KiwiSaver is nearly ten years old. New Zealanders are saving more for retirement, and KiwiSaver is achieving many of its goals. KiwiSaver is always a work in progress, though, and the Commission for Financial Capability has recommended some immediate changes that could make a big difference to people’s retirement savings and lifestyle. Overall we support these changes: here’s why.
Seven main changes
You can read the Commission’s full report and news release here. Aimed at making it easier for people to save, the recommendations are based on public surveys and expert advice. The immediate recommendations are to:
- increase KiwiSaver minimum employer and employee contributions from 3% to 4%;
- allow members to choose a ‘set and forget’ automated annual increase in their contribution rate (e.g. you could choose to have your contributions increase by 0.25% per year, up to a cap);
- add 6% and 10% contribution rate options;
- allow people over 65 years to join KiwiSaver;
- decouple the age of access to KiwiSaver funds from NZ Superannuation;
- change the name of ‘contributions holiday’ to ‘savings suspension’ and reduce the maximum time to one year; and
- make KiwiSaver providers show the total dollar cost of all fees on annual statements.
Our take: overall, we agree
The suggested changes make sense and would help improve KiwiSaver. New Zealanders have said they want these things to happen, and we agree.
We particularly support the increase in contribution rates, as 3% may still leave a lot of Kiwis short on retirement income. Even a 1% increase can have a huge effect: for example, a 20 year old earning $40,000 could increase their KiwiSaver balance over their working life by $82,767 to $362,142 by contributing at 4%, with a matching employer contribution, rather than at 3%.
Adding 6% and 10% contribution options is sensible (particular, the addition of the 6% option), as the existing jump from 4% to 8% is a large whack out of people’s take home pay. Allowing people to increase their contribution rate is a great idea, but if members can afford to pay more into their KiwiSaver account, they may also want to look at other ways to help increase their retirement savings. Contributing to another product that, unlike KiwiSaver, would allow investors to access their money before 65 would help them grow their wealth and also offer them the flexibility that comes with being able to access their money at any time.
Allowing people over 65 to join KiwiSaver if they want to makes sense, especially as KiwiSaver offers a number of additional benefits, such as the annual member tax credit.
Decoupling the age of eligibility from NZ Super provides Kiwis with more options on when they can retire and withdraw income from KiwiSaver. If you can show that you’ve retired, you should be able to access your funds. As part of this recommendation, allowing earlier access for members with physical and intellectual disabilities is a great idea.
More transparency around fees is crucial – Kiwi Wealth is already one of the few providers to show the total dollar cost of fees to our members, and we always have.
The recommendations have been presented to Commerce and Consumer Affairs Minister Paul Goldsmith. Work is already underway to increase fee transparency requirements, and Minister Goldsmith has said that the other suggestions will be looked at closely and considered.
To us, this is a national conversation that’s worth being part of. We’re proud of the work we do to provide outstanding value for money through our KiwiSaver scheme, and support the ongoing evolution of KiwiSaver. Check out the Commission for Financial Capability’s overall Retirement Review – they’re communicating their work in innovative and fun ways – and let us know how you feel about these ideas in the comments section below or on our Facebook page.
 This example comes from the Commission’s full report and is based on the Sorted.org.nz calculator assumptions. The calculator assumes a salary increase of 3.5% each year, that there are no contribution holidays or withdrawals for home purchase or mortgage diversion, and that the maximum tax credit of $521.42 is received each year. Inflation of 2% is also assumed.
This is intended as general information only. It does not take into account your financial situation and goals and is not personal advice. For advice about your particular circumstances, please see your financial adviser.
Alan Gilbert, Senior Product Manager, Kiwi Wealth
You can read more articles by Alan on our blog.