Retirement Commissioner Jane Wrightson has said the changes will mean 80% of the scheme’s 3.3 million members will be better off.
The commission’s research shows around 64% of employees who contribute to KiwiSaver do so at 3%, while the other the third contribute a higher amount.
Some 5% contribute at 10% of their earnings.
But on the employer side, just 10% of employers contribute more than 3%.
On top of that, more than half of employers appear to have adopted a total remuneration approach for some or all of their employees, where the employer contribution is included as part of a worker’s package rather than being on top of it.
The commission has recommended this total remuneration approach be removed. However, the Government has stopped short of doing that.
The risk is that higher employer contributions will just come out of workers’ pay packages, resulting in them getting less in the hand.
Increasing the employer and employee contribution rates to 4% brings KiwiSaver back to its original intention when it was set up by the Labour Government in 2006.
It is still short of the contribution rate that Australian employees get.
Their current rate is 11.5% of an employee’s ordinary time earnings and in July it will rise to 12%.
New Zealand is headed for 8% with its four-plus-four move.
However, New Zealand’s employer contribution is also taxed so it’s more like 6.5% or 7%.
The increase in contribution rates will also do little to help those who are self-employed.
Around 500,000 KiwiSaver members are not employees.
For them, the reduction in the Government’s contribution means there is even less incentive to contribute more to the scheme or even sign up for it.
James Fuller, chief executive of small business accounting firm Hnry, has described the KiwiSaver changes as a blow for sole traders and self-employed people.
“The Government has overlooked that 400,000 Kiwis don’t have an employer – this effectively punishes them.”
Since KiwiSaver was launched, the number of people who are self-employed has risen.
These people need to be encouraged to save for retirement as much as any other worker.
Perhaps one option could have been self-employed people getting the $521 Government contribution that is now being removed from from those who earn over $180,000.
There is already talk about New Zealand Superannuation becoming unaffordable and the potential for a lift in the eligibility age.
And there are those who would also like to see it means-tested.
Changes to NZ Super require New Zealanders to be better prepared and funded from their own private retirement savings.
The sooner that happens, the better.
Saving for retirement is best done over a lifetime of working.
The Budget changes require employers to make contributions to 16- and 17-year-olds who save into the scheme, and extend the Government’s contribution to this cohort as well.
If New Zealanders are set on the right footing for retirement from day one of their working lives, it will mean far fewer retirees face hardship when the time comes to give up working.
