KiwiSaver balances across all age groups are lower than expected after almost 18 years of the voluntary savings scheme, according to the Retirement Commission.
The Retirement Commission has released a new paper – The KiwiSaver Opportunities for Improvement – with 15 recommendations for the Government on how to improve KiwiSaver.
The paper used data from Inland Revenue, the Retirement Commission’s research, and the Financial Markets Authority to analyse KiwiSaver and identify where there are opportunities for improvement.
The suggestions range from extending KiwiSaver eligibility to include temporary visa holders to removing the practice of employers deducting their required KiwiSaver contributions from employees’ pay instead of contributing it on top of their pay.
Retirement Commissioner Jane Wrightson wants a higher default contribution rate of at least 4% and says employers should be matching at this level or more.
“The reality is we all need to be saving more for our retirement but know that it’s particularly challenging against the current backdrop of high inflation and cost of living challenges,” she says.
The Commission's report says the KiwiSaver scheme now represents 80% of employed individuals, finding that self-employed individuals are less encouraged to participate in the Scheme. People not contributing to the Scheme were often constrained by low or absent incomes.
Approximately 90% of eligible paid employees are actively contributing and only 5% are on savings suspensions – typically for less than a year.
Notably, a significant portion of KiwiSaver members – one million – earn less than $20,000 annually, with this figure including 200,000 children.
The Commission also found members are collectively contributing more than employers and the Government combined.
Only one in three employees contribute more than 3%, while less than one in 10 employees have an employer contribution rate exceeding 3%.
However, few employers contribute beyond the 3% minimum, and over half have adopted a total remuneration approach, diminishing the incentive for employee KiwiSaver participation.
The Commission says more than half of employers have adopted a total remuneration approach for some or all of their employees, and describes it as “further eroding” incentives for employees to contribute to KiwiSaver.
It’s against making KiwiSaver contributions compulsory and Wrightson says the existing “soft” compulsion setting of being auto-enrolled but able to opt out should be retained.
“Making KiwiSaver compulsory is one that comes up frequently in discussions, but when you consider the evidence, we already have high membership. Those not contributing are most likely not in paid work, on low incomes, or self-employed,” she says.
However, the Commission wants to see the Scheme changed to allow children under 16 to enroll with the signature of just one parent or guardian if it’s not possible to get consent from all guardians. Currently, anyone aged 16 or 17 needs at least one legal guardian to co-sign their application.
It also believes the pre-65 withdrawal settings are working “as intended” but opposes expanding them, arguing it would undermine KiwiSaver's primary goal of retirement saving.
More than 200,000 people aged 65 and over have KiwiSaver accounts and the Commission put forward that employer contributions should be required for people both over 65 and under 18.
The Commission has concerns around the accessing of funds post-age 65, and says there’s a worry that people aren’t receiving adequate guidance for the drawdown phase.
“We believe KiwiSaver providers should also be doing more to assist members as they navigate the drawdown phase after age 65,” the report says.
Iwi-based schemes
The report also touched on iwi-based savings schemes, saying they provide a by Māori for Māori approach that recognises the role of iwi, hapū and whānau in retirement planning but they don’t benefit from the same “matching incentives” as KiwiSaver.
The Commission discussed Whai Rawa, a Ngāi Tahu managed investment scheme which was established in 2006 by Te Rūnanga o Ngāi Tahu.
Whai Rawa members can access their funds for tertiary education, first home purchases, and retirement from age 55. While the scheme includes a matching mechanism, the levels of contributions may vary annually and among members. Te Rūnanga o Ngāi Tahu also reserves the right to reduce or even cease contributions.
“It aims to improve the wellbeing of Ngāi Tahu whānau by providing a vehicle for distributions to eligible whānau,” the Commission says.
Presently, for every dollar contributed by adult members (aged 16-64) in a calendar year, Te Rūnanga matches with another dollar, capped at $200 per member after applicable taxes.
Annual distributions are determined at the discretion of Te Rūnanga, with amounts subject to change across years and members.
