New Zealanders are simply not saving enough for their retirement – so what’s the solution to this looming financial crisis?
The topic was debated by representatives from Fisher Funds, the Retirement Commission, Pie Funds and Milford Asset Management on Tuesday afternoon during a pre-conference session at the Financial Services Council’s conference which officially kicks off on Wednesday.
The focus of the session was around increasing employer KiwiSaver contributions, and how higher contribution rates from employers and KiwiSaver members could change the voluntary retirement savings scheme for the better.
The panel didn’t agree on everything but there was consensus that the minimum KiwiSaver contribution rate – which sits at 3% for both employees and employers – will not be enough for retirement.
The Retirement Commission’s Personal Finance Lead Tom Hartmann summed it up.
“Defaults are extremely powerful things, and when you set them at 3%, basically you’re sending a message to the entire country that that’s going to be enough, that’s going to do the trick,” he said.
“And we know that’s not the case for at least a certain percentage. In fact, the case can be made that higher income members should actually be doing a lot more.”
Since KiwiSaver was implemented in 2007, employers have been legally required to contribute 3% of their employee’s gross salary or wage to their employee’s KiwiSaver.
KiwiSaver members or employees on the other hand can choose to contribute 3%, 4%, 6%, 8%, or 10% of their before-tax pay.
Milford Asset Management’s Head of KiwiSaver Murray Harris said 90% of employers only contribute the default 3% to employee KiwiSavers – and most employees just match their employer’s contribution rate.
“So what’s the incentive to do more than that?”
He said incentives that could be provided were things like increasing the employer contribution rate incrementally over a period of time and a tax concession on contributions.
“Because without that, both employees and employers really have no other incentive,” he said.
Harris also suggested to get employers to “come to the party a bit more”, concessions could be provided to help them help their staff provision for their retirement.
But he added this would come as a cost to the Government – but it would be a short term cost for long term gain.
It’s long been thought that most employers in New Zealand would resist the idea but Pie Funds Chief Executive Ana-Marie Lockyer doesn’t think that’s the case.
She said during the panel that she had recently met with Commerce and Consumer Affairs Minister Andrew Bayly to discuss potential KiwiSaver changes.
Lockyer was told to come back after consulting with employers on what they thought about KiwiSaver adjustments – which she went and did.
“Employers are up for conversation around increases. They think it would be a far more nuanced conversation today than it was when KiwiSaver started,” she said.
“So if we agree it could be a good idea and we can handle the temporary increase, then we just need to find the right time in the economic cycle to implement the changes.”
Fisher Funds Chief Executive Simon Power said a lot was heard about it not being “the time” to be doing anything around changing contribution rates because NZ was in the middle of a cost of living crisis.
“And actually, it’s exactly the right time to do it,” he said. “And it’s exactly the right time to do it to start helping the public think about what might they do with any discretionary income that might come their way when the economic cycle turns,” he said.
Cash cow?
KiwiSaver was introduced in 2007 and is a voluntary savings scheme to encourage retirement savings.
According to equity research firm Morningstar which tracks KiwiSaver funds under management (FUM), total KiwiSaver FUM grew $3.5 billion in the June 2024 quarter to $110.8 billion.
The Financial Markets Authority’s 2023 KiwiSaver report found that more people are leaving money in their KiwiSaver accounts after turning 65 so their investments can continue to grow.
KiwiSaver members are able to access and withdraw from their KiwiSavers at any point once they turn 65. For people younger than 65, early withdrawals are possible but only for financial hardship and first home reasons.
Inland Revenue tracks monthly KiwiSaver withdrawals and the latest data for the month of July 2024 was publicly released in August.
IRD found 7,990 KiwiSaver members withdrew $191.3 million during the month of July via financial hardship and first home withdrawals.
Between January and July 2024, over $1 billion has been withdrawn from early KiwiSaver withdrawals.
Of that $1 billion figure, $890.4 million has been withdrawn for first homes and $201.8 million has been withdrawn because of financial hardship reasons.
The FMA’s 2023 report said KiwiSaver members put a net total of $6.5 billion into their accounts during 1st July 2022 to 30th June 2023, via deductions from salaries and wages, lump sums and other voluntary contributions.
“That is 15% down on the previous year, primarily due to a 62.6% fall in lump sum payments, to $832 million – a level last seen in 2018–19,” the FMA report said.
A growing older population
In 2022, Statistics NZ said the number of people living in NZ aged 65 years or older was likely to hit one million by 2028.
Beyond 2028, the number of people aged 65 or older could reach 1.3 million around 2040, and 1.5 million by the 2050s.
In 2028, 1 in 5 people in the population will be 65+ years according to Stats NZ and by the 2050s, the 65+ group could make up one-quarter of the population.
