KiwiSaver

Director and investor Fraser Whineray has delivered his plan for “KiwiSaver 2.0” to political parties this week.

The plan sets out changes that he thinks would make the scheme more robust into the future.

Whineray says contribution rates are low by international standards, access is tied to the age of eligibility for NZ Super, which makes it open to political change, and youth participation has dropped sharply since the $1000 kickstart was removed.

On top of that, contribution rates are insufficient, and people taking parental leave end up with less in their retirement savings. The distribution of Government incentives, now worth about $500 million a year, is also uneven, he says.

“They disproportionately benefit those already well engaged with KiwiSaver and are absent from early childhood, where time and compounding could do the most work.”

He wants $5000 to be given in a growth fund to each child at birth, and for families to contribute $100 a year matched by Government. He estimates that would give 18-year-olds about $25,000 in their accounts.

“There's a social side to that, but if we're just talking pure economics and technicals,  time in the market and compounding is absolutely the game, and I just think that half a billion dollars we currently spend today is regressive and it should be put to a much better and fairer use.”

Contribution levels would also be increased over 20 years, starting with a 2 percent compulsory employer contribution, increasing by 0.5 percent a year until it reaches 12 percent in 2047.

Employee contributions would be voluntary

“Any increase in compulsory employer contributions raises a legitimate question: what does it mean for wages? The honest answer is that over the long run, the cost of higher employer contributions tends to be reflected in the labour market, through modestly lower wage growth than would otherwise have occurred, higher prices, reduced profits, or some combination of all three. The mix depends on the sector, the economic cycle, and the bargaining power of employees at any given time. Pretending otherwise would undermine the credibility of this proposal,” Whineray said.

He said for changes to KiwiSaver to last, they had to be durable.  That was why he modelled a 20-year contribution rate transition, he said. “That has to be done incredibly slowly otherwise ethe impact on wages, the economy, or inflation –  a whole range of things – will be too much of a shock.”

A gentle transition would stop people being left behind.

He said the Government should also take over employer contributions from people taking parental leave, to ensure that people who took time out of the workforce were not left behind.

He would also set the KiwiSaver withdrawal age at 65, and add a decumulation framework to help people access their money.

Generate says providing advice on KiwiSaver can help create “a moat” around an adviser’s business.

“The more problems you solve, the more like they are to stay with you,” Generate’s head of distribution, Kristian James, told advisers, adding that advising clients on other managed funds is also an opportunity for advisers.

Speaking to a mix of investment, mortgage and insurance advisers in Wellington as part of Generate’s current roadshow around the country, James noted that research has shown that those with advisers are 4% better off each year and have 50% more in their KiwiSaver accounts.

Advisers should play a part in increasing KiwiSaver’s value and, with the average KiwiSaver balance now at about $36,000, “the KiwiSaver story has become more and more important to people.”

With a $1.6 trillion inter-generational wealth transfer happening over the next 30 years, property investment and term deposits are no longer as appealing as they used to be.

Generate has grown to 185,000 members with $8.7 billion in funds under management and more than 90% of its business coming from advisers said.

James said more needs to be done with KiwiSaver to drive the need for Kiwis to save more especially as New Zealand Superannuation comes under increasing pressure.

Quoting a Massey study, Generate’s head of distribution, James said that by 2065 it is estimated that there will be only two workers paying each retiree’s NZ Super.

“The numbers aren’t quite working out,” James said. “The retirement gap is real and it needs to be solved.”

He noted that the current government has recognised the gap between the amount people are saving and the amounts they will need to live on in retirement by pledging to lift contributions to 12% by 2032 with individuals and their employers each contributing 6% of that individual’s income into KiwiSaver.

While more than $123 billion is currently invested in KiwiSaver, that pales into insignificance alongside Australia’s $5.12 trillion invested in its superannuation schemes, which already require 12% contributions and which is compulsory whereas KiwiSaver remains a voluntary scheme.

While NZ has about a fifth the population of Australia, KiwiSaver’s value is just 0.2% the size of Australia’s superannuation scheme, James said.