“We therefore suggest that consideration be given to determining whether the incentives offered in the KiwiSaver scheme, employer matching contribution and government contribution, could be extended to iwi-based savings schemes,” the Commission’s report says.
“This would allow individuals to choose where they direct their own contributions, without missing out on the employer match and government contribution should they prefer to save in their iwi-based scheme.”
In the billions
KiwiSaver funds under management reached $108.6 billion in March, up $4.6 billion in the quarter.
“KiwiSaver has been instrumental in promoting retirement savings across New Zealand, but it’s time to look at it again,” Wrightson says.
KiwiSaver currently only allows people to withdraw from their KiwiSavers before the retirement age of 65 for only two reasons – the first being financial hardship and the second being first home purchases.
The Retirement Commission said on Thursday that between 2012 and 2023, $8.3 billion has been withdrawn by first home buyers and $983 million has been withdrawn for financial hardship.
On average, about 1% of members withdraw funds for first home deposits each year, compared to 0.5% who withdraw their KiwiSavers annually due to financial hardship.
KiwiSaver members withdrew $160 million in first home and financial hardship withdrawals in the month of April.
58 Comments
Money is not a store of wealth.
Shares are not a store of wealth.
The question is: how much in the way of energy and resources, will be available in the future?
And who will have access to them, in what proportion?
We are fixated on accumulating betting-slips. A tad silly....
Ironically for many employers that 4% is taken out of employee pay. So you put in 4% and then you put in 4%.
But the biggest issue is that for too much of the population they have 0 contributions and zero access to kiwisaver schemes.
It is no surprise then that a scheme designed to benefit the wealthiest wages the most, e.g. politicians & upper management actually leads to massive increases in inequality especially when many reach 65. It is a scheme that is designed to increase inequality and benefit those with the largest incomes especially those getting the taxpayers to pay their wages the most (those with employers who can use taxpayers and ratepayers as an endless piggy bank instead of funds from wages approach for the rest).
Any govt plans basing assumptions that kiwisaver is available to everyone are more flawed then assuming everyone can fly when they want.
Yes it does happen in Australia. Many employment contracts are "total package" and not "salary plus super". You always need to read the fine print. The distinction became important when the super contribution went up from 9% to 12% - those who were "salary plus super" got a pay rise, those that were "total package" got a pay reduction.
https://www.aigroup.com.au/resourcecentre/resource-centre-blogs/hr-blog…
Many people choose to take "total package" options because they elect to pay a higher amount of super contributions than what is required by Govt, to take advantage of the concessional tax on contributions up to $30,000 a year.
Thats what happens when millions don't contribute anything and therefore miss out on the employer contribution and govt grant.
This also proves that the current model isn't working and we should start copying the best super scheme in the world over the ditch and build up employer contributions to 100% of employees, not just those who are contributing
Considering a significant number of the population are below poverty levels and don't even have minimum wage income levels (allowed in the Bill of Rights), then it should be brutally obvious Kiwisaver was designed to never work for those who need retirement support the most and will never support the poor. It is a scheme that is designed to increase inequality and benefit those with the largest incomes especially getting the taxpayers to pay their wages the most.
KiwiSaver balances across all age groups are lower than expected after almost 18 years of the voluntary savings scheme, according to the Retirement Commission.
my take on it is that, KS is not the only way to save for retirement, nor should it be. Hence it's more of a problem when KS is the only retirement savings for many people, than how high or low the KS balance is.
Why should we all put our retirement savings to PIE fund in the first place.
Two thinks
1. National Superannuation can't survive. It will break and tweaks like raising the age a couple of years won't help.
2. Plunging home ownership means we are building a cohort, a big wave, of people who in future years will hit and income cliff at retirement and won't be able to live.
So. a. Replace National Super with Kiwisaver. 30 year stepped exit. b. Compulsory. c. Lift contributions to 16%. Stepped. d. No tax on Kiwisaver at entry, during or exit. It's not a standard investment. It's a social protection.