30 Comments
Nice comment, although the /sarc is noted.
I struggle with the concept of rewarding the spendthrifts, and penalizing the financially prudent. The proponents of taxing capital (not to be confused with taxing capital gains) are strongly penalizing the financially prudent people. I am in strong favor of a universal capital gains tax (for realized capital gains), which should have zero exceptions, including when one sells ones primary residence. I am also strongly objecting to taxing capital, as this is a disincentive for saving for retirement.
"Primary residence" CGT
There is no real "gain". It's just another envy tax proposal to clip the ticket on families needs & housing changes throughout their lifetimes.
It's the same home with the same market value relative to others. Money is simply the medium of exchange & monetary price changes reflect the re/devaluation of money for reasons outside the homeowners control.
I struggle with the concept of rewarding the spendthrifts, and penalizing the financially prudent.
While there has to be a balance, there is also compounding factors at play such as generational wealth. Likely the #1 way to get rich is to be born to wealthy parents and grow up being given an education at home around money and wealth, as well as inheriting this for one's parents by means of inheritance or financial assistance, say, to purchase a home. So many don't have this luxury, which is why we have a progressive tax system. While I don't agree with a wealth tax, when looking historically, there has always been a small number of very wealthy individuals and the majority live far far below this standard of living. Ensuring wealth doesn't accumulate too heavily at the top is what has afforded the middle class to gain a footing in society.
Yeah those lazy speculative landlords who frequently run overpriced hovels are completely a scourge affecting the wellbeing of all communities in NZ. Following that the lazy silly bums who think they are entitled to a benefit simply because they had a birthday and not because of an actual need like being unable to work, temporary losing work or being a medical carer.
But I guess in your eyes the only thing holding back a person with ALS so bad they need assistance to drink, sit and poop is their attitude, and not, say not being able to physically go a workplace for a lazy job like yours or move their arms & legs. All those kids denied equitable language & maths education, who cannot be in public unaided without support as well are just too lazy eh, not that no employer would hire them for any role even those that are safe WFH roles.
I dare you to sustain a severe brain injury from a fall, lose all your short term memory, lose your ability to read & do basic maths, break your neck and find a job without any ACC support. Or even find housing with no income and no savings. I doubt you have the stomach for a life without functional abilities that others expect and years of employment denials. My bet is you kill yourself in that life while homeless in less then a couple of years. But then you could always surprise us and learn something along the way.
In case you did not realize it the resilience and hard work is not that of sitting in an cushy office job 9-5 where you can fail upwards or get born during a different decade when housing was affordable & there were multiple govt grants. There are numerous levels of hard but until I see you actually face real struggles in your life I sincerely doubt you can even handle soft work and I doubt you will be able to face up to what real trauma and physical difficulty & challenges in life is.
The later. The only ones who think kiwisaver is an answer to poverty in old age are those who are rich and entitled to start who have never experienced poverty and would not know how to manage if they even were homeless for a month.
The truth most poor people don't have a PAYE income. Most people struggling to save for retirement and live in retirement don't have housing they own. Most people struggling to save at all don't have an income that can afford even a GP visit & adequate food to prevent early disablement from disease or illness prior to retirement.
The abusive and harmful attitudes of the author OP are noted though. The continual punching down while denying that those in poverty need support now not at 65, that they don't have enough income to save and are often denied any housing if they have over 5k in savings is not lost on those who know NZ stats and policies. I guess reading basic statistics reports and learning about how the poor live is something beyond them and their world view. After all those dirty poor people just need to pull their socks up and stop being lazy eh /s.
Nah it is not that it is difficult for employers.
Since many of the low income jobs are employers cutting their contribution out from employee wages it is easy with the higher contribution rate (and less in pocket for the employees). Or if you are paying on top of wages just withhold pay increases by inflation (which most companies and govt departments do already see healthcare). Or you could restructure your human resources *cough fire and rehire employees* with a lower pay rate (often less then living needs) to make up for the difference. Or even restructure how commission based pay is awarded. Also keeps them hungry for overtime eh like those nurses who are so tired they cannot even think or do anything about how bad and toxic the work environments are.
[In case you did not realize it these are practices in many large and small companies, often working in essential roles].
The biggest difficulty I have found with increasing superannuation rates is with the pay software where payroll programs often cannot manage line items like custom superannuation rates per employee in a single field by employee or for the different superannuation pay methods. MYOB for instance has a god awful nightmare to setup superannuation pay types per each new employee & must be applied each pay cycle or the limited drop downs that miss the mark and ignore the different superannuation pay methods, and Xero is, shudder a broken system that never even can account for holidays being worked or different working hours on different days, etc (don't get me started on the others). Even if an employee chose to dedicate 50% of their wage to kiwisaver the difficulty is not the employer contributions part or even the remaining pay calculations, but just trying to setup the kiwisaver payments in a payroll system that is not designed to manage anything but the vanilla case.
