Expert slams retirement warning

The report makes a range of recommendations including providing more regular education and communication to KiwiSaver members. Photo / Thinkstock

A retirement policy expert has hit back at a warning by a KiwiSaver provider that New Zealanders face the prospect of a retirement income that meets only basic needs unless people contribute more to the scheme.

Mercer made the warning as part of a report in which it recommends increasing the saving rate from the current minimum of 6 per cent to 8 to 10 per cent.

KiwiSaver improvements needed, says provider

But Michael Littlewood, co-director of the Retirement Policy and Research Centre at Auckland University, said there was no evidence New Zealanders were under-saving for retirement.

"The lack of hardship amongst the currently retired shows that, mostly, New Zealanders made reasonable decisions about their retirement while they were working," he said.

Mercer, which also provides global consulting on retirement policy, said its views were based on experience.

"We understand what makes a world-class retirement savings system.

"We have analysed, compared and helped design some of the best systems in the world.

"Based on experience, research, and knowledge we believe New Zealanders face the prospect of a retirement income that meets only basic needs."

The report makes a range of recommendations including providing more regular education and communication to KiwiSaver members, extending auto-enrolment to all employed people, increasing flexibility in the age at which KiwiSaver can be accessed and controlling the pace at which money can be taken out of KiwiSaver post retirement.

Mercer New Zealand chief executive Martin Lewington said his top priority would be an increase in the contribution rate.

"We believe a higher contribution rate than the current minimum is necessary to secure a more sustainable retirement outcome for New Zealanders."

The report recommends phasing in any increases.

Lewington said it was also concerned about the number of people missing out on the $521 annual tax credit. The Commission for Financial Literacy and Retirement Income last year noted that over 75 per cent of KiwiSaver members were not saving the minimum annual $1042 required to get the full credit.

Lewington said greater financial literacy was needed to help people understand how much they were contributing and what income that would give them in retirement.

Financial literacy education is a new requirement for default schemes which the Government is in the process of reappointing.

But Littlewood said most New Zealanders would look askance at help provided by a KiwiSaver manager because of the clear self-interest if the suggestion was to save more than now.