KiwiSaver

Labour’s proposal to increase KiwiSaver contributions is a welcome move, the Financial Services Council says.

Under a Labour Government, all employees who are not already KiwiSaver members would be enrolled next October.

A year later, their minimum contribution, and that of their employers, would increase from the current 3% at a rate of a quarter of a percentage point every year, to a combined 9% over time.

Students, beneficiaries, self-employed people and those on very low incomes would be exempt.

The FSC said a contribution rate of 9% would be sufficient to achieve a comfortable retirement for someone who was saving for 40 years, even on the minimum wage.

Chief executive Peter Neilson said: “Starting current non KiwiSavers at only 1% and stepping up contributions by 1% a year and 0.25% a year for existing KiwiSavers addresses concerns about affordability for employees.  It is useful to remember that when Australia started its journey on compulsory superannuation in 1992 their wages were about the current level in New Zealand.”

He said if members were to default into balanced or growth, rather than conservative funds, and the tax treatment of KiwiSaver was made more favourable, the contribution rate could drop below 9%.

The Government has ruled out a move to a compulsory savings system.

Finance Minister Bill English said: “Most of the people who can save effectively through KiwiSaver are already in it, and most of the people who are out of it have opted out because they are unable to save.”

KiwiSaver members are being reminded to make sure their annual contributions for the 12 months to June 30 are sufficient to ensure they get the full government hand out.

For every dollar a member puts into their KiwiSaver account, the government puts in 50 cents – up to a maximum of $521.43 each year. The MTC is paid into a member’s KiwiSaver account in late July or August and to get their full MTC this year, individuals need to contribute $1,042.86 to their KiwiSaver account between July 1, 2013 and June 30, 2014.

For those who joined part way through the KiwiSaver MTC year, their MTC will be pro-rated.

“There aren’t many opportunities in life to get free money, so we think those saving for retirement should do their best to try and get as much of their $521 MTC from the Government as possible,” AMP chief customer officer Jeff Ruscoe says.

He says that over time MTC contributions can add up significantly and make a big difference over a lifetime of saving.

“Even if you are unable to top up the entire amount this year, the Government will still contribute 50 cents for every dollar paid to your KiwiSaver account. We just recommend people make a goal for next year to increase contributions to reach the $1,042.86 threshold,” continues Ruscoe.

Recent AMP research found that only 41% of working Kiwis are aware of the MTC credit available to them each year. In addition, 68% are unaware of how much they need to contribute in order to receive their full MTC payment.

“If someone is earning over $35,000 per year and contributing at 3% then they are likely to get the full $521. Many people don’t realise that by taking a contribution holiday they are missing out on free money from the Government.

“With so many people unaware of the MTC we believe that it’s absolutely essential that AMP and the rest of the industry takes time not only to educate Kiwis about the opportunity to receive their Government MTC contribution, but also to remind people as the deadline approaches so that we can all help New Zealanders live the retirement lifestyle they want,” Ruscoe says.

Although there are a number of KiwiSaver funds marketed as ethical or socially responsible, the Sustainable Business Network, is seeing how much interest there is a new fund.

The Network has launched  a survey which aims to identify demand and create a sustainable KiwiSaver fund for New Zealand.

It says that KiwiSaver funds currently have little to no sustainability criteria. “This means that when fund managers select companies to invest in on New Zealanders’ behalf, they don’t include environmental or social factors as part of their investment criteria,” it says in a release.

“A growing number of New Zealand businesses are providing solutions to some of our environmental and social issues. We want to develop investment criteria that will help to grow these sorts of businesses,” says Rachel Brown, CEO of the Sustainable Business Network.

“A set of positive criteria, which would align well with SBN’s aim of turning New Zealand into a model sustainable nation, would reward companies in areas such as clean technology, sustainable agriculture and more.”

The survey forms part of the Sustainable Business Network’s project to create a sustainable KiwiSaver fund for New Zealand. The results of the survey will be taken to the finance industry to find a solution.

“We want to know what New Zealanders want from a sustainable KiwiSaver investment fund,” Brown says.

Go to the survey here
 

New Zealanders with a mortgage have even more enthusiasm for compulsory KiwiSaver than New Zealanders generally, says the Financial Services Council.

It had been suggested that those with a home loan might be less likely to support a compulsory retirement savings scheme if it meant it took them longer to pay off their mortgages.

But FSC chief executive Peter Neilson said 72.6% of the respondents to a Horizon Research survey who had a mortgage supported compulsory KiwiSaver, compared to 70.7% generally.

He said the issue for middle and lower-income New Zealanders was not whether to save for a house or a comfortable retirement. “They know you have to save for both and many are doing so using KiwiSaver.”

He said:  “If you get to retirement without mortgage free accommodation, you probably won’t achieve an adequate retirement, living on NZ Super alone. KiwiSaver for most New Zealanders is the best way to save your first-home deposit and later to save to achieve a comfortable retirement.  That’s why more than 10,000 New Zealanders have already used KiwiSaver to save the deposit to purchase their first home.”

But he said investment in property was taxed more leniently than KiwiSaver investments.

“That’s why the FSC is campaigning for fair taxation of KiwiSaver funds.  Paying off the mortgage or saving for retirement in KiwiSaver is a false choice, we need to do both and a fairer tax treatment for KiwiSaver funds would help both objectives,” he said.

“The FSC has not itself taken a position on whether KiwiSaver should be compulsory or stay voluntary but has commissioned research and polling to help New Zealanders, our politicians and their advisers to be better informed about the options available.”