Source: Radio New Zealand
File photo. National leader Christopher Luxon and finance spokesperson Nicola Willis. RNZ / Samuel Rillstone
National’s policy to increase KiwiSaver contribution rates has been met with a big tick of approval by one provider, but with a call to make it compulsory.
National is proposing that, if re-elected, it would gradually increase contributions by employees and employers to 6 percent each, or 12 percent overall.
The government already announced it would lift the default rate from 3 percent to 4 by 2028, at this year’s Budget.
Denouncing “suger-rush” responses to tough economic conditions, National leader Christopher Luxon told party members in Upper Hutt the policy would support New Zealanders’ long-term financial security.
“If we’re serious about building the future, and I am, it’s time for us to increase our ambition for our individual retirement savings, and for our collective savings that can be invested in some of the most transformational projects in our infrastructure pipeline.”
Luxon said he expected KiwiSaver would play an even bigger role in supporting retirements, hinting National could once again campaign on raising the superannuation age.
Simplicity managing director Sam Stubbs said the policy could be a “turning point for economic growth” in New Zealand, as more saving led to more investment.
He said given National’s history of “chipping away” at the scheme, this was a positive step in the right direction.
“This is a really big endorsement of KiwiSaver by National, easily the biggest that they’ve ever made. It really does indicate to me that next year is going to be a KiwiSaver election, in the sense that you are getting parties differentiating themselves not by whether they do or don’t like KiwiSaver, but how much they want it to grow. And that’s a very positive thing for the country.”
New Zealand First has also promised to make KiwiSaver compulsory, with contributions from both employers and employees rising to 10 percent, but offset by tax cuts.
Stubbs said the onus was now on Labour.
“Not only are [National] now firmly endorsing KiwiSaver as a pathway to growth and prosperity, but they’re also serving it up to Labour and saying ‘OK, what are you going to do? This was your policy, are you going to grow it as fast as we do?’”
Labour leader Chris Hipkins. RNZ / Mark Papalii
Labour leader Chris Hipkins welcomed National’s “conversion” to supporting KiwiSaver, given its historic opposition and recent cuts to the government contribution rate.
But Hipkins said there would need to be a credible transition plan to support people on low incomes to get KiwiSaver and maintain their contributions.
“At the moment, it’s tough going in New Zealand. People are just making ends meet. Increasing KiwiSaver contributions is a good thing, but without a plan to support people in the process of increasing KiwiSaver contributions, a lot of Kiwis are going to be hit really hard by it,” he said.
Financial writer Martin Hawes said National’s proposal was “reasonable” to bring New Zealand in line with Australia.
But he said people would struggle if they could not afford to take 6 percent out of their salaries.
“There’ll be definitely people who simply don’t join because they can’t. They can’t pay 6 percent now, they’d be better off joining and paying 2 percent or 3 percent or whatever they can afford, and having that matched, because it’s free money. It’s extra money from the from the employer.”
Unlike Australia, there are no plans to make KiwiSaver compulsory, with National saying New Zealand instead has universal superannuation.
Stubbs said making KiwiSaver compulsory should be the next step.
“Those people who aren’t saving into KiwiSaver are going to be much worse off later on in life. And so if we want to remove inequality in New Zealand, and we don’t like inequality in New Zealand, we have to make sure that everybody is saving for their retirement while they’re earning. And if you don’t have compulsion, that isn’t happening.”
The Retirement Commissioner Jane Wrightson welcomed any policy changes that strengthened New Zealanders’ ability to save for retirement, and the proposal could be a “positive step” towards improving long-term financial security.
“Higher contribution rates will help close the savings gap and ensure more people can enjoy a better standard of living in retirement,” she said.
However, she said it was essential the increases genuinely added to employees’ savings, rather than being offset through total remuneration arrangements.
National’s policy document states that “as has always been the case with KiwiSaver,” employer contributions may effectively for part of the wage negotiation process.
“The recent Review of Retirement Income Policies highlighted that total remuneration practices undermine the intent of KiwiSaver by reducing take-home pay and eroding the additional benefit of employer contributions. We strongly support banning this approach to ensure fairness and transparency,” Wrightson said.
Hawes agreed that the “loophole” should be closed off.
“There are some people who negotiate with their employer that the employer not pay the contribution that they’re expected to pay into KiwiSaver, but instead just put it as part of their total remuneration. So it goes to them in cash, and that means that they are effectively not saving for retirement.”
Hipkins seemed onboard with the call for a ban.
“If we’re going to make KiwiSaver better and bigger, we need to protect employees. And that means making it very clear that KiwiSaver contributions can’t be viewed as part of an employee’s overall pay packet.”
National’s finance spokesperson Nicola Willis said she was “nervous” that businesses would push back at the Budget announcement, but their support meant she believed they would be onboard with the further increases.
Retail NZ chief executive Carolyn Young said the challenge was “two-fold,” and there needed to be a balance between what was affordable for employers and employees.
“The big thing from a retail perspective is that whilst there’s a wide variety of roles that are available in retail, for many people that work in retail they’re not earning significant money,” she said.
“And businesses, right now, obviously are really struggling, so that additional cost is going to go onto the business, and could incur some price increases, depending on how that plays out over time.”
Willis was confident the phased changes, and the long notice, would provide “certainty and stability and clarity.”
Dennis Maga, from Workers First Union, says members were already struggling to contribute to KiwiSaver.
“We absolutely support any moves to increase workers’ retirement savings,” he said.
“I’m not sure that increasing an employer’s KiwiSaver contribution is great when the government can’t seem to get a handle the cost of living crisis right now.”
The union represents many lower-paid workers, and Maga said even if the increased contribution was phased in, it would be tough if basic needs like food, rent and fuel were still getting expensive.
Maga said the minimum wage needed to rise higher than inflation.
“There’s a big gap in terms of wages, comparing our wages or pay across the ditch,” Maga said.
– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
