Govt rebuffs call to increase min KiwiSaver saving rate

The government won't be increasing the minimum contribution rate for KiwiSaver. Photo/Lynda Feringa.

The Government has rejected a recommendation by the Retirement Commissioner to increase the minimum KiwiSaver contribution rate to 4 per cent saying there is "little evidence this would raise savings rates".

Retirement Commissioner Diane Maxwell recommended increasing the minimum employee and employer contributions from 3 per cent to 4 per cent through a gradual rise of 0.25 per cent per year between 2018 and 202,1 as part of a raft of recommendations through her three yearly review of retirement policy.

In her submission Maxwell said raising the minimum contribution rates would result in a substantial increase to KiwiSaver account balances in the long term.

She said the minimum default rate had an important influence on people's saving
behaviour.

"There is a risk the current minimum rate of 3 per cent sends the signal it is sufficient to build the assets for the standard of living people want in retirement."

Maxwell said internationally New Zealand had the lowest rate of minimum retirement savings in the OECD.

Increasing the rate from 3 per cent to 4 per cent would give a 20-year-old earning $40k a year an extra $85,500 in retirement - boosting their pot of savings to $374,500 by 65, it calculated.

But Commerce and Consumer Affairs Minister Jacqui Dean said the Government would not be making any immediate changes to contribution rates.

"There is limited evidence that this recommendation would raise savings rates. It could also make it more difficult for low income workers to contribute to KiwiSaver, while increasing costs to employers."

The Government also turned down a recommendation to allow an automated option to increase savings over time saying it could be complex and involve high compliance and admin costs.

But it will consider adding a 6 per cent and 10 per cent contribution rate option for members.

Currently members can choose to contribute 3 per cent, 4 per cent or 8 per cent and around two-thirds of employed workers use the 3 per cent option.

But the Government said more work needed to be done before it will commit to it.

It will also consider changing the name of the contribution holiday to savings suspension and reducing the maximum timeframe from five years to one year.

Instead the Government will push for greater information to be given to investors.

From next year members will be given a dollar figure for all of the fees they are charged for KiwiSaver as part of the annual statements sent out around April and May.

Dean also revealed yesterday that annual statements will also now have to include projected retirement savings and income figures.

"We want New Zealanders to be able to 'project forward' and understand how their current KiwiSaver contributions are likely to translate into retirement savings," she said.

"These are complicated calculations and the more we can do to assist people with these, the better."

The full recommendations by the Retirement Commissioner can be viewed here.

While the Government's response can be viewed here.

We have already taken action on some of these recommendations. Of particular note is that from 2018 all KiwiSaver providers must disclose the total fees they charge their investors in dollars.

"Following these improvements I have decided that KiwiSaver annual statements will now also include projected retirement savings and income figures.

"We want New Zealanders to be able to 'project forward' and understand how their current KiwiSaver contributions are likely to translate into retirement savings. These are complicated calculations and the more we can do to assist people with these, the better.