Experts agree that Kiwi Saver’s contribution should increase, but how much and who should pay.Photos / files
The government is investigating proposals that new Kiwi Saver members and those who opt in to them will increase their contribution from 3 percent to 10 percent by half.
However, this move could hurt workers in their pockets by reducing take-out wage packets, and unions are part of the rise, rather than all employers coming from workers. I believe you should bear it.
Australia will raise its compulsory employee pension contribution rate from 9.5% to 10% of a person’s wages or salaries next month, increasing by 0.5% annually over the next three years until it reaches 12%.
Australia’s old-age pension system began in 1992 with a contribution rate of 3% and 4% for employers with annual salaries above A $ 1 million.
By 2002, it gradually increased to 9%, and in 2014 it increased to the current 9.5%.
Kiwi Saver’s minimum contribution in New Zealand began at 1% for employers in 2007 and has since risen 1% each year to 3%. Employee contributions started at 4%, but returned to 3pc in 2010 and have been stuck there ever since.
Plans to increase both employer and employee contributions to 4% have been abandoned.
In 2019, New Zealand’s Retirement Commission, in its triennial report on retirement income policy, assumed that at least 3% were at the “right” level needed to prepare for retirement, with some savers. I warned that it was producing.
“This can have the twisting effect of reducing the overall accumulation of savings for those who may be ready to save at a higher rate than the default.
“With a contribution of 3 percent, they run the risk of arriving at age 65 due to a lack of savings accumulated to fund their intended lifestyle.”
An 18-year-old with a current median income of $ 54,080 will have about $ 374,000 in his Kiwi Saver account by the age of 65 if he invests 3% in the Growth Fund and doesn’t pay home.
This is sufficient to meet the $ 275,000 lump sum requirement for a person living in a big city for a “no-frills” retirement, as defined in Massey University’s Retirement Expenditure Guidelines.
But that would be far less than a “choice” retirement that costs about $ 562,000.
The Commissioner recommended that the government introduce a small step approach to new Kiwi Saver participants and confirmed that the contribution rate would automatically increase at an annual rate of 0.5% until it reached 10% or stopped. Existing Kiwi Saver members also have the option to do this.
Tom Hartmann, personal finance officer of the Treasury Commission, headed by the Retirement Commission, said much work is being done behind the scenes at Kiwi Saver.
“These recommendations never go off the table at once.”
Hartman confirmed that a small step approach was being considered. “It’s one of the suggestions on the table.”
He said easing people on an increasing scale of contribution could have dramatically different consequences, a model that Australia also used.
“It works even better when it’s tagged with people’s salary increases because people don’t feel it at all.”
Hartman said contribution is a major determinant of outcomes when it comes to how many people can save for retirement.
“It’s not the biggest driver,” Hartman said, but the biggest driver in the long run is investment returns, but without greater contributions, savers can leverage those returns. could not.
He said the policy is largely entrusted to the Ministry of Business, Innovation and Employment.
An MBIE spokeswoman said authorities are preparing advice to the minister on recommendations from the 2019 Retirement Commission report.
“Government action is planned for this year, including identifying recommendations that need further consideration.”
She said there was no fixed time frame for this work.
Ayesha Scott, a professor of finance at AUT, said the 3% rate was too low, but was cautious about increasing it and the potential impact it could have on low-wage workers.
“I think we need to seriously discuss the path to higher prices, but my caveat here should probably be the first thing that happens in Kiwi Saver before we start talking about higher prices. There are some things. “
She said she believes that member donations need to be separated from employer donations. “Your employer [contribution] Should be obligatory. “
She said the Australian system was paid by the employer. “In New Zealand, this idea that employees have to contribute before an employer comes to a party, I don’t like it. I think we need to separate them. Income.”
She said low-income earners are now forced to choose between paying bills, putting food on the table today, or saving for retirement.
“I think it helps a lot towards that.”
“Yes, we need to raise it, but we can’t necessarily raise it without detailed thoughts, raise today’s out-of-pocket costs for individuals.
“We need to make sure that members don’t just pay, because they really need those money and Kiwi Saver only hurt the low-income group, which is a really important tool for higher retirement well-being. . “
Trade union council economist Craig Lenny said raising contributions was probably the right thing to do, but wondered how much that all applies to employees.
“Based on that, I would like to see a little more cost sharing.”
According to Lenny, employers now pay 3% and more generous employers pay a little more, which was entirely a function of employer generosity.
“We would like to see more and more of the 50:50 split on top of that.”
He said more research was needed on the best way to do that.
Lenny said that the more money saved on Kiwi Saver, the more fund managers will have to invest in the business, and in the future wealthy pensioners will be paid for accommodation supplements and other benefits. He said that reducing the number would reduce the core risk of the crown.
He said New Zealand needs to ask what is the proper contribution to ensure that people have a decent quality of life, and more than just build up costs in the state.
“This is really important as more and more pensioners will rent in the future and the welfare state will be pre-empted by the pensioners who own their own homes.”
Andrew Bailey, a spokesman for Shadow Finance at National, said he would personally want to see a minimal increase, but small businesses were already suffering from higher costs under the government.
“The only problem I’m facing right now is all the problems this government imposes on SMEs. Vacation allowances, sick leave, and increased minimum wages have caused SMEs to slump at a cost of $ 2.8 billion. doing.
“The question is not when and how we should do it. What we don’t want to do is see small businesses bear unnecessary burdens. “
According to Bailey, one way to do that was to offset it with a KiwiSaver donation and put some of it in KiwiSaver instead of raising the minimum wage.
“There are options for how to do that in a way that benefits both the employer and the employee.”
The government is investigating raising Kiwi Saver’s contribution to 10pc: but who should pay?
SourceThe government is investigating raising Kiwi Saver’s contribution to 10pc: but who should pay?