National Party Proposes Increased KiwiSaver Contributions to 12%

The National Party of New Zealand has unveiled a proposal to double KiwiSaver contribution rates to 12%, with the goal of addressing retirement savings concerns among New Zealanders. The new policy, announced by former cabinet minister Simon Power, suggests a shift to a 6% contribution from employees matched by another 6% from employers. This significant increase from the current 3%+3% contribution has sparked discussions about the future of retirement funding in the country.

Current retirement income in New Zealand presents challenges. According to government data, approximately 40% of retirees rely solely on NZ Super, while another 20% receive only an additional $100 per week. This means that 60% of retirees are struggling financially in their later years. Raising the contribution rate to 12% would align New Zealand more closely with Australia and some European nations, which are perceived as having more robust retirement systems.

The financial impact of contribution rates is significant. While many New Zealanders focus on securing high returns from their KiwiSaver accounts, the amount contributed plays a crucial role in determining the final retirement balance. Martin Hawes, a financial writer and author, emphasizes that increasing contributions is likely to have a more substantial effect on retirement savings than seeking higher returns.

Currently, many employees in New Zealand do not contribute the full amount, and self-employed individuals often forgo KiwiSaver altogether. The proposed increase to 6%+6% raises concerns about affordability, as both employees and employers may struggle with the additional financial burden. If implemented, this policy could create a wider gap between those who can afford to contribute and those who cannot.

The discussion around compulsion in retirement savings is also gaining traction. Australia introduced compulsory superannuation in 1992, which has led to improved savings rates among its citizens. Without a similar system in New Zealand, many retirees may continue to face poverty in their later years.

Hawes advocates for a gradual implementation of the proposed contribution increase, suggesting a timeline of at least 12 years to ease the transition for low-income earners and businesses. This gradual approach would mirror Australia’s experience, where the contribution rate increased from 9% to 12% over a substantial period.

New Zealanders have historically shown resistance to compulsory measures. The memory of the third Labour government’s attempt to establish a compulsory superannuation scheme in the 1970s still lingers. The subsequent election of Sir Robert Muldoon brought an end to that initiative, leaving many to wonder how today’s retirement landscape might differ had that policy been maintained.

As discussions continue, the need for a comprehensive approach to retirement savings becomes increasingly clear. Raising contribution rates, potentially introducing compulsion, and fostering public discourse on these issues will be vital to ensuring a secure financial future for all New Zealanders.