KiwiSaver Providers Hope Public Support For Contribution Increases Will See Default Rates Move Higher

Susan
Edmunds, Money Correspondent

KiwiSaver
providers are hoping public support for increased
contribution rates could provide the incentive to push them
still higher.

The latest RNZ-Reid Research poll
included questions about the changes to the KiwiSaver scheme
announced in the Budget.

From 1 April next year, the
default contribution rate for employers and employees will
rise to 3.5 percent. The following April, it will be 4
percent.

But the government will halve the credit it
offers to people who contribute at least $1042 a year to
their KiwiSaver, to a maximum $260.72. It will not be
available to people earning more than $180,000.

The
poll showed a total of 61.2 percent of respondents supported
the contribution change, 21.4 percent opposed it and 17.4
percent were not sure.

Among National voters, almost
80 percent supported the change.

But only 23.7 percent
of total voters supported the government’s move to halve the
contribution rate, and fewer than half of National
supporters.

Fisher Funds chief investment officer
Ashley Gardyne said he was not surprised by the
findings.

He said we should not stop at 4 percent plus
4 percent, and should push towards higher contribution
rates.

“I think it’s really positive we’ve seen the
contribution rates increase, and ultimately if we want
people to get to the right amount of savings in retirement
those rates do need to move up through time.”

He said
the Australian model, where contribution rates slowly lifted
over a number of years, could be one to follow.

“They
took a really long-term, 10-year approach of increasing
contributions by a little bit every year. The reality is
it’s tough to find extra money in your pay cheque to put
into KiwiSaver but it is really important long-term as well
to make sure you end up in the right position for
retirement.

“Having a long-term vision like that is
really important.”

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Kirk Hope, chief
executive of the Financial Services Council, which
represents KiwiSaver providers, agreed the results were
expected.

“We’ve known for some time that in terms of
contributions those will be relatively well received.
Obviously it’s a bit tougher if the government contribution
is being halved or in some cases removed that’s not going to
be particularly popular, the key thing is the government
continues to contribute something.”

He said there
should be a bipartisan agreement about a long-term strategy
for retirement income.

He said it was also worth
discussing other steps the government could take, such as
adjusting the tax settings.

“Other changes the
government might be able to make to the tax system in the
future to continue to incentivise particularly savings and
even up the playing field between savings and investment and
housing. That’s some fundamental shifts in the tax
system.”

More incentives needed

Ana-Marie
Lockyer, chief executive at Pie Funds, said it was good to
see that most people supported the contribution
increase.

“In terms of the halving of the government
contributions we need to acknowledge the government faced
some hard choices as a result of the tight fiscal
environment. But I believe we should be offering more
incentives for Kiwis to save for their retirement, not
fewer.

“Reducing the government contribution is more
likely to impact the retirement balances of lower income
earners – a group who deserve the same opportunities as
everyone else.”

She said even a reduced contribution
of $261 a year could grow to more than $40,000 over a
person’s working life.

“I think what’s more important
than the dollar amount of the government contribution is the
number of Kiwis who don’t receive it, either because they’re
not eligible or they’re not contributing
enough.

“While it’s a good thing that the government
contributions are now available for 16- and 17-year-olds, I
think the government missed a trick by not extending it to
the increasing number of over-65s who are still working,
whether by choice or necessity.

“What’s probably more
concerning is the thousands of KiwiSavers missing out on the
MTC government contribution each year because they’re not
contributing enough to qualify, leaving millions of dollars
on the table.

“So the poll is actually a timely
reminder for people to ensure they’ve contributed at least
$1043 by 30 June in order to receive the full government
contribution of $521 – before it reduces to $261 next
year.”

A spokesperson for Finance Minister Nicola
Willis said the changes to KiwiSaver were designed to help
Kiwis to save more and make the scheme more fiscally
sustainable.

“For example, an 18-year-old earning the
minimum wage of just under $49,000 a year who invests in a
balanced fund can expect to have almost $910,000 in
KiwiSaver at age 65. Under the old settings it would have
been about $732,000.

“The results are similar for most
other people. The Retirement Commissioner estimates the
changes will increase retirement savings for about 80
percent of KiwiSaver
members.”

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