Donna Nicolof, BNZ’s Head of Wealth and Private Bank, reflects on ten years of KiwiSaver and looks forward into the next decade, identifying a number of changes that could be implemented to generate even greater benefits.
It’s been ten years since the launch of KiwiSaver, which was introduced on 2 July 2007 to get New Zealanders into saving and better preparing for their retirement.
There’s certainly a lot to celebrate with this birthday.
KiwiSaver has been a great vehicle to get Kiwis thinking about their financial future – whether their goal is to save for their first home or their golden years.
Another great benefit is that your savings are locked away – a factor that’s particularly important in New Zealand where there’s a lack of a ‘savings culture’. BNZ’s most recent Financial Futures Research, for example, revealed that almost a quarter (23 percent) of even high-earning households (with annual incomes between $100,000 and $150,000) were living pay cheque to pay cheque.
In the absence of rainy-day funds in many households, the fact that KiwiSaver money is locked away for the long term is crucial.
But as we look forward into the next decade, and well beyond, what improvements could we make to KiwiSaver that would deliver us even greater benefits?
I have a few ideas.
The first would be to make KiwiSaver compulsory. When NZ Super was established, it was with a vision that people would spend 10 to 15 years in retirement. But people are now living longer and healthier lives, meaning retirement can stretch to 30 years, or more. The reality is, if New Zealanders don’t make some provision for their own retirement, they won’t have enough to live on.
Couple this with the maximum $521 annual government tax credit that KiwiSavers are entitled to receive, along with 3 percent employer contributions, and making it compulsory becomes a no-brainer.
The second is to raise contribution levels. Most New Zealanders contribute the minimum 3 percent, but again is this really enough? In Australia, the current contribution rate is 9.5 percent, and it’s proposed to rise to 12 percent by 2025 to sufficiently fund people’s retirement lifestyles.
Thirdly, I’d like to see more New Zealanders make an active, educated choice with their KiwiSaver provider – then stick with it. When you’re saving for the long term, you do yourself no favours by chopping and changing providers. Once you’ve made the choice, you should avoid switching providers where possible. Unless you’re not happy with them.
Educating yourself doesn’t have to be hard. BNZ has created a great online tool that helps you figure out what type of fund might suit you best.
However, given the low levels of financial literacy in New Zealand, there will still be those who don’t make a fund choice and will end up remaining in one of the more conservatively managed ‘default’ options they’ve been allocated by Inland Revenue.
Which brings me to my fourth point. For people entering KiwiSaver as they join the workforce, a conservative fund is not the place to be; even aged 65, a KiwiSaver will still need some exposure to growth assets to get the income they need. So I’d like to see the default option move to at least a balanced fund.
KiwiSaver has certainly brought us a long way in 10 years but, as I see it, there’s still a way to go on the journey ahead.
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