Compulsory KiwiSaver: It’s time NZ had a serious debate about it – Fran O’Sullivan

High-profile director Fraser Whineray has sparked debate with a paper talking about how KiwiSaver needs to change.

THREE KEY FACTS

• The Government has announced it will increased the KiwiSaver contribution rate to 4% for both employees and employers
• It has halved the Government contribution to $261
• The cost of paying for New Zealand Superannuation is forecast to rise from $13 billion in 2017 to $29b in 2029

High-profile director Fraser Whineray has dug deep into the files of a group that Christopher Luxon once chaired to kick off a new debate on making KiwiSaver compulsory and stepping up the contribution rate.

His posting on LinkedIn – “KiwiSaver 2.0 – Time to get our hands on the clay”, has sparked a great deal of debate including from the influential players in the finance industry.

Using LinkedIn has ensured an influential business audience for a paper Whineray circulated which was first finalised for a former Prime Minister’s Business Advisory Council in 2020.

That council was set up by former Labour Prime Minister Dame Jacinda Ardern and chaired in 2019 by current PM Luxon, who was at that stage chief executive of Air New Zealand, before he passed the baton to Whineray on leaving the airline.

Whineray says that after presenting KiwiSaver reform ideas to Ardern in late 2019 “she quipped that I was ‘in danger of becoming a socialist’.”

“I replied that ‘I was more of a caring capitalist’ – and that the time had come to evolve KiwiSaver.’ Call it KiwiSaver 2.0.”

The council had lofty goals.

It produced papers on the “infrastructure crisis”, the world of work, immigration and education and more.

However, the Covid pandemic resulted in the Ardern Government losing its focus on reform, at least as far as business was concerned.

The council’s expertise was not harnessed in the way chief executives had expected when they took up Ardern’s invitation to join the council.

With Luxon now PM, Whineray is having another shot.

As he puts it, the 2.5-page proposal was designed to evolve KiwiSaver into something fit for purpose by 2030: a “serious economic engine and a foundation for personal dignity, resilience, and independence”.

In essence, the then council believed there was an opportunity to enhance the KiwiSaver framework to achieve more equitable outcomes via a transition over 10 years to a compulsory savings scheme, with the objective of achieving minimum annual contributions of 10% of personal income by 2030.

Six years on and Nicola Willis’ second Budget has moved to increase KiwiSaver contributions to 4% of wages or salaries by 2028 by employers and employees – essentially 8% of personal income. It remains an “opt-in” scheme – it is not compulsory.

In Australia, employer contributions, known as the Super Guarantee, are currently 11.5% of an employee’s ordinary time earnings. From July 1 this year, that rate will increase to 12%.

A massive pool of savings has been built up in Australia since its compulsory superannuation scheme was introduced. Whineray’s intervention is timely.

Both Luxon and Willis have reopened the discussion on superannuation – particularly on extending the age of eligibility for universal New Zealand Superannuation from 65 to 67 years beginning in 2044.

But their coalition partner New Zealand First baulks at that.

Whineray contends gaining political support for making KiwiSaver compulsory and increasing the contribution rate should not be too difficult.

He points to the fact that NZ First leader Winston Peters pushed for compulsory savings in the 1990s.

Former Labour Finance Minister Sir Michael Cullen launched KiwiSaver in 2007 and the New Zealand Super Fund in 2001. Both Luxon and Willis reopened debate in Budget 2025.

There is the ability to begin a cross-party dialogue to build wide support for compulsory super.

As a parting shot on LinkedIn, Whineray contended that universal NZ Super at 65 won’t survive demographic gravity.

If people don’t save, taxpayers still carry the cost. The freedom to opt out likely becomes a redistribution from those who opt in – “even if total savings rates don’t shift on average, they do shift for the people who don’t currently save”.

Whineray’s is a welcome contribution to the superannuation debate. It’s become commonplace to blame the Boomers for the NZ Super iceberg coming taxpayers’ way.

Superannuation is the largest and fastest-growing welfare expense, increasing from $13 billion in 2017 to a projected $29b in 2029.

That is a 25% increase from the projected $23.2b for 2025 in just five years.

In reality the first of the Generation X cohort will themselves be coming on to NZ Super in 2030. It is not simply a “blame the Boomers” issue.

It is also reality that Boomers’ expectations to have super at what was then the retirement age of 60 were shattered by the Bolger Government, which sensibly raised the age of eligibility to 65 within a decade.

Generation X is in a position to lead the debate now to ensure the age of eligibility for NZ Super is lifted again – this time to 67 or beyond.

It’s getting tiresome to hear and read repeated arguments by media personalities that range from blaming Boomers for not having enough babies (ie future taxpayers to support the scheme), to “Luxon won’t be able to build support to raise the age” and finally and more irksome “I’ve paid taxes all by life and hence I want my national super at 65″.

There is a role for the media in leading this debate, not simply fostering the thinking that leads to full-on fiscal crisis.