If the government is making changes to KiwiSaver contribution rates, the amount we are putting aside for retirement should be pushed up to 10% of incomes, providers say.
At the moment, the default position is for employees to contribute 3% of their gross pay to KiwiSaver. Employers need to offer a contribution of at least 3%, unless there is a “total remuneration” agreement where the employee agrees the contribution is coming out of their total pay package.
Employees can choose to contribute more – at rates of 4%, 6%, 8% or 10% of gross income.
But Finance Minister Nicola Willis has hinted change could be coming, telling the New Zealand Herald she wanted to see balances increase over time and she was taking advice.
Sarah Whitelock, consumer wealth lead at KiwiSaver provider Mercer, said increasing the minimum contribution to a combined 10% would be a good step that would help New Zealanders have a better retirement.
She said there were many positive things about the New Zealand retirement system, but it could be improved with a higher contribution rate.
“If we compare ourselves to Australia, they are sitting on a contribution rate of about 12% and a significantly larger pool of superannuation assets.
“If we look at how their pool of pensionable assets compares to GDP, theirs is about 150% of GDP and ours is about 40% of GDP. We have work to do and we believe lifting the contribution rate will help that.”
The Netherlands was considered “top of the table” when it came to pension systems, and had both universal super and a 12% contribution rate, she said.
“We really believe lifting the contribution rate will lift the ability for New Zealanders to retire well.”
The government contribution of $521 could also be indexed for inflation, she said. At the moment, with the effect of compounding, it would add about $60,000 to a person’s balance but if it was inflation indexed it could reach closer to $87,000, she said.
“We could look at increasing employer contributions and employee contributions and discussion about whether indexation of government contributions could be part of that.”
It was important to act rather than wait for everyone to agree it was the right thing to do, she believed.
“We would say the right time to put away more money is always yesterday. If we wait for everyone to be happy about it as a solution or idea there’s a risk nothing happens.”
A phased approach would be the best option to allow individuals and employers time to plan, she said.
“There are already employers contributing more than the 3%, if their employees contribute more than 3%… There are some people who are concerned about the cost of living but let’s begin the conversation and start to se what implementation could look like.”
Pie Funds chief executive Ana-Marie Lockyer supported the idea that New Zealand needed to get to a 10% contribution rate.
“The mix can be managed in various ways but if we say 5% plus 5% that is a good place to start. But not overnight… the key is reviewing the settings, set a long-term goal that all political parties agree to, then stagger the increases with advance notice.
“There are not many things I idolise from across the ditch but we can learn something on this front, although I don’t think we need to go as high as them. I think it took Australia 30 years for large employers to increase from 4% to 10% superannuation guarantee.
“KiwiSaver is only 18 years old so now feels like the time to signal the change and make a plan to move there. That will make a big difference to the retirement outcomes of New Zealanders.
“For example, moving from 6% to 10% for a 35-year-old restarting savings after a first home purchase will result in an additional $160 per week in their retirement, inflation adjusted.”