As to affordability, if we don't do this there will be hunger and homeless amongst the old. Super will break because we can't afford it and accordingly we will not be able to support those with out assets either
To those who will want to invest independently. Do it anyway and also do Kiwisaver. Making it universal is a protect mechanism for you.
Ignoring PDF posts is a good thing to do. We have a terrible savings culture to begin with. PDFs idea is we just accept that the world will end in 20-30 years anyway so there is no point saving at all. In the real world, anyone suggesting that would be looking like an idiot in 30 years time with the population demanding to know how the information given to them has been so wrong
Imagine being ignorant enough to ignore
because it doesn't fit what you want.
Good luck with oncology.... (tends to be an inconvenient truth which cannot be ignored - the parallel holds).
The problem here is that money is a proxy - not a store of wealth. The Commissioner does not understand this, nor do most folk. We are at a stage, globally, where a failing firm offers shares in itself in lieu of wages, to employees soon to be made jobless - at which point their shares will also be worthless. In other words, the system tried to prolong the unprolongable, via draw-down theft from the masses. Told them they'd be richer - which was a lie.
I will fix this for you PDF.
"We are at a stage, globally, where a failing firm offers shares in itself in lieu of wages, to employees soon to be made jobless - at which point their shares will also be worthless. In other words, the system tried to prolong the unprolongable, via draw-down theft from the masses. Told them they'd be richer - which was a lie."
It has always been the case that if a firm offers shares to employees, and that firm fails then the shares are worthless. That is basic math, and this has always been the case. Many many many farms fail and collapse or whatever, more so in tough economic times. It has absolutely nothing to do with the failed ideology that your preach, and does not mean the firm is lying.
Unless..... you are trying to say that all startups start up specifically to fail so they can lie to employees and make their shares worth nothing and they do it deliberately.
Yup well said. A number of metrics to consider with home ownership, a) what is the average age of a FHB today vs 40 years ago and b) what's the debt to income ratio. Someone @ 22 buys a house 3 x income, assume mortgage is 2.5 years wages. Vs someone aged 30 & their mortgage is 5 x.
The 22 y/o has an 8 year head start, and much less principal amount to erode away with wage inflation. Another assumption is the 22 y/o has higher interest rates, therefore wage inflation is also higher. But even if they take the same amount of time to pay off their mortgages, one will have 8 years additional working years of effectively zero "rent" to put towards their retirement. Because those years prior to buying a first home is spent saving the deposit.
Yep, when homes were homes and not investment vehicles. When affordability was tied to one income not two and the amount of debt to repay was much less. It allowed the mortgage to be repaid much earlier and add in the second income enabling households to have a larger proportion of income towards savings.
Obviously those conditions have changed and this is where economists fail, unable to input the changing variables into their models. It also suggests that society, that people, have been hijacked in some way... believing that tying it all up in repaying bigger mortgages is somehow a net benefit.
Economics... just the most prevalent form of propaganda.
One also starts to question the overriding narrative... spending ones life saving for retirement.
I don't totally disagree, but this would have to go hand-in-hand with tightening super. Politically untenable to ask young renters to pay for their own retirements while also subsidising wealthy homeowners or those working past 65. Asset and income means testing, and probably an increase in eligibility age too.
Would probably be untenable to ask current "retirees", particularly the ones still working in $100k+ jobs, to get on board the idea that maybe they're fortunate to be blessed with the skills to earn that sort of money past the age of 65, therefore if they want to collect Superannuation they should retire.
"B-b-b-b-b-but they paid taxes all their lives and pay a lot of taxes etc etc" people cry out. I also pay a lot of taxes and don't like seeing $1b per year squandered on already wealthy people while politicians flip flop on campaign promises such as funding of cancer drugs.
I don't know why we don't have this, it's already there for other benefits, WFF and student loans as you mention, so it shouldn't be difficult to implement.
It is good that older people are still working and contributing their skills, but reduce their super for 10-20% of what they earn over say 20k per year. Would be a massive saving and wouldn't impoverish anyone.
