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KiwiSaver members could be missing out on more than $23,218 by not contributing the minimum amount required to receive the government’s annual “top-up”, a new study has found.
National Capital, which operates an online financial advice service, released its latest “Value for Money” report today for the June 2023 quarter.
It found a 40-year-old KiwiSaver member who contributed $1042.86 annually to their fund until age 65 would receive an additional $13,035.75, on average, for their retirement from the government.
This figure would grow to $23,218 with compounding interest, National Capital estimates.
And that figure would be much higher if the member contributed from a younger age.
The government contributes 50c on every $1 a KiwiSaver member personally contributes to their account each year up to $521.43. That means a person would need to contribute $1042.86 annually to receive the government’s full top-up.
As part of the group’s deep dive research for the quarter, its team examined how many New Zealanders are missing out on the government’s $521.43 contribution.
The study showed between July 2021 and June 2022, 1.064 million eligible New Zealanders missed out on $423 million from the government.
Of that, 580,000 non-contributing members missed out on a collective $302m, while 484,000 partial-contributing members missed out on a further $121m.
And over a lifetime those figures could have bigger implications for those members missing out come retirement.
Using its Optimal Allocation Index, National Capital estimated if those groups continued on the same path toward retirement, they could be missing out on a collective $23.5 billion.
Clive Fernandes, National Capital director and KiwiSaver expert, told the Herald better education around financial literacy, including the role of KiwiSaver, was needed.
He said it was not just a responsibility of our government, however, but also our educators, employers or HR leaders and business experts.
“Many Kiwis still aren’t aware of the long-term return on investment of these annual investments and why it’s important to take advantage of this ‘free money’ from the government every year,” Fernandes said.
“When a top-up of $521 transforms into an eye-watering $23,218, it suddenly becomes a lot more clear how much you could be missing out on in the long run.”
Fernandes highlighted rising retirement costs as a big issue.
According to Massey University’s Retirement Expenditure Guidelines report, a two-person household in a metro area would need $191,000 for a “no frills” lifestyle and $755,000 for “choices”. Living provincially, those numbers fell to $77,000 for no frills and $480,000 for choices.
A one-person household in a metro area would need $277,000 for a no-frills lifestyle and $561,000 for choices.
Clive Fernandes, National Capital director and KiwiSaver expert.
“It is in the best interests of the government to do more to educate New Zealanders on the long-term value, and importance of taking up the allocated KiwiSaver contributions. If costs continue to rise at the same rate, a good portion of Kiwis will be short to meet even the most basic of retirement needs,” Fernandes said.
“Education should be focused not only on taking up this ‘free money’, but on the value of the compounding interest earned as well as driving more awareness of the likely costs come their retirement. More budgeting advice to balance our short-term needs with our long-term requirements.”
National Captial’s report said Kiwis needed to increase the amount they are putting into their KiwiSaver from an average of 4.3 per cent to 6.3 per cent to have even a basic retirement.
But arguably the higher cost of living brought on by post-Covid inflation is playing a big role in the financial decisions New Zealanders are making today.
“We know that for many Kiwis at the moment, we’re more mindful than ever of what money is coming in and the rising cost of living. It is likely that some have paused or reduced KiwiSaver contributions because they are focusing on short-term financial strain in the current climate,” Fernandes said.
Inland Revenue Department figures show there were 102,646 KiwiSaver members on savings suspensions in June 2023, up from 99,910 in June 2022.
But the number of those on savings suspensions up to 12 months had leapt dramatically from 41,791 in June 2022 to 60,785 in June 2023.
A survey by global recruitment and HR company Randstad earlier this year revealed a growing trend towards “unretirement” (workers considering delaying their retirement) amid economic uncertainty and rising costs.
The survey of 1000 New Zealand workers found just 34.5 per cent were confident about retiring before the age of 65.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sport.
