Source: Radio New Zealand
Unsplash/ Anukrati Omar
Investment app business Sharesies says updated economic modelling indicates the lift in the default contribution to KiwiSaver will fall short of a no-frills retirement for nearly half of retirees.
From 1 April, new default employee and employer KiwiSaver contributions come into effect, with an increase to 3.5 percent from 3 percent, with a National Party proposal to further increase to 4 percent in two years’ time, followed by increments of 0.5 percent in following years, taking the contribution to 6 percent, or 12 percent on a combined basis.
“The Government needs to be commended for raising contribution rates,” Sharesies KiwiSaver head Matt
Macpherson.
“However, averages don’t tell the whole story, which is why we turned to real world data to see the impact on everyone and not just the average person.
“What was clear is that rising contributions mainly benefit those who can already afford it.”
Macpherson said the voluntary contribution scheme, which attracted matching contributions from employers, disadvantaged people on low incomes, who were not able to save for retirement and therefore received no employer-contribution.
He said one way to improve the situation would be to make employer contributions compulsory for all New Zealanders in work.
“No matter which pathway we opt for, our numbers show that relying just on increasing contributions risks entrenching inequality.”
What the report says
The Sharesies report indicates half of its members would fall short of a no-frills retirement lifestyle, as defined by a Massey University assessment of at least $705 a week for “basic standard of living which includes few, if any, luxuries.”
Sharesies report indicates a modest increase in the default contribution rate to 4 percent would be helpful, but “still insufficient to close the retirement savings gap for most members.
“At National’s proposed 6 percent default setting, with matched employer contributions . . . the median weekly income from KiwiSaver funds would increase from $708 to $798.”
However it says even that would fall short of a no-frills lifestyle for 40 percent of pensioners, or more than 2 out of 5 people.
“Strikingly, even a young personʼs balance, with more time for returns to compound, still falls short and we can see this because the Sharesies database tends to skew younger,” Macpherson said.
Sharesies findings also aligned with the 2022 Review of Retirement Income Policies, which emphasised 40 percent of people over 65 and over relied almost entirely on NZ Super.
“Given that our sample is younger, which would in theory make our projection more optimistic, this strongly
indicates that a significant proportion of members will not have enough for a basic retirement,” the Sharesies report says.
“Furthermore, while increasing the contribution rate does improve outcomes, a significant share of members would still not reach a basic standard of living in retirement.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
