Three key changes are needed to KiwiSaver for the scheme to help people retire well, Mercer senior partner David Knox says. And in the meantime, existing members may need to check they are on track for the retirements they expect.
Knox recently wrote an analysis of the scheme compared to the Australian superannuation system.
Both New Zealand’s KiwiSaver and the Australian superannuation system have about 75% of their country’s working age populations as members. But after 17 years, assets in KiwiSaver are only equal to 37% of New Zealand’s GDP, compared to double that for Australian super at the same stage in its development.
Knox said New Zealand’s KiwiSaver minimum combined contribution rate needed to be gradually increased to 10%. KiwiSaver providers should be required to offer retirement income options so that there was a focus on how investments were drawn down as well as accumulated. And he said KiwiSaver should be preserved for retirement so that its purpose did not become confused.
He said there needed to be more conversation around what retirement was. “In New Zealand, we are too focused on the age of retirement rather than the path to winding down.”
The Financial Services Council agreed some changes were needed. It also wants to see contributions increased and the number of people participating boosted.
Take, for example, someone on a median salary, contributing their minimum 3% plus the 3% from their employer, from the ages of 25 to 65.
In a balanced fund, they would end up with a lump sum of $239,293, or $220 a week from age 65 until they were 90 according to Sorted’s calculator. That is less than the $330 that Massey University calculated single retirees leading even a “no-frills” retirement in a city would need to be able to top up their pensions.
The FSC said industry and the Government should work together to improve retirement policy settings and financial literacy.
It said, at a headline level, 3.25 million KiwiSaver members with more than $90 billion invested looked good but a dig into the figures revealed that active participation rates were not as high and many people were not on track to have their KiwiSaver funds meet their individual needs.
“It is a scheme that has seen considerable growth. However, with an average balance of $28,778 in 2023, is it really making sure all generations of Kiwis are prepared for retirement?”
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