KiwiSaver contribution increase won’t be enough

28 March 2013

Public strongly support 1 April KiwiSaver contribution increase – but it won’t be enough

A majority of New Zealanders (58 per cent) support the Government’s move this Monday to increase the minimum KiwiSaver contribution rate by 1 per cent, says Financial Services Council Chief Executive Peter Neilson.*

“This strong cross-party support should encourage policy-makers to set up ways to increase the contribution rate by 1 per cent each year to gradually reach the 10 per cent contribution that’s really needed,” says Neilson.

From 1 April the minimum KiwiSaver contribution rate for employee and employer will rise from 2 per cent to 3 per cent. Results from recent polling undertaken by Horizon Research released by the Financial Services Council show there is broad public support for this change: 58 per cent of New Zealand adults either strongly support or support the change, 21.8 per cent are neutral about the change and only 12 per cent oppose (including 5 per cent who strongly oppose).

However, a one-off rise of 1 percent to a 3 per cent contribution rate by employers and employees (leading to a total 6% contribution to employees’ accounts) will not deliver a comfortable retirement to many of the 2 million people who have joined KiwiSaver.

“We know that simply won’t be the case at that savings rate,” says Neilson.

“Our calculations show that people need to save 10 per cent of their income from the time they start working, at 25 years for example, to achieve a comfortable retirement. That percentage increases rapidly as people delay starting to save for their retirement.”

The Financial Services Council (FSC) recently released the results of a Horizon Research survey showing only 9 per cent of New Zealanders believe that NZ super alone will be sufficient for them to live on when they reach the age of entitlement.

In an earlier Horizon Research survey most New Zealanders defined ‘comfortable’ as a weekly living amount that is about twice that of the NZ super entitlement (which currently provides a maximum of $349 per week for an individual and $537 per week for a couple).

Neilson believes that the public’s positive attitude towards the 1 April rise in KiwiSaver contribution rates identified in Horizon Research’s results suggest that the time may be right to give current KiwiSaver members the option of an annual 1 per cent increase to their contribution as employees’ their wages and salaries increase, until they reach 10 per cent.

From 1 April, Kiwisavers will have the option of choosing to contribute 3, 4 or 8 per cent of their salary with a further 3 per cent from their employer.

“We need to create a pathway to a comfortable retirement for all New Zealand employees. The country could also provide ways for new entrants into the KiwiSaver scheme to have a lower starting level of contribution of 1 per cent matched by their employer, increasing by 1 per cent per year until they get to a minimum of 6 per cent. The employee could then continue to increase their contributions until the combined total is 10 per cent.

“We need this easier starting option for those on lower incomes, so they have a chance to also enjoy a KiwiSaver payout on top of New Zealand Super and have a more comfortable retirement,” says Neilson.

“Currently only about one in every 10 KiwiSaver members is saving at a rate sufficient to fund what Kiwis regard as a comfortable retirement.”

NZ Super and KiwiSaver both have a part to play in providing New Zealand employees with a comfortable retirement,” says Neilson.

“New Zealand super is the best first-tier age pension in the world but it needs to be supplemented with wider participation in KiwiSaver and a gradual lift in contribution rates into KiwiSaver as wages and salaries increase if most New Zealanders are to have a comfortable retirement.”

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www.fsc.org.nz

*According to results from a Horizon Research poll conducted in December 2012 with a sample size of 2219 and a margin of error of 2.1 per cent

Respondents were asked: “Thinking about contributions to KiwiSaver and whether membership should be voluntary or compulsory, do you support or oppose the increase in the minimum contribution rate to KiwiSaver by both employers and employees from 2% to 3% on April 1 2013?”

Source: Horizon Research

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