The easiest change to KiwiSaver would be to stop employers from putting KiwiSaver contributions into a person’s total remuneration package, the founder and managing director of a KiwiSaver scheme says.
So instead of receiving your employer contribution as part of your salary, it would be on top of your salary.
Speaking on a panel at the Financial Services Council Conference last week, founder and managing director of Kōura Wealth Rupert Carlyon said: “That is probably the biggest driver of inequity of all in KiwiSaver.”
Carlyon said 40% to 45% of employers have this in their contracts.
This means for most people, now that the maximum government contribution has gone down to about $260, “the incentive is close to nil”, he said.
‘Not how KiwiSaver is designed to operate’
In 2023, a Retirement Commission survey which involved 306 organisations, found 45% use a total remuneration approach. Of those, 60% said it was simpler and 21% said it was cheaper.
At the time, Retirement Commissioner Jane Wrightson said: “This is not how KiwiSaver is designed to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages except to [the] extent that parties otherwise agree.”
But it was not legislatively prohibited, “so long as the outcome is the result of good faith bargaining”, Wrightson said.
‘The panacea is the Australian system’
Carlyon said he thought everyone in the room would agree that the panacea is the Australian system.
“It’s compulsion and increasing contribution rates to that 12% to 14% which is where we know it needs to be to be self-sustaining.”
“We can’t have compulsion without an incentive,” Carlyon said, and in New Zealand “there is almost no incentive for individuals to have their money locked up until they’re 65”.
“What the Australians have done to pay for it is a simple means testing on superannuation in Australia. That’s how they’ve got a model which is consistent at 4.5% of GDP and you can rely on the super payments plus the incentives, and that’s the model that we need to go [to].”
While it was nice to hear about "the fist and glove" of superannuation and KiwiSaver, Carlyon said, “we can’t afford to provide incentives unless we move pretty quickly to make changes to superannuation".
Politics
During a question and answer session at the Financial Services Council Conference last week, Labour’s finance spokesperson Barbara Edmonds brought up total remuneration packages.
Labour had previously had a Bill in the House about this, Edmonds said.
When asked if conversations were had with other political parties whether the remuneration package needs to be looked at, Edmonds said she thought it was part of the discussion that needs to be had.
Edmonds said she was conscious that businesses did total remuneration packages because it was more affordable.
“It’s not just around age or contribution or how you pay for it. You have to look at the full consequences of it.”
At the same conference, Finance Minister Nicola Willis said National would be going into next year’s election with a superannuation and savings policy that it believes addresses some challenges New Zealanders face.
“KiwiSaver has to be part of that,” Willis said.
Meanwhile New Zealand First leader Winston Peters announced a proposal to increase both employee and employer contributions to initially 8% and then later to 10%.
KiwiSaver would be compulsory, and KiwiSavers and employers would receive tax cuts to cover the increases, Peters said.
9 Comments
We are told repeatedly that our universal pension scheme, NZ Superannuation, is rapidly becoming unaffordable, and that we must all put our savings into KiwiSaver to look after our own retirement.
People look enviously across The Ditch, wring their hands, and say 'If only we had a compulsory superannuation savings system like Australia's. Then we'd all be rich. Let's make KiwiSaver compulsory!'
NZ Superannuation provides a universal basic income in retirement. It will continue to do so as long as society is willing to be taxed enough to fund it. Yes, that tax could be going into private KiwiSaver savings instead, ensuring that the gulf between haves and have-nots throughout life becomes even more extreme in old age.
Or we can pay the tax, boost NZ Super to provide a more liveable bottom line for everyone who gets it ... and those who have been able to save extra through life will enjoy spending their savings anyway.
It's a moral choice: look after everybody, or look after me and bugger the poor.
The reason NZ Super is yearly becoming uncomfortably more expensive is because the surtax on recipients' other income was abolished in 1998, so NZ Super goes in full to those who don't need it, and costs the country a fortune.
Bring back some form of the surtax to restore NZ Super to being a universal basic income.
Okay, back to Australia. Is their compulsory universal superannuation savings scheme as good as we are so often told? Here's Geoff Carmody, writing a decade ago in the Australian Financial Review (not a socialist newspaper). He looks enviously at New Zealand's universal super, and reckons what we have is better, and fairer.
A response: 'Geoff Carmody is right: scrap [Australia's compulsory] super'
https://www.afr.com/policy/geoff-carmody-is-right--scrap-super-20160313-gnhrvy
Another: 'Scrap [Australia's compulsory] superannuation for a universal basic pension'
https://www.macrobusiness.com.au/2021/01/scrap-superannuation-for-a-universal-basic-pension/
And another: 'Scrap [Australia's compulsory] superannuation. It fails to meet the standards of a retirement income system. It is costly and inefficient, unnecessary, and incredibly unfair.
The age pension [equivalent to NZ Super] system is by far the most economically efficient retirement income system. Scrap superannuation. Expand the age pension. Boost the economy.'
https://treasury.gov.au/sites/default/files/2020-02/murray290120_0.pdf
And this:
2025may26: More criticism of the Aussie superannuation savings scheme that Kiwi find managers eye enviously
Here are the big problems with the NZ system:
Demographics: it worked well when there are a lot less old people than young people. But we are heading towards having 2 people working for every pensioner, and in that case those two people will need to pay a lot of tax for the pensioner's health care let alone NZ super.
Entitlement: the oldies are the big voters, and they will vote for maximum entitlement. Hence why the super age can't be increased even though people are living much longer, why old people can free trips to Waiheke and other perks that aren't means tested, etc.
Savings: we don't need to save much for our retirement as the government are going to pay for it. But the government aren't saving much for it either. So there is always this future liability the government has to fund, compared to AU where they have a massive amount of invested savings making them money.
I wonder if the oft-reported NZ/AU salary comparisons take total remuneration into account, I suspect they're overlooked
Which means we are likely under paid by even more in comparison.
Treasury estimates the cost of superannuation, net of tax and NZ super fund contributions, to rise from 4.4% of GDP currently to 6.4% by 2070. Hardly 'rapidly becoming unaffordable'. By comparison the net cost of government spending on public pensions across the OECD was 7% in 2020 and will have increased since then.
You have to add the increased cost of healthcare too.
Also that 6.4% must require a lot of immigration to keep the number of taxpayers at the required level. But that immigration is not guaranteed, both in terms of supply of people wanting to live here, and the demand from our voters.
Our taxation is lower than the OECD average. Stating the costs in terms of GDP will look much better than a comparison as a % of government spending (until we inevitably raise taxes if nothing changes).
You have to wonder how accurate that GDP figure is anyway. Imagine if GDP grew at 0.1% per year less than that they have guessed, that would make a massive difference.
Yes. Treasury's estimates assume ongoing growth in GDP which as you point out could be wrong but the bald assertion that NZS will become unaffordable in its current form is also made in the context of NZs officially expected GDP track projections. Worth noting that the expected net cost of NZS has progressively diminished from 9.0% to 5.4% of GDP over the last 25 years.
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