Interim Retirement Commissioner Peter Cordtz is considering whether government contributions to KiwiSaver could be changed to incentivise more self-employed people to contribute to the scheme.
Currently the government contributes $521 a year to the accounts of members who make contributions of at least $1043 a year.
The set-and-forget nature of the scheme makes it easier for the employed, than the self-employed or unemployed, to reach this $1043 threshold, as their incomes are less likely to fluctuate.
The scheme also benefits the employed more, as they receive contributions from their employers.
Cordtz is looking at evening the playing field by changing the rules so that KiwiSaver members can only receive government contributions if they make additional voluntary contributions.
The sweetener would be a much greater government contribution.
A KiwiSaver working group, led by the managing editor of the Sorted website, Tom Hartmann, suggests the government could contribute $2 for every $1 of voluntary additional contributions.
Government contributions would be capped at $2000 a year.
In order to keep the cost to the government at bay, the incentive would only being available to a member for 10 years.
So the structure of the KiwiSaver scheme would stay the same; a member contributes at least 3% of their pay, and if they have an employer, they contribute 3%.
But if a member makes additional contributions voluntarily, the government matches this two-fold, up to $2000 a year.
The Commission for Financial Capability (CFFC) notes that only 40% of self-employed/contractors/business owners contribute to KiwiSaver, compared to 73% of workers employed full time.
One in 20 employed New Zealanders contracts, one in 10 has more than one job, and 38% of employees have been in the same job for five or more years. Many workers take breaks from employment to go on their OE, raise children or due to redundancy or ill health.
“This has an impact on long-term retirement savings, as KiwiSaver was designed to be a workplace savings scheme,” the CFFC said.
Hartmann said that as well as evening the playing field between employed and unemployed people, the proposed tweak includes enough of an incentive to encourage people to put more towards their retirement savings.
The change could essentially see KiwiSaver members invest an extra $3000 a year - $1000 from them and $2000 from the government.
Asked whether this would disadvantage low-income earners, unable to find extra money to put towards their KiwiSaver, Hartmann maintained getting $2 from the government for every $1 contributed should be enough of an incentive to encourage even a small amount of savings.
A member could contribute an extra $200 a year and still get $400 from the government.
The idea is for this to establish a savings habit and make the most of compounding interest for the remainder of the member’s term.
The cost to government is difficult to estimate. Hartmann said it could be cost neutral, as after receiving government contributions for 10 years, a member wouldn’t receive any more. Whereas currently, they could get $521 a year until they’re 65.
“We’re keen to find ways to make the KiwiSaver structure as fair and attractive as possible to all New Zealanders, whether they’re in paid employment, self-employed or taking time out of the workforce,” Cordtz said.
“This suggestion could encourage a wider range of people to save more towards their retirement.”
Cordtz is consulting on the issue as a part of the Commission for Financial Capability’s (CFFC) three-yearly Review of Retirement Income Policies.
The public has until October 31 to make submissions.
Cordtz will deliver his recommendations to the Government in December.