Some days you want to take the tech and the cheap ass permanently ignorant and cognitively challenged broken form designers & managers for them, wack them with their own keyboards, then fix the code yourself.
It sounds more like larger employers & these advisors are just pulling the leg of govt for a bit more free money to go into their pigs trough.
"Harris also suggested to get employers to 'come to the party a bit more', concessions could be provided to help them help their staff provision for their retirement.
But he added this would come as a cost to the Government – but it would be a short term cost for long term gain.
It’s long been thought that most employers in New Zealand would resist the idea but Pie Funds Chief Executive Ana-Marie Lockyer doesn’t think that’s the case. "
Sure payroll systems take a time to set up and manage but that is what an accountant or HR are for. If you are an owner of a business and also performing those roles the time it takes to change a 3% to another fixed default drop down amount is not as onerous as it is to setup superannuation per employee in the first place. As I stated once superannuation payments are set, changing the default value is trivial. It is the inability of payroll systems to cater for different work periods, holidays, changing employee hours or pay rates during a year, or different superannuation payments outside of vanilla which is always going to be faced regardless of what a default percentage is.
The average person is being squeezed from all sides and can barely afford food and housing as is. Is it any surprise they can't find more to stick away for retirement? Especially when one broken down car, or other unseen event wipes out most of their savings. It's not even "the poors" at this point, it's the average person/family.
10 years ago?
Didn't the wonderfully astute National Government suspend all contributions to the Super Fund and miss out on the massive stock gains post the GFC? Why yes. It was.
Why anyone thinks they are good with money is beyond me.
The National Party has been in power for longer than any other party in NZ for generations now! And yet we're in a mess. Put two and two together people.
This is the fundamental issue with KS. We do both as you suggest, reason why, is we worked out a long time ok, if I lose my job or get sick you have basically got to be bankrupt to get money out of KS, so why put 10-15% of your savings in here as if you need it for a rainy day then it has basically got to be a biblical storm event. If you could access it easily to pay the mortgage payments (i.e part of a retirement plan should be shelter) if you having cashflow issues at sometime before you are 65 then many probably would be a bit more in.
Newspaper articles on retirement in New Zealand will say something like "you need savings of $___ to have a "comfortable" retirement. The problem is these articles never state whether or not that "savings" includes your unencumbered residence.
Let's say you own your own dwelling (no mortgage) and you live with your spouse, how much savings would you need to have that "comfortable" (i.e., not bare-bones budget) lifestyle?
Of course, "comfortable" is subjective, but what would you consider to be the savings required, on the assumption that you and your spouse will live in retirement for 25 years before death at 90 years and you want to leave the capital to your children?
Had this conversation with someone other day..said he needed 2 million so could live of the dividends....he has two kids both A##holes..said so then you leave those two kids the house and 2 million after how they treated you..told him work it out on a spreadsheet and just leave them the house, and you won't need 2 million.
Did'nt even bring up the fact that most retirement fund managers think we will all live to 90. Ages of Funerals I have been too in last 2 years 18, 44, 55, 58, 71.
Life's about balance
It seems that figure of $X is set really high so as to incentivise individuals to go " gee I must save harder to reach that goal". Reality is probably 99% of those it is aimed at look and realize it's so out of whack with reality they won't even bother.
My reality is I'll be working to survive untill I die. I stuffed up, bought and sold at wrong times along with other financial decisions so kiwisaver won't in anyway cut the mustard.
"Newspaper articles on retirement in New Zealand will say something like "you need savings of $___ to have a "comfortable" retirement. The problem is these articles never state whether or not that "savings" includes your unencumbered residence. "
Say what? Most I've read do make this distinction.
Oh. I see. You only read the headlines, right?
Fix the incentives and you'll fix the problem.
Compare us to our cousins across the ditch - 12% mandatory EMPLOYER contribution on top of base salary/wages, without the worker having to contribute an additional cent. However, there's an incentive for the worker to top up with voluntary contributions/salary sacrifice since it's taxed at 15% instead of their marginal tax rate (Up to a cap of $27,500/year)
Coincidentally - changes to Kiwisaver contributions - say, increasing employer match to 6% - was something completely within the government's remit that would have helped curb inflation, boosted investment into more productive areas of the economy than housing, and curbed NZ's over-reliance on its increasingly unaffordable superannuation scheme. With an absolute majority in Government, Labour could have easily pushed this through. Cullen must have been spinning in his grave with how little they achieved.
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