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Have you heard about the Australian couple, aged 59 and 61, both teachers, who recently retired with a combined $2.5 million in private savings accumulated through their national superannuation savings scheme?
Can you ever imagine having that much and retiring that early as a teacher in New Zealand? Actually, not just teachers but most one of us, no matter what we do for our day job. You can retire on that comfortably and you’re still young enough to enjoy a decent quality of life. The world is suddenly open to you.
I’ll acknowledge that I read about this couple on the social news website Reddit and we need to be careful about taking what we read on social media sites as gospel truths, but this got me thinking about the difference between our attitudes to superannuation and that of our Australian cousins.
If ever you wanted evidence of the massive wealth chasm that has opened between Australia and New Zealand, then this could be it.
Because of the Australian super scheme, where the government compels employers to put 11.5% of workers’ earnings into a super scheme (rising to 12% in July), the amount of savings people retire with tends to be much higher. Australian employers have no choice, and it is compulsory – all workers must be enrolled. There is also a means-tested age pension for those with limited superannuation funds.
The Aussie pension fund now has A$4.2 trillion (NZ$4.63 trillion) invested. The combined balance of KiwiSaver and NZ Super is $188 billion.
That’s not to say every Australian is looking forward to a cushy retirement. The Association of Super Funds of Australia says only 30 per cent of Australians have enough super to retire comfortably, but I’d argue there’s more opportunity for them to save for their senior years because of the superiority of their government super fund.
Here, we’ve become compliant and too uninterested in matters that really affect us, like retirement savings. New Zealanders need to be less apathetic and more focused on demanding from our government a better deal.
Wealth remains in the hands of a few and no one wants to rock the boat, but if we want better futures, especially in old(er) age, we need to make some noise and lobby for change, and hold our elected officials to account if that change doesn’t come.
The Aussie pension fund now has A$4.2 trillion (NZ$4.63 trillion) invested – in numbers, that looks like 4,200,000,000,000 – the fifth-largest pension fund on the planet. In September New Zealanders had $112 billion invested in KiwiSaver and a further $76 billion was squirrelled away in the NZ Super investment fund to subsidise future fortnightly pension payments (which are not means-tested but nowhere near enough to live on). The combined balance is not insignificant but chump change in comparison to A$4.2 trillion.
By age 40, the average Australian worker has $159,000 to their name and the average New Zealander less than $30,000.
In July, the employers’ mandatory superannuation contribution is not part of wages or salaries (and still their wages are well above ours). Australian workers aren’t required to put in a cent; it all rests on the employer. Here, superannuation might become part of the overall pay package with a 3% contribution from us and 3% from our employer, but it’s taxed at 28%, so it’s more like 2%. Australia’s compulsory scheme is taxed at 15%.
Why on Earth tax something that’s good for us? Surely you tax bad stuff and incentivise the good?
The worst thing about this is it could be so different.
Leadership at a political level in Australia has been outstanding in this area, but here, it’s poor -- verging on criminal negligence towards taxpayers, I believe.
The late Sir Michael Cullen set up KiwiSaver. Without his foresight we would still have no national scheme. But others have meddled with it and not in a way that’s been in our interests. I would urge the government to make it compulsory and add some sweeteners in its next budget, but National seems to have long been against these types of schemes.
In 1975, Sir Rob Muldoon axed the fledgling compulsory savings scheme introduced by Labour because he saw it, according to the late finance writer and investment fund founder Brian Gaynor, “as a step on the way to turning New Zealand into a Soviet clone”.
Had Muldoon left it, and subsequent governments continued it, it would be worth trillions today. Instead, we are poor cousins to our Australian counterparts. We earn less and we work longer, into our late 60s and 70s, while the Aussies can access their sizeable savings from age 60.
We need to stop dismantling our savings scheme and, if we do meddle with it, let’s start adding incentives and reasons to be part of it. Since KiwiSaver began in 2007, all we’ve done is chop out the decent bits. The Key government in 2011 halved the member tax credit rate and ended the tax-free status of employer contributions. In 2015, it ended the $1000 “kick-start” for new entrants. The minimum employer contribution has remained at 3% since 2013.
Is there hope for change? Finance Minister Nicola Willis says she is looking at increasing the amount employees and employers contribute to their KiwiSaver. Last year, the Retirement Commission advised the Government to make 4% the default contribution rate, while retaining 3% as an option.
But the fact remains, we’re poorer in retirement while our Australian cousins are paid more, get more from their employer, save more, and are taxed less on their savings. Our scheme should be compulsory, like theirs. About half our workforce is in KiwiSaver, which means outcomes after 65 are severely uneven. It leads to poverty and early death.
Think about those teachers again, aged 59 and 61, with $2.5m in the bank courtesy of their version of KiwiSaver. We’ve got to address this gap -- if we don’t, we’re saying we’re okay with being worse off.
I don’t want that for my grandkids in the future. I doubt whether you do, too.
