KiwiSaver is overdue a well-deserved upgrade - Malcolm Jackson

Jane Wrightson and the Retirement Commission have called for changes to KiwiSaver. But what difference will those changes make to you? Photo / Michael Craig

THREE KEY FACTS

• From July last year to March this year, KiwiSaver financial hardship withdrawals rose to more than $209.5 million.
• KiwiSaver was once praised as the world’s first auto-enrolment, opt-out, national, portable retirement saving scheme.
• The AI boom in the United States has boosted KiwiSaver funds.

Malcolm Jackson is FirstCape chief executive.

OPINION

“Here are the facts. Now, politicians, what are you going to do about it?”

I was listening intently to Retirement Commissioner Jane Wrightson when she said this.

Challenging what has now become the status quo for retirement savings in New Zealand, Te Ara Ahunga Ora Retirement Commission has called for changes to KiwiSaver.

Based on a comprehensive analysis, the commissioner’s recently released report included 15 recommendations to improve the KiwiSaver scheme.

The pursuit of innovation to help ensure Kiwis’ retirement years are marked by dignity and independence, rather than uncertainty and dependence, is one close to my heart.

So, it good hear the commissioner’s call for change. That’s how we lift standards, and lift outcomes for Kiwis.

KiwiSaver is a resounding success, no doubt.

The very fact that it’s now well-established as the default retirement saving mechanism for Kiwis is a marker of success itself. It has empowered millions to take more control of their retirement savings and build a nest egg for their future.

However, since its inception in 2007, the cost of living has soared, the nature of work has shifted, buying a house is harder, and our understanding of retirement planning has deepened.

So, as the commissioner says, it’s time KiwiSaver caught up.

Boosting savings: The power of defaults

What I like most about the commissioner’s KiwiSaver recommendations is her proposal to raise the default contribution rate to at least 4%, with employers matching.

We know that most Kiwis stick with default settings, so this simple change could supercharge retirement savings for millions. The difference that 1% can make, compounded over decades, cannot be understated.

While it’s a fair point that a higher default contribution rate could burden those already struggling with the rising cost of living, providing people with choice to stay at 3% is a smart idea to ensure flexibility for those who need it.

But to be clear: I firmly believe 4% should be the new minimum, with a plan to increase that rate over time.

It would be great to see a pathway forward that detached employer and employee contributions while increasing overall saving rates.

We need to get to a level of saving that will secure a comfortable retirement for most New Zealanders, one where they can enjoy their retirements without financial worries.

We can do this while making it simpler and fairer for all KiwiSaver members.

Of course, we need to be conscious of the timing, given pressures on businesses.

So, it would make sense to provide a 12-month pathway to enable employers to put in place any rise in contribution rates alongside annual pay review cycles.

Simplicity and security: The single provider advantage

The commissioner’s endorsement of a single-provider rule is another wise move.

It keeps things simple for Kiwis, reducing the risk of lost or unclaimed funds and increased administration costs to the system, which ultimately get absorbed by savers.

While some may crave more choice, the reality is that most KiwiSaver providers offer a wide range of investment options to suit different risk profiles. It’s about prioritising ease of use and security for the majority of savers.

Minister of Commerce Andrew Bayly is right. We do need to see more KiwiSaver providers investing in local, unlisted businesses.

Our equity market is shallow and not representative of the broader economy, so fund managers should be allocating more money into private debt and equity in New Zealand.

But we don’t need to overcomplicate the KiwiSaver rules for members to make this happen.

Fairness for all: Young and old

Extending employer contributions to under-18s and over-65s is a no-brainer.

It recognises that saving isn’t just for the middle years of your career. It’s a lifelong habit, and every dollar counts.

For young people, starting early can have a dramatic impact on their long-term wealth, thanks to the power of compounding returns. For older workers, it’s about providing an extra boost to their retirement savings as they approach their golden years.

The commissioner is also spot-on about total remuneration.

Employers who sneak KiwiSaver contributions into salary packages are doing their staff a disservice.

Let’s keep things transparent: employer contributions are on top of salary, not part of it.

Businesses will also need time to make this transition, but it will ensure that employees receive the full benefit of their hard-earned income while also building their retirement savings.

A brighter future for KiwiSaver

The Retirement Commissioner’s vision for KiwiSaver is one I share.

It’s a vision that balances ambition with pragmatism, recognising the need for both bold steps and careful consideration.

By embracing these recommendations, we can ensure that KiwiSaver is positioned to provide a secure and prosperous retirement for all New Zealanders.

I urge the Government and all stakeholders to act on these recommendations with the urgency they deserve.

Let’s build on the initial success of KiwiSaver that has enabled it to become the status quo for retirement savings in New Zealand, and challenge it to produce a legacy of financial wellbeing for generations to come.