These are great ideas, and align with Australia which have a very successful scheme. The problem is here in NZ you would get all the moaners yelling and screaming about the high earners getting a “tax cut” on the compulsory contribution from their high salaries. So it will probably never happen.
Any govt plans basing assumptions that kiwisaver is available to everyone are more flawed then assuming everyone can fly when they want on top of pigs they ride into the clouds.
The biggest issue is that for too much of the population they have 0 contributions and zero access to kiwisaver schemes. It is no surprise then that a scheme designed to benefit the wealthiest wages the most, e.g. politicians & upper management actually leads to massive increases in inequality especially when many reach 65. It is a scheme that is designed to increase inequality and benefit those with the largest incomes especially those getting the taxpayers to pay their wages the most (those with employers who can use taxpayers and ratepayers as an endless piggy bank instead of funds from wages approach for the rest).
A significant number of the population are below poverty levels and don't even have minimum wage income levels (allowed in the Bill of Rights), then it should be brutally obvious Kiwisaver was designed to never work for those who need retirement support the most and will never support the poor.
Instead of tweaking kiwisaver that isn't really working (but better than nothing) the retirement commissioner should look outside the hermit kingdom to see what is good overseas and step towards that over 15 years
Eg Australia - employers contributing 12%, salary sacrifice benefits, self managed funds in a property investment etc
The name ‘KiwiSaver’ is somewhat misleading; it’s not a savings account but an investment. Depending on your individual circumstances, it might be better to pay down debt rather than contribute to KiwiSaver. If your retirement is more than 20 years away, you are less likely to get your money back or make it worthwhile considering inflation and other factors.
But once you are in you can’t get out.
This is very true. I was saving half my salary into a retirement fund when I started working. It started small and the returns were insignificant and boring (as interest and dividends on a few 1000 invested generally are). Now, my fund returns to me, after tax, generally more than I earn before tax, and it is equivalent to 10x my starting salary. This shows the value of time in investments, and I have maybe 20 years still before I retire.
You also can't call on your money in retirement if you never saved any. My recommendation is always to max out the Kiwisaver employer/government contributions (in my case a 3% KS contribution) and invest anything else somewhere else where the fees are lower and there's more flexibility, if you have the personal control to leave the money invested. My KS is about 20% of my broader share portfolio at present and I expect that to fall over time. But, I'd be stupid to turn my nose up at a ~2% pay rise by ignoring KS.
If I want to retire early, I'll have the other 80% to draw on. But I still hope to be spending money after 65 or 70, whatever age I can draw KS. Happy to put my money in a couple of different pots if it means the combined total grows through employer and government contributions.
Smart, many facing terminal cancer wish they did that. Sadly they cannot even use kiwisaver for the funeral costs. Hardship withdrawals for those who are homeless/about to be homeless, lost housing due to natural disaster, severely ill, likely to lose their lives without medical intervention e.g. overseas surgery are a tragic joke in which most just give up because of the difficulty and die young.
You won't need retirement funds
"We are 100% entering a Nuclear WWIII" Notice our wider media (generally in the West) doesn't mention the Ukraine conflict...nothing, dead silence. They have been instructed not to (or limit the coverage) by a higher power. It's an absolute disgrace. We (the people of the West) should be protesting a peaceful, diplomatic end.
And before people reply that 'Russia invaded Ukraine'...dig deeper and do some research into the origins of the conflict.
Want to put $2,000 somewhere and then double it to $4,000 in one year?
OK then workers make sure you contribute to Kiwisaver
Its essentially a 100% return
(calculation for those interested: Median income of $66,196 X 3% = $2,000 rounded + employer contribution of 3% less tax at marginal rate of 30% = $1,390 + Govt contribution of $521.43 + assuming a return of $88.57 which is a realistic 4% based on the average investment balance of this in a 12 month period)
Key point for much of the population the retirement benefit was actually intended for when they reach 65 they would need to have an income first... I guess you forgot just how much of the population actually need government support and how many are just greed laden tough eaters supporting benefits for the wealthiest in the population over those in need. Here is an idea if you are able to contribute $2000 you do not need any taxpayer benefits on top as a lolly scramble to fatten your back pockets.
