KiwiSaver governance isn't clear enough and nobody is pushing for KiwiSaver reform at a Cabinet level, Retirement Commissioner Jane Wrightson says.
Wrightson appeared alongside the Chief Executives of Smartshares, Fidelity Life and Partners Life at a panel during the Financial Services Council (FSC) conference on Wednesday morning.
The panel debated the main conference topic – consumer resilience and prosperity – and were asked the question of if New Zealanders were truly resilient.
Wrightson described it as people not having to worry about money on a daily basis and being able to survive financially.
“Resilience, of course, is incredibly important because none of us can do it on our own,” she told conference attendees.
The FSC released a new report on Wednesday examining financial trends across NZ in the short, medium, and long-term. It found New Zealanders are dipping into available savings and feeling the financial strain.
FSC Acting CEO Haydee Stroud said the report found one in five retirees had reported having less than a year’s worth of retirement savings to maintain their current lifestyle.
“Our research consistently shows that New Zealanders aren’t prepared for retirement, which is why we continue to call for a review of KiwiSaver settings. A review would future-proof the scheme and help New Zealanders in the long-term, no matter the economic climate,” she said.
Wrightson was asked if the Government was engaging with KiwiSaver and scheme change recommendations – or if they were simply kicking a can down the road.
Wrightson replied that one of the systemic problems around KiwiSaver is that governance isn’t clear.
Wrightson herself reports to the Minister of Commerce Andrew Bayly who heads up the Ministry of Business, Innovation and Employment (MBIE), but MBIE only has a policy function when it comes to KiwiSaver.
To add to the confusion, the Financial Markets Authority (FMA) regulates KiwiSaver – and releases the KiwiSaver annual report each year – while Government tax department Inland Revenue (IRD) administers KiwiSaver.
Wrightson said IRD had views of “what can work” when it comes to KiwiSaver and then that information goes up the chain to Minister of Finance Nicola Willis.
“[Who} generally speaking, doesn't want to spend any more taxpayer money than she possibly can, because that's what MOFs [Ministers of Finances] do,” she said.
“So nobody is in Cabinet pushing for this at a unified level. And I think that’s a bit problematic.”
Wrightson doesn’t think tweaking KiwiSaver as it stands is the answer either and the retirement savings scheme needs proper reform.
“You won't hear us shutting up about it anytime soon,” she said.
The Commission published a paper in June with recommendations for the Government on how to improve KiwiSaver.
The recommendations range from extending KiwiSaver eligibility to include temporary visa holders to removing the practice of employers deducting their required KiwiSaver contributions from employees’ pay instead of contributing it on top of their pay.
Wrightson said one of the paper’s key recommendations was that the default contribution “has to go up” – for employee and employer contributions.
The topic of raising employer contributions in KiwiSaver was discussed at a FSC pre-conference panel Tuesday.
Wirghtson said on Wednesday that she had been keen to recommend a default contribution rate of 6%, but her staff had talked her down to recommending 4% instead.
“But nonetheless, the thing about defaults, as we know, is that they tend to be a kind of permission thing. People think, oh, if they sign three, five, three, that'll be enough, then I'll be happy in my retirement. And we all know that's not true,” she said on the panel.
Sensible settings
Financial Markets Authority (FMA) Chief Executive Samantha Barrass was asked in another conference discussion about the FMA’s view on KiwiSaver.
“It’s the role of the Government, we just regulate,” Barrass said, but added that the market watchdog was concerned about the drop off in people making KiwiSaver contributions.
“Some people are just not making any contributions into KiwiSaver at the moment,” she said. “So we’re really keen that that picks up.”
Later on, MinterEllisonRuddWatts Partner Lloyd Kavanagh also suggested it was very much time for a review of KiwiSaver.
When KiwiSaver was established in 2007, the Government planned to review the scheme every seven years which it did in 2014. When 2021 rolled around however the review got pushed out because of the Covid-19 pandemic.
Kavanagh added that the Beehive needed to keep being pushed when it came to a KiwiSaver review.
“You've got a lot of ministers with a sort of a finger in the pie, no one really pushing to do this,” he said.
Willis was asked how KiwiSaver and our superannuation platforms can be improved in a Q&A after Willis gave a keynote speech at the beginning of the conference.
One example put to Willis was that KiwSaver’s contribution rates don’t compare to the Australian Super – Australia’s version of KiwiSaver – which currently has a compulsory default contribution rate of 11.5% for both employees and employers.
KiwiSaver’s default contribution rate for employers and employees is still 3% – the same rate it was when the scheme was established in 2007.
Willis dodged the question apart from saying the Government needed to make sure it had “sensible settings” for superannuation through the Super Fund and KiwiSaver.
“But I don't believe that the main reason people leave [NZ] is for Australia's superannuation,” she said.
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