Breaking news. Retirement Commissioner wants Kiwi Saver changes
The Retirement Commission wants the Government to implement a higher default KiwiSaver contribution rate and require employer contributions for over 65s and under 18s
13th Jun 24, 12:33pm by Ella Somers
KiwiSaver balances across all age groups are lower than expected after almost 18 years of the voluntary savings scheme, according to the Retirement Commission.
The Retirement Commission has released a new paper – The KiwiSaver Opportunities for Improvement – with 15 recommendations for the Government on how to improve KiwiSaver.
The paper used data from Inland Revenue, the Retirement Commission’s research, and the Financial Markets Authority to analyse KiwiSaver and identify where there are opportunities for improvement.
The suggestions range from extending KiwiSaver eligibility to include temporary visa holders to removing the practice of employers deducting their required KiwiSaver contributions from employees’ pay instead of contributing it on top of their pay.
Retirement Commissioner Jane Wrightson wants a higher default contribution rate of at least 4% and says employers should be matching at this level or more.
“The reality is we all need to be saving more for our retirement but know that it’s particularly challenging against the current backdrop of high inflation and cost of living challenges,” she says.
The Commission’s report says the KiwiSaver scheme now represents 80% of employed individuals, finding that self-employed individuals are less encouraged to participate in the Scheme. People not contributing to the Scheme were often constrained by low or absent incomes.
Approximately 90% of eligible paid employees are actively contributing and only 5% are on savings suspensions – typically for less than a year.
Notably, a significant portion of KiwiSaver members – one million – earn less than $20,000 annually, with this figure including 200,000 children.
The Commission also found members are collectively contributing more than employers and the Government combined.
Only one in three employees contribute more than 3%, while less than one in 10 employees have an employer contribution rate exceeding 3%.
However, few employers contribute beyond the 3% minimum, and over half have adopted a total remuneration approach, diminishing the incentive for employee KiwiSaver participation.
The Commission says more than half of employers have adopted a total remuneration approach for some or all of their employees, and describes it as “further eroding” incentives for employees to contribute to KiwiSaver.
It’s against making KiwiSaver contributions compulsory and Wrightson says the existing “soft” compulsion setting of being auto-enrolled but able to opt out should be retained.
“Making KiwiSaver compulsory is one that comes up frequently in discussions, but when you consider the evidence, we already have high membership. Those not contributing are most likely not in paid work, on low incomes, or self-employed,” she says.
However, the Commission wants to see the Scheme changed to allow children under 16 to enroll with the signature of just one parent or guardian if it’s not possible to get consent from all guardians. Currently, anyone aged 16 or 17 needs at least one legal guardian to co-sign their application.
It also believes the pre-65 withdrawal settings are working “as intended” but opposes expanding them, arguing it would undermine KiwiSaver’s primary goal of retirement saving.
More than 200,000 people aged 65 and over have KiwiSaver accounts and the Commission put forward that employer contributions should be required for people both over 65 and under 18.
The Commission has concerns around the accessing of funds post-age 65, and says there’s a worry that people aren’t receiving adequate guidance for the drawdown phase.
“We believe KiwiSaver providers should also be doing more to assist members as they navigate the drawdown phase after age 65,” the report says.
Iwi-based schemes
The report also touched on iwi-based savings schemes, saying they provide a by Māori for Māori approach that recognises the role of iwi, hapū and whānau in retirement planning but they don’t benefit from the same “matching incentives” as KiwiSaver.
The Commission discussed Whai Rawa, a Ngāi Tahu managed investment scheme which was established in 2006 by Te Rūnanga o Ngāi Tahu.
Whai Rawa members can access their funds for tertiary education, first home purchases, and retirement from age 55. While the scheme includes a matching mechanism, the levels of contributions may vary annually and among members. Te Rūnanga o Ngāi Tahu also reserves the right to reduce or even cease contributions.
“It aims to improve the wellbeing of Ngāi Tahu whānau by providing a vehicle for distributions to eligible whānau,” the Commission says.
Presently, for every dollar contributed by adult members (aged 16-64) in a calendar year, Te Rūnanga matches with another dollar, capped at $200 per member after applicable taxes.
Annual distributions are determined at the discretion of Te Rūnanga, with amounts subject to change across years and members.
“We therefore suggest that consideration be given to determining whether the incentives offered in the KiwiSaver scheme, employer matching contribution and government contribution, could be extended to iwi-based savings schemes,” the Commission’s report says.
“This would allow individuals to choose where they direct their own contributions, without missing out on the employer match and government contribution should they prefer to save in their iwi-based scheme.”
In the billions
KiwiSaver funds under management reached $108.6 billion in March, up $4.6 billion in the quarter.
“KiwiSaver has been instrumental in promoting retirement savings across New Zealand, but it’s time to look at it again,” Wrightson says.
KiwiSaver currently only allows people to withdraw from their KiwiSavers before the retirement age of 65 for only two reasons – the first being financial hardship and the second being first home purchases.
The Retirement Commission said on Thursday that between 2012 and 2023, $8.3 billion has been withdrawn by first home buyers and $983 million has been withdrawn for financial hardship.
On average, about 1% of members withdraw funds for first home deposits each year, compared to 0.5% who withdraw their KiwiSavers annually due to financial hardship.