Retirement Commissioner wants sweeping changes to KiwiSaver

Thursday, 13 June 2024

Retirement Commissioner Jane Wrightson has used her statutory duty to give retirement income advice to the Government to call for sweeping changes to KiwiSaver.

Retirement Commissioner Jane Wrightson has issued a report outlining more than a dozen ways to make KiwiSaver better, but the list of changes does not include making it compulsory.

While many fund managers and advisers would like to see New Zealand follow Australia in having compulsory superannuation saving, Wrightson says a large proportion of people who can afford to save into KiwiSaver are already doing so.

“I once thought this would be a smart move but have changed my view because evidence doesn’t support it,” Wrightson said.

“Those not contributing are most likely not in paid work, on low incomes, or self-employed.”

Instead, Wrightson said lifting the “default” KiwiSaver contribution rate from 3% to 4%, with matching employer contributions to match, would encourage a “more robust” savings culture.

That is not the only move Wrightson would like to see that would go against the Government’s policy of reducing costs on employers.

Commerce and Consumer Affairs Minister Andrew Bayly signals review of KiwiSaver.

Wrightson, who as retirement commissioner has a statutory duty to give retirement advice to the Government, would like to see “total remuneration packages” banned.

These allow employers to strike deals with employees under which they do not have to make employer contributions under laws brought in by a National government in 2008 to make KiwiSaver cheaper for employers.

Labour has been campaigning for total remuneration packages to be banned, and Commerce and Consumer Affairs Minister Andrew Bayly appears to be concerned about their use, having pledged to conduct a review of KiwiSaver in the second half of this year.

Wrightson said: “The practice of including employer contributions as part of an employee’s total remuneration package should be stopped. This approach dilutes the intended benefit of employer contributions and ultimately reduces the value of savings for employees.

In May, Commerce and Consumer Affairs Minister Andrew Bayly said he planned to turn his mind to whether KiwiSaver contribution rates were appropriate in the second half of this year.

“Ensuring that employer contributions are made on top of the salary, rather than included within it, preserves the integrity of the KiwiSaver scheme and enhances overall retirement savings for employees.”

Wrightson said more than half of employers had moved to adopt a total remuneration approach for some or all of the employees since National passed its 2008 law changes.

She also recommended the Government consider making employer contributions compulsory for all employees, not just for employees who are currently contributing.

Wrightson also wanted to see other areas of Government policy change.

The Government intends allowing people to access their KiwiSaver to pay for bonds on rental accommodation, but Wrightson said: “We do not believe additional access for other pre-65 withdrawals should be allowed as this would undermine the key purpose of KiwiSaver, which is for retirement saving.”

The Government also intended to allow people to be a member of more than one KiwiSaver scheme at a time, but Wrightson did not support that idea.

Wrightson wants to see people on parental leave better supported to continue building their KiwiSaver savings.

“The benefit of limiting membership to one KiwiSaver scheme is that it is easier for both the provider and member to keep track of their account,” she said.

She also called for change in KiwiSaver laws which discriminated against some workers.

Currently, employer contributions were not required for those under 18 or over 65, she said.

“This should also change. Extending employer contributions to these age groups acknowledges the importance of early savings and supports continued saving, or mortgage pay down, in the later years of life.”

Other improvements to KiwiSaver suggested by Wrightson included lifting government incentives for the self-employed: “The self-employed are a vital part of our economy, and they deserve the same opportunities to grow their retirement savings.

“Increasing the government contribution for those who do not benefit from employer matching could create a fairer system and encourage broader participation in KiwiSaver.”

She applauded the Government for making changes to support those on paid parental leave by using taxpayer funds to step in to make matching KiwiSaver contributions for those who continued to make their employee contributions while on parental leave.

However, she said the Government should go further, and fund those contributions for all workers on parental leave.