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English's strong comments on govt KiwiSaver contributions don't foreshadow further cuts; 'Govt keen for scheme to be stable'

English's strong comments on govt KiwiSaver contributions don't foreshadow further cuts; 'Govt keen for scheme to be stable'

By Alex Tarrant

Strong comments on the generosity of government KiwiSaver contributions do not foreshadow further cuts to them, Finance Minister Bill English says.

Meanwhile, the idea of introducing a 'life stages' approach to which default scheme a person was initially placed in would likely be raised in a review of KiwiSaver to take place in the next two years. The default funds had achieved what they were set up to do, but people needed to better know what other options there were outside those default funds, English said.

Speaking to media after launching a new reitirement expenditure survey on Tuesday, English said the government did not want New Zealanders to mistake the government's actions of borrowing money to put it into KiwiSaver accounts as 'extra saving' for New Zealand.

KiwiSaver was becoming more attractive for people than other managed funds largely because of the government’s tax credit payments to KiwiSavers, he said.

Earlier, English had said when the government was borrowing money to put into KiwiSaver accounts, it was hoping fund managers were able to exceed the government’s cost of borrowing, "otherwise New Zealand is worse off for the KiwiSaver subsidy."

But the comments did not mean the government was looking to make any further cuts to its contributions, and it wanted the KiwiSaver scheme to remain stable.

The government currently pumps a NZ$1,000 'kickstart' into every new KiwiSaver account, and pays annual 'member tax credits' of 50 cents for every dollar contributed by a KiwiSaver up until that person contributes NZ$1,042 in a given year. That means a Kiwisaver is able to receive up to NZ$521 from the government every year though the tax credits from the government.

That tax credit had been one-for-one until the 2011 Budget, where the government cut it in half, citing the need to cut costs in its bid to return to surplus in the 2014/15 financial year.

The government has said if it does look like returning to surplus in 2014, then it would automatically all those in the workforce not in Kiwisaver into the scheme, but give them the option of opting out again. Treasury estimated this would cost in the range of NZ$400 million.

'Want it to stay stable'

"We’re keen to make sure the scheme remains stable. It’s good to see that people are still signing up in large numbers [and] the amount under Kiwisaver management is growing," English said.

“But I think the main point there is, we get more savings when we save more, not just when we shift the money around. The good news is Kiwis are getting that message from the rest of the world, and they are paying off their debt and starting to save more. We don’t want to mistake government borrowing money and putting it into Kiwisaver accounts as more savings for New Zealand. Because actually we’ve got to pay the debt back," he said.

How things had actually turned out with the introduction of Kiwisaver, and use of conservative default funds had been quite timely with the onset of the global financial crisis following a build-up of debt-fuelled consumption in New Zealand.

"The scheme was set up at a time when people weren’t interested in saving – they were actually borrowing flat out. But now that they are interested in saving, they’ve got a vehicle there that they understand that tips them into it. That looks to be continuing to work even though the government subsidies are a bit smaller than they were,” English said.

Lifestages default funds?

Meanwhile, the government had not formed any view about possible tweaks and changes that it may like to see in a pending review of the scheme, which had to be undertaken by 2014.

One possible change that has been flagged by those in the industry was that of a 'life cycle' approach to which default fund a person was placed in when they joined the scheme. For example younger people would be placed in more risky funds, while older people closer to retirement would be placed in more conservative funds.

This issue has arisen as a large amount of Kiwisavers have left their savings in one of the six default funds. See and compare the performances of the default funds in our Kiwisaver section here.

"For most people in Kiwisaver now, they actually have a choice about what sort of fund to go in to. [It’s] just a lot of them don’t exercise that choice, they stick with the default fund. If people are going to stay with the default funds in significant numbers, then there is an interest in whether those funds are the right kind of vehicle for everybody," English said.

"But at the moment it’s pretty satisfactory. We don’t see a big problem to be solved. It’s working – people are making their contributions, they’re still joining in quite large numbers. But we do have an opportunity in the next couple of years to review whether the default funds are working as well as they should,” he said.

The default funds had certainly achieved what they were meant to achieve.

"That is, a safe, conservative way of saving for those who may not have made any personal choices either to join the scheme, or to have their money invested in a particular way. For people who just happened to find themselves tipped into Kiwisaver, it works pretty well. And these days preservation of capital is actually quite an achievement. So it’s going OK,” English said.

People needed to know what their choices were when it came to discussion about shifting them out of default funds.

“Bear in mind a lot of people are going to be pretty cautious still. When they open the paper and read stories about Greece, about 70% being wiped off the value of government bonds over there, and the possibility of more of that in Europe, they’re going to be a bit cautious and stay where they are," English said.

"So I think we should be careful not to second-guess people who are behaving pretty conservatively. At the moment that’s probably been a good thing with respect to savings. Bear in mind for a lot of savers, particularly older savers, the drop in interest rates cut their income quite a bit. They’re concerned about that as well," he said.

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Kiwisaver has been hugely successful.  And it does need long term stability.  Tweaks are what we need.  The days of proposing major change are long past.

Prediction on tweaks.  The government contribution will cease at some stage.  Kiwisaver will become compulsory at some stage - universal including those on benefits.  National super will phase out coupled with a phase in of Kiwisaver.  A sensible timeframe for that would be over about 30 years.  Like Australia contributions should be programmed to grow - ending up at about 15% in total.

Behaviour.  New Zealanders will change behaviour - it's already happening - as KS balances start to be worth noticing.  Provider performance will come under scrutiny, strongly.  New Zealanders will pay attention to this investment - and others.  In a new way.

Tweak Request.  As balances grow individuals should be allowed to have more than one provider.  So if you achieve a balance of say $50,000.00 - you could leave that in place and start up with a second provider.  Spreads the risk of some individual provider cockup.   


Hi KH,

By what measurement, or measurements, do you make the statement that kiwisaver has been hugely successful?



The rise in New Zealanders interest in how their little nest egg is doing.

If you disagree with my statement.  Let me know your 'measurement'




Hi Kerry,

What about this though?

I doubt this level of apathy is restrticted to just under 18s either. Especially if it is parents enrolling their kids and then doing nothing with the fund/kick-start. I would hazard a guess that some of these parents aren't taking much active interest in their own kiwisaver funds.

Every work place I have been in, there has been a superannuation fund available with some form of contribution from the employer, so not sure how kiwisaver differs here, other than it is replacing many of these schemes and with some quite onerous caveats on it. And there has always been national super anyway? Obviously I'm highly cynical that this will still be going in it's current form by the time I reach retirement age, whatever that might be in a few decades time.

I would have thought that as a country, paying down more debt as a whole would be more beneficial in the medium term.

Anyway, I'm all for more people taking some responsibility for their own retirement and balancing some of the today financial decisions against how they might like to enjoy retirement. But I'm not for the sledgehammer approach that was touted by Labour in the election (compulsion for all) nor in its current form. As you say, maybe some more tweaking and certainty...


Fair point Hamish.

there will be those who don't pay attention.  And far to many in my view. I saw that article as well, and it was an issue that I had not tumbled to before.  And I did think about it for my own young ones.

But also that Amanda's article could also be seen as a sign that there is a growing attention to these issues,  and the journalists are meeting that demand.  The prediction is (and yes it's only a prediction) that increased balances in Kiwisaver will lead to increased attention from the citizens to these matters.

National super is a sacred cow somewhat.  And politicians dealing with it are in great political peril.  That factor will pale in comparison to future decades when if anybody fiddles with their Kiwisaver nestegg balance, the population will string that person from the lampposts.