He said Generate is ready to assist advisers in educating and empowering Kiwis, offering training, technology and administration so that advisers can offer their clients Generate’s products seamlessly – the company launched six new funds last year, three of which were KiwiSaver funds.

KiwiSaver providers are cautiously supportive of changes to make it easier for farmers to buy homes – but would prefer the tinkering with the system stopped.

The Government announced at the weekend that the laws would change so that people who have jobs where accommodation is provided can still use their accounts to buy a house.

The rules have previous required that people withdrawing money for a first home do so with the intention of living in it.

"Workers in service tenancies, such as farm workers, rural teachers, country cops, and defence personnel, have effectively been locked out of first home withdrawal because their jobs require them to live in employer-provided housing," Finance Minister Nicola Willis said.

“That’s not fair, so we're making a technical change to the KiwiSaver Act to ensure workers in service tenancies aren't denied the opportunity to put a foot on the property ladder.

"The change will allow service tenancy workers to use their KiwiSaver for a first home purchase without having to live in it."

People will also be able to use their KiwiSaver balances to purchase a farm through a commercial entity they majority own, when they plan to live on it.

Pie Funds chief executive Ana-Marie Lockyer said the service tenancy change was logical.

“Allowing balances to be used in connection with purchasing commercial farming operations raises more complex issues. The devil will be in the detail, and as a provider, we’ll need to understand the operational impact once that detail is clear.

“Stepping back, I’d prefer to see less tinkering with KiwiSaver settings and more focus on a bipartisan long-term strategy. KiwiSaver is now central to New Zealand’s retirement system — it deserves stability and a clear roadmap for the next 20 to 30 years.”

Financial Services Council chief executive Kirk Hope also told media he had similar concerns. He said any time the scope for withdrawals was widened, it could undermine the scheme as a retirement savings vehicle.

Koura founder Rupert Carlyon said he was not convinced the changes would make much difference.

“The changes look sensible, but the devil will be in the detail. Personally, I very much doubt there will be very many farmers that end up using KiwiSaver to buy their farms that are not already doing so – you are already allowed to use them if buying in your personal name. 

“I also support the idea that people provided with housing for their work will be able to buy a house using their KiwiSaver.

“My only concern would be, is this a great use of Parliament’s time? I suspect we are talking about hundreds of additional withdrawals a year here – a lot of effort for a pretty small change.”

Debt solution charity Debtfix is working with a growing number of KiwiSaver providers, to help them handle their financial hardship withdrawal workload.

Financial hardship withdrawal numbers have increased sharply in recent years. There were 10,000 more withdrawals last year than in 2024, to a total of 58,460.

Each withdrawal requires KiwiSaver provider staff to process the application for a supervisor to make the decision.

Debtfix chief executive Christine Liggins said her organisation was working with six providers so far, including Milford Asset Management and Simplicity.

“Milford have said it’s actually improved their staff morale – obviously we’re dealing with all the people in hardship and we get all the abuse and all the struggling people, that’s what we are set up to deal with. It takes them out of the KiwiSaver provider’s hands and they can get on with making and saving money rather than giving it away.”

She said Debtfix planned to start working with more KiwiSaver providers this year. “We’re just in the process of updating our software to help people engage, complete the forms, provide the documents and cut down the processing time for everyone.”

She charges KiwiSaver providers for the service but said members ended up with a better experience.

“We're providing a better service because we're talking to the members about all of their options for getting out of hardship and giving them all of the recommendations, whereas a KiwiSaver provider really just says ‘you're in hardship, process the form, off you go’.”

Her team would spend about eight hours with a client, she said.  “We get to know the client and try and understand the circumstances.”

That might involve directing them to the Ministry of Social Development to see if they could claim more entitlements, she said, or talking to their creditors about hardship provisions.

“We’ve got all the normal sort of financial mentoring tools in our kete. We can share that with them … sometimes if someone's just struggling with debt, then it might just be a debt solution that they need.”

She said it was important to make sure the KiwiSaver withdrawal was not just a bandaid solution.

“We actually want to make sure that we're looking at all options and opportunities for the client. And then we can get them out of hardship, but it's a longer term solution than a bandaid.”

A number of KiwiSaver providers have reported having to take on additional staff to deal with hardship claims.