talking about compulsion without compensation.”
Hickey points out that reduced or entirely removed tax is a common tactic, used by several other countries, in order to persuade people to contribute more to their retirement savings.
In Hickey's view, if KiwiSaver was to be made compulsory, that would need to be balanced by tax incentives.
He adds that total remuneration should be removed as an option (that's when employers include their KiwiSaver contribution in your total salary 'bundle', instead of on top); and believes there should be further incentives provided for self-employed people, who are currently left mostly in the cold.
Get it right for lower earners
Recently appointed Retirement Commissioner David Boyle is still assessing how well KiwiSaver is working for New Zealanders, but says he’s generally a big fan of the scheme.
“The auto-enrolment, and the truck and trailer approach where your KiwiSaver follows you to each new job, those are all awesome.”
But he does warn that making blanket changes to settings can backfire.
Boyle says he used to be a fan of the idea of increasing minimum contribution rates, but now he’s more cautious.
“It’s a little controversial, but just putting contribution rates up all the time doesn’t necessarily support all New Zealanders to have a better financial outcome in retirement.
“That sounds a little counter intuitive, but the group I’m talking about here are the lower income earners.
“We have to be very careful, because if someone is on the edge now, this could put them into some more difficulty, which might mean that they will then need to use their KiwiSaver for a hardship withdrawal.”
Boyle also points out that KiwiSaver isn’t working so well for self-employed and contractors, as well as women who often take time out of paid work to care for family.
He also cites total remuneration as a problem that is outside of the spirit of KiwiSaver.
Fix it once, then leave it alone
EnableMe financial adviser Katie Wesney also has a KiwiSaver wishlist that starts with removing total remuneration packages.
Then she suggests that the system be changed so that employer contributions keep going even if a worker pauses their own, similar to how it works in Australia.
Wesney says it’s one way to make sure compulsory measures aren’t as hard on low earners.
“I would really love if we could decouple the employer and employee contribution, because I do worry about our people who are earning less.
“It’s such a big chunk, and they’re the people we want to be protecting the most, in terms of making sure they’re OK longer term.”
But she makes the point that even if this does become ‘the KiwiSaver election’, whoever ends up making changes after the election should make sure they do it effectively in order to avoid a scheme that's constantly changing.
“Once we’ve fixed these things and made it future proof, I’d like us to stop tinkering as well, because I think that decreases confidence in KiwiSaver conceptually.”
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