Raising contributions could be a necessity for sustainable retirement
Experts advocate raising the KiwiSaver contributions to a minimum of 4% from both employees and employers, a change deemed necessary to prolong the efficacy of retirement funds.
Experts advocate for increased contributions
The Retirement Commission’s latest findings have triggered a call for action to adjust KiwiSaver’s contribution settings, currently at 3% for both members and employers, Stuff reported.
According to Michelle Reyers (pictured), the commission’s policy lead, recent models show that raising contributions to 4% could extend the duration of fund sufficiency by 20-30%, supporting retirees' standard of living for two to three additional decades.
“A small change to the contribution rate will have a large impact on eventual retirement savings and improve outcomes for all who contribute,” Reyers said.
Gender disparity in retirement savings
The call for increased KiwiSaver contributions is underscored by a persistent gender gap in retirement savings.
Despite demonstrating higher financial literacy, Kiwi women typically accumulate less in their retirement savings, trailing men by an average of $20,000 as they approach retirement age.
Industry leaders support contribution increase
Echoing the commission’s concerns, industry leaders like Rupert Carlyon, managing director of Koura Wealth, argue for the necessity of the increase.
“We have a retirement system that is unaffordable as it stands; increasing the default member contribution is definitely necessary,” Carlyon said.
He also mentioned the significant financial strain of maintaining the current system, with superannuation costs escalating rapidly.
David Boyle, general manager of KiwiSaver at Fisher Funds, supported governmental moves towards enhancing retirement savings.
“The Retirement Commission suggests 4% as a default rate for both employers and employees, and we support that,” Boyle said.
Political Perspectives on Retirement Readiness
Opposition leader Chris Hipkins acknowledged the value of KiwiSaver and suggested that New Zealand should consider a gradual increase in retirement contributions, akin to Australia’s approach, which has reached a 13% annual contribution.
“I think New Zealand needs to look at something similar that just overtime steadily increases the amount that we’re putting away in our retirement savings,” Hipkins told Stuff.
Balancing retirement savings with current needs
However, Reyers cautioned against overly aggressive saving mandates, especially for lower-income earners, highlighting the trade-offs that come with forcing higher savings.
She pointed out the critical role of NZ Super in providing a base income in retirement, allowing for more moderate contribution rates compared to countries without universal pensions, Stuff reported.
