KiwiSaver providers are backing calls to make it compulsory for employers to contribute to KiwiSaver – even if the employee is not contributing themselves.
Because the scheme is workplace-based, people who earn more, or who are in the workforce for more of their adult lives, are likely to end up with more in their KiwiSaver funds.
There were concerns that could exacerbate income inequality in retirement.
University of Auckland associate professor Susan St John said the Pensions and Intergenerational Equity hub wanted compulsory employer contributions for all KiwiSaver members, regardless of their age, and whether or not they were on a contributions holiday themselves.
“This is not equivalent to making KiwiSaver itself compulsory, but would incentivise membership. Matching contributions from employers are already compulsory.”
She said members who were not contributing could be mentored and encouraged back to contributing themselves when it was appropriate.
“This would be good for women and help close the gender gap. The government contribution should also apply after 65 until, say, 40 years of this subsidy has been received to be fairer to women who have had time out for caregiving.”
Ana-Marie Lockyer, chief executive at Pie Funds, said she would support mandatory employer contributions.
“While this would be an additional cost for employers, this needs to be balanced with the issue of equity: lower-income earners deserve the same opportunities as everyone else when it comes to saving for a comfortable retirement and should not be disadvantaged from the person sitting next to them who may can afford to contribute.
“Changes such as this would be a good start towards reshaping KiwiSaver into a fairer, more effective tool that helps more New Zealanders retire with dignity. Signalling and allowing a transition time will be important to allow employers to successfully embed this.”
Murray Harris, head of KiwiSaver at Milford, said he supported the idea in principle – targeted to lower-income earners.
“With some well considered guide rails that define ‘lower income’ and at what point that would convert to matched contributions, be that the hourly rate or annual wage or salary it would apply up to.
“If it applied up to too high an income it may discourage those who can afford to contribute to not and just collect the employer’s contribution.
“Low-income workers could stand to benefit the most from regular savings like KiwiSaver, but we know many simply can’t afford to contribute. Employers want to see their staff earn and do well, so making a contribution towards their employees’ retirement during their working years could make a significant difference to the quality of their retirement. That’s a win-win.”
He said there needed to be a wider strategic review of KiwiSaver policy and its settings to ensure it was delivering the best outcomes possible.
A spokesperson for the Retirement Commission said it offered the idea as a soft recommendation in its KiwiSaver Opportunities for Improvement paper.
“We’ve not delved into what the impact might be for employers if this became mandatory.
“What we do know from our research is that the majority of those who don’t contribute to KiwiSaver are largely not doing so because they either can’t afford to, are taking a break out of the workforce or have lumpy income which is contributing to the retirement savings gap we see particularly for women, Māori, Pacific Peoples and the self-employed.
“The idea could be worth further exploration but any change like this would need to be made with a long enough runway for employers to prepare.”
David Verry, a financial mentor at North Harbour Budgeting Services, said many of his clients had stopped contributing because of financial circumstances.
They had also often stopped paying for insurance.
“We encourage clients to contribute – firstly, they are missing part of their salary – employer doesn’t have to contribute – and, secondly, the need for KiwiSaver to live anything more than a subsistence lifestyle when they retire.
“In dire circumstances, we recommend suspending KiwiSaver contributions as a short-term measure. Often the sign that clients are returning to stability is when contributions can recommence.
“I get a little alarmed, but don’t mention it to clients, when they are in their 50s and only have $10,000 to $20,000 in their KiwiSaver and only 10 to 15 years to build up the balance. They have missed so many years of compound investment returns.”
rnz.co.nz
