By Aaron Gilbert and Ayesha Scott
The findings of the ANZ research into KiwiSaver present some very interesting conclusions. First, 60 per cent of the respondents were in favour of making KiwiSaver compulsory. Second, participation rates for KiwiSaver are highest for the wealthiest households, with just under half of low income families not participating. The argument is that these low income families, who are most in need of retirement savings, are jeopardising their retirement position by opting out.
While this argument has merit, it perhaps ignores the financial reality for many households. Numerous reports have presented compelling evidence to suggest that there are a significant proportion of New Zealanders who are living in poverty, surviving hand to mouth. Taking $10-$20 out of the weekly budget for KiwiSaver is simply not viable for many of these families. This reality is compounded in many cities by the rising costs of housing.
The inequity of this situation is that these households are being punished not once, but twice. Not only are they not able to save for their own retirement, but because of the fact that the "free" money associated with KiwiSaver is linked to employee contributions, they also miss out on their employer's matching contribution, to a maximum of 3 per cent of their salary, and the government tax credits.
An alternative solution to compulsory employee contributions is two simple changes. First, make the employer contribution compulsory irrespective of whether an employee is contributing or not. There is precedent for this. Australian employers are required to pay 9.5 per cent of a person's before tax wage or salary irrespective of whether they themselves contribute. This also avoids another inequity where a person who can afford to pay into KiwiSaver may be earning 3 per cent more than someone who cannot.
