We’ve reached the point where KiwiSaver changes must occur – Editorial

Finance Minister Nicola Willis will unveil changes to KiwiSaver next week. Photo / Adam Pearse

Editorial

• Nicola Willis confirmed changes to KiwiSaver, describing them as “positive” but not detailing specifics.
• The Retirement Commission has advised the Government to make 4% the default contribution rate to KiwiSaver.
• The Government will make its first withdrawal from the NZ Super Fund in 2028, earlier than expected.

Nicola Willis confirmed a rumour many of us have been discussing for the last couple of weeks. Changes are coming to KiwiSaver.

What exactly they will be, the Finance Minister is staying mum about. But she described them as “positive” yesterday.

“I want to see people’s KiwiSaver balances grow. KiwiSaver has become particularly important for those saving to buy their first home,” she told Mike Hosking on Newstalk ZB.

“And it’s become an increasingly important supplement for people’s retirement income.”

Her second point is what this is really all about.

In March, this editorial called for Willis to be bold with any changes to the scheme because we can all see our country’s challenges rising over the horizon as our population ages.

Treasury has been frank and public about its anxiousness.

We are already experiencing rising costs for health and our universal superannuation, which Treasury officials project will put “chronic pressures on the sustainability of public finances”.

To help us prepare for this future, Willis recognises we need to make changes now.

She may look to increase the employee and employer contributions to KiwiSaver after the Retirement Commission advised the Government to make 4% the default contribution rate rather than the current 3%.

If this were to happen, it would be the first major change to KiwiSaver since the late Sir Michael Cullen introduced it in 2007. It would also signal a shift towards Australia’s model, which compels a much higher contribution rate.

Willis has said she isn’t considering means testing superannuation, that may be a difficult decision for another Finance Minister to make. But, there are hints she may look to means test the Government contribution to KiwiSaver.

Right now, $521.43 is paid each year to each person who contributes at least twice that amount annually.

In March, we suggested keeping a watchful eye on this. One possibility Willis may have explored is for top tax-bracket earners to lose their eligibility for the Government contribution.

It would help free up funds and be an easy political sell. The majority of people, those earning less than $180,000, are unlikely to shed a tear for their wealthier mates losing their handout.

Willis also announced the Government will make the first withdrawal from the New Zealand Superannuation Fund in 2028. This is significantly earlier than 2035, the date Treasury had forecast just last year.

The fund, which was set up in 2001 to help subsidise the future cost on our superannuation, is even in its “golden moments” only going to be about 20% of the total cost, Willis suggested.

We are now at the point where Sir Robert Muldoon’s legacy and decision to cancel the compulsory scheme in 1975 is coming home to roost.

The 2028 date Willis referenced is significant: it is also when Stats NZ projects one million Kiwis will be aged 65 or older.

She said we’ve talked for several years about a certain point at which the cost of superannuation will get very high.

We’ve now reached that point.

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