Why should the taxpayers fund the wealthiest with more benefits while those in actual poverty face the harshest restrictions and often have no income or benefits at all.
Are those with more pay exceptionally bad and handling money and more likely to blow it all rather then buy more investment properties and gain more taxpayer benefits while skirting tax compared to those who don't even start with enough income to afford a single room, GP access & minimum levels of power?
Allowing young people to raid their Kiwisaver accounts ruins their lifetime returns.
"Here's a little tale of two savers that reveals the massive power of starting your pension early.
Let's say Olivia saves £100 a month in to her pension from age 21 and stops at 30 - saving no more until she accesses the pot at age 70. We'll say the pension earns a 7% return each year for this example.
Using the "monthly savings plan" calculator; enter £100 monthly payment, duration 10 years and interest rate 7% and you get £17,308.48 - this is what her pot is worth at age 30. You then enter that figure into the "lump sum investments" calculator (duration 40 years at 7%).
Her savings will amount to £282,325.
Oliver, meanwhile, doesn't save anything until he is 31 (or pulls all his savings out at age 30 to buy a house) and then saves £100 a month until he is 70.
Using the monthly payments calculator, enter £100 monthly payment, duration 40 years at 7%.
His pot will be worth £262,481. In other words, 10 years of saving have produced a pot £20,000 larger than four decades worth of saving the same amount each month.
This is due to the power of compound interest - or what you might call the returns on the returns on the returns."
Hardship withdrawals for those who are homeless/about to be homeless, lost housing due to natural disaster, severely ill, likely to lose their lives without medical intervention e.g. overseas surgery are a tragic joke in which most just give up because of the difficulty and die young. Many facing cancer wish they had the funds for earlier invention. Sadly they cannot even use kiwisaver for the funeral costs.
But hey it gives you a chance to be patronizing and tell them they cannot be trusted to save their own lives and should die young instead because that aligns with what you think is better for them. I am sure many in hardship would really appreciate that right up until they die with NZ having high rates of death for those in hardship and devastating rates of death by suicide to avoid worsening conditions.
Even those who need funds to avoid losing their home is life and death as the trauma of housing lost and being homeless for extended periods of time is often not survivable to the point they are able to regain housing.
Nah, I was talking about the $8 Billion sucked out of it to buy houses. But hey, carry on with your rant.
But aside from those dying (in which case Kiwisaver doesnt matter) I am also against giving financially irresponsible people more money so they can go be financially irresponsible with that as well. Retirement savings are supposed to protect the financially irresponsible from themselves, not enable them.
And you think being able to have housing to live in when many cannot access rentals, with less then 2% accessible, is not a serious need that can affect their survival. Ok then. Tell me when did so many become so clueless as to the health effects of being homeless in winter. Or the triggers and stressors for suicide. I get it that you don't think a family needs a home to live in together where they can cook food, go to a bathroom safely but I did not expect you to have that attitude baked in without being self aware of it.
Housing is the greatest and most significant investment when it comes to retirement. As the ability to have secure housing & housing you have the control to modify when degeneration sets in is a significant benefit to health and wellbeing (hence much higher premature death rates in those without). Alongside the bonus of being able to have an investment to sell to move into care of better quality but to have a choice of when to do so. There is a reason why death by neglect in retirement hospitals is so commonplace and why retirees make up most of those waiting on council public housing and many wait on state housing waitlists. There is a reason why the country spends more on housing modification for retirees then all other disability services. It is not because retirees are more deserving or earned it more. It is not because they are higher risk. But if you don't have your own housing, modifications for retirement are far more difficult and may never be available from one place to another.
Tax rate on everyone's kiwisaver account should be the same! At the moment someone in a lower tax bracket making exactly the same contributions will end up with 10s of thousands more than someone on a higher rate. Michel Cullens pie tax went some way to addressing this problem but the thresholds are now far to low. At the end of the day it is very good for a countries economic stability to have a large percentage of the population retiring with a decent nest egg.
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