Milford is the latest KiwiSaver provider to call for changes to the $100 billion scheme, saying the current setup won’t support members’ retirement aspirations.
Murray Harris, head of KiwiSaver and Distribution at Milford, says although many members are contributing the minimum 3% of their salaries, that is not enough, given the importance of the scheme to Kiwi's financial futures.
Recently, Simplicity founder Sam Stubbs told Good Returns TV it's time to make changes to the scheme. (You can watch the video here).
Added to these calls the Financial Services Council outlined areas it wants to see changes in.
Chief executive Richard Klipin recently said: “The FSC is calling for a full review of KiwiSaver".
Harris says the scheme has been very successful in gathering membership, but several changes need to be made for KiwiSaver to better support New Zealanders in retirement, including:
- A gradual annual increase of 0.5% to contribution rates, reaching a total contribution of at least 10%
- Tax relief or concessions on contributions rather than PAYE rates to incentivise members to contribute
- Potential decoupling of employee and employer contributions for lower income workers so they could receive employer contributions, even if not contributing themselves, with potential tax relief for the employer
Harris points to Australia as a good example for New Zealand to follow. Its compulsory savings rate is 11%, increasing to 12% by 2025. Contributions are generally taxed at a flat rate of 15%.
“People have this mindset that if they are in KiwiSaver, they’re okay,” Harris says. “But really they’re probably only saving about half as much as they need to be.
"As an industry, we’re looking at how we can help people understand how much they need to save for a comfortable retirement and then help them achieve that. Advice and education is really important, as well as an upgrade of the KiwiSaver scheme.”
The FSC says “we know there are substantive and strategic issues around contribution levels, the age of retirement, the 25% gender retirement gap, and the fact that 53% of us aren’t able to access $5,000 in time of emergency.
“These require serious attention if we are to make KiwiSaver a best in class system globally."
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