Nicola Willis must be bold with KiwiSaver proposals for New Zealand’s financial security – Editorial

Editorial

THREE KEY FACTS

• Finance Minister Nicola Willis says she is looking at increasing the amount employees and employers contribute to KiwiSaver.
• By 2024, New Zealanders had $112 billion invested in KiwiSaver and $76 billion in the NZ Super investment.
• The Australian pension has $4.63 trillion invested.

“Will you still need me, will you still feed me. When I’m sixty-four,” sang the Beatles.

It’s something we have increasingly pondered about our pensions and if the balances in KiwiSaver will be enough to bridge the gap.

The Treasury is openly concerned about it, saying the rising costs of health and universal superannuation, combined with our ageing population, is putting “chronic pressures on the sustainability of public finances”.

Now, after consecutive governments have kicked the can down the road, Finance Minister Nicola Willis says she is looking at increasing the amount employees and employers contribute to their KiwiSaver accounts.

“I do want to see New Zealanders’ KiwiSaver balances increasing over time, so they have more financial security in their retirement,” Willis told the Herald.

“That’s a question of their contributions and also how we improve returns on their investments in KiwiSaver.”

While the timing will likely make some families and businesses uncomfortable as we continue to navigate a cost-of-living crisis, we should be encouraged by Willis exploring reform.

We should also keep a watchful eye to see if the Government floats the idea of removing its contributions - up to $521.43 each year per person.

At the moment, the default KiwiSaver position is for employees to contribute 3% of their before-tax pay. They can also contribute various other amounts up to 10%, or opt out of making contributions completely. Employers, meanwhile, must generally contribute the equivalent of at least 3% of their employees’ before-tax pay, provided their employees make contributions.

Last year, the Retirement Commission advised the Government to make 4% the default contribution rate. It suggested it would help those who could afford it, to save more, without deterring people altogether.

Among other recommendations, the commission said employer contributions should be compulsory for all employee KiwiSaver members, not just for employees who are currently contributing. It also said employers could also match employee contributions over 3%.

We can enviously look to our cousins across the Tasman and their super scheme to see how this could play out.

The Australian government compels employers to contribute 11.5% of workers’ earnings into a super scheme - rising to 12% in July among other changes.

It’s also compulsory and means Australians are retiring significantly better off than us. Their pension fund now has about $4.63 trillion invested. New Zealanders, meanwhile, have some $112 billion invested in KiwiSaver and $76 billion in the NZ Super investment fund.

Treasury forecasted government withdrawals from the fund would begin in 2035, at which time the fund would be worth $139b. Will it be enough?

While Robert Muldoon’s decision to cancel the compulsory superannuation scheme in 1975 has long been barbecue banter as the country’s greatest economic blunder, we haven’t really made meaningful changes to KiwiSaver since the late Sir Michael Cullen introduced it in 2007 either.

Willis has said she isn’t considering means testing superannuation and that KiwiSaver was an important supplement which also helps people save for a house deposit.

But, as she rightly points out, not everyone will own their own home at 65.

Willis is yet to take proposals regarding KiwiSaver to Cabinet, but every New Zealander should want her to be bold - for future generations’ financial security.

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