KiwiSaver

KiwiSaver has been the New Zealand’s most successful savings innovation in the last hundred years, the Financial Services Council says.

Chief executive Peter Neilson said, seven years after its launch, there were a number of reasons why it had beaten expectations.

He said the main reasons were that for those who found it hard to save, KiwiSaver made it easy to enrol and put the money away before it could be spent, and the kickstart incentives and matching employer contributions made it a no-brainer for most New Zealanders.

Neilson said as KiwiSaver members saw their balances grow, they were understanding the benfit of saving a bit each week for a long time.

More than 15,000 people have used their KiwiSaver accounts to buy their first homes.

He said: “We now have more than 2.3 million New Zealanders in KiwiSaver, more than three times the Treasury’s $700,000 initial estimate but we can make it even more successful.”

He said most people were saving at the 6% rate, of 3% from themselves and 3% from their employer.  “To fund a comfortable retirement on about two times the NZ Super pension income would require the contribution rate to go to 9% or higher. If KiwiSavers defaulted into a balanced or growth fund rather than a conservative one and the over-taxation of KiwiSaver funds was addressed, the contribution rates required to fund a comfortable retirement could drop.”

Labour’s KiwiSaver policy has been criticised by the University of Auckland’s Retirement Policy and Research Centre.

In its latest Pension Commentary, the centre’s researchers say that Labour has followed a long tradition in New Zealand politics of making announcements on retirement savings issues without public discussion or supporting evidence.

Labour has said that it would increase KiwiSaver contributions, make KiwiSaver “universal” – with a number of exemptions for beneficiaries, those on limited incomes and the self-employed, stagger the payment of the $1000 kickstart and ask the Reserve Bank to implement a “variable contribution rate” to be used as a tool of monetary policy.

Susan St John, Michael Littlewood and Claire Dale write: “New Zealanders deserve a full debate on all issues associated with the financial implications of an ageing population. KiwiSaver must be part of that debate, but cannot be seen as independent of the whole retirement income framework.”

They say Labour is wrong to refer to its scheme as “universal”. “The Labour Party’s KiwiSaver will be ‘compulsory’ in the same way and to a similar extent that Australia’s Superannuation Guarantee scheme is compulsory. With universal NZS, all who qualify receive the same taxable amount, but the lump-sum at age 65 from KiwiSaver will reflect the distribution of paid work, with high earners the major beneficiaries.”

Labour’s policy would increase the risk of some sort of offset to super eventually being imposed, they said, and the fact savings could be accessed at 65 while the pension age would rise to 67 could encourage early spending of the KiwiSaver nest egg. The researchers said this already happened in Australia.

The scheme under Labour would be more like Australia’s but the RPRC report said that was not necessarily something that New Zealand should strive for.

They said Australia’s compulsory superannuation savings scheme might not have had the positive effects on the economy that it was often credited with. “It has however enriched the financial services sector … Australians now seem to arrive at retirement with greater debt, having effectively ‘pre-spent’ their retirement savings. Australians also seem to retire early to collect their lump sum saving accounts and spend those before reaching qualifying age for the means-tested state pension.”

If KiwiSavers were forced to contribute more, they might save less in other areas, they said.

The proposed exemption from KiwiSaver for people on low-incomes would hurt those workers, too, because they would not only miss out on their own savings but they would lose what their employer would have contributed.

“Labour’s policy could instead have exempted them the member’s contributions but required the employer to make the same contributions for them as for other employees. The same approach could also apply to those who are allowed to stop contributing on grounds of hardship or ill health.”

More than half of young workers aged 15-24 years are already saving for their retirement, and most of those not already saving plan to do so in the future, a new survey shows.

The latest ANZ Retirement Savings Barometer surveyed 850 New Zealanders in April and May and found that more young people are thinking about saving for their retirement.

Fifty-five per cent of young people indicated they were saving for their retirement. And 82% of those not already saving for their retirement indicated they planned to save in the future.

ANZ Wealth managing director John Body said it was great to see so many young people planning for their retirement.

“With KiwiSaver, the earlier you start saving, the better off you will be,” he said. “Official records show that more than 2 million people are now in a KiwiSaver scheme, which is a fantastic result. We know retirement seems a long way off for young people, but clearly many young people have got the message that they should start saving early.”

But the ANZ survey found that only 31% of young people were confident of saving enough money to provide the weekly income they required when they retired.

“Obviously that’s a low level of confidence, but it is not surprising,” said Body. “For a young person just starting their working life, it can seem very daunting to think about the lump sum you will need to provide a basic income when you retire. But young people have time on their side – a 45-year history of regular contributions to a KiwiSaver fund, with the right mix of investments, means they are very likely to achieve their goals.”

Body said the past seven years had been all about getting people to join a KiwiSaver scheme.

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.”