But in recent years I’ve been increasingly concerned that KiwiSaver is contributing to wealth inequality in this country. Many of those not in KiwiSaver, or in but not contributing, are on lower incomes.
You could argue that people struggling to feed their families simply can’t afford to put money away for retirement. But under National’s proposed changes, they could still suspend their KiwiSaver contributions, although they would have to meet the test that currently applies to people making a hardship withdrawal.
Also, for people on paid parental leave the Government would make an employer contribution, and they wouldn’t have to put in anything.
But those who have suspended their contributions just because they prefer more cash in hand would be the ones affected – from July 1, 2028. That’s probably a good change.
Some comments on other National KiwiSaver proposals:
Contribution rates. National proposes gradually increasing both employer and employee contributions, to reach 6% plus 6% by 2032.
Many in the industry think this – and compulsion – are great. The cynic would say, “Of course they want more money in their funds, earning more fees for them.” But some are sincere.
However others, including the NZ Society of Actuaries, say we should stop at 5% plus 5%, or some people would be sacrificing too much money now for comfort in retirement.
Self employed. They would have to contribute the same amount as the employee contribution – starting at 4% of pay from July 1, 2028. Presumably that would be 4% of the previous year’s taxable income, which could bring complications for those with highly variable incomes.
Still, this could be good in the long run for the many self-employed people not currently taking part in KiwiSaver.
Some complain that the $261 annual Government contribution is not a big enough incentive. But it would still add up to nearly $3500 over 10 years in an aggressive fund with annual returns of 6% after fees and tax. And over 30 years it would be $21,300.
The “Baby Boost”. From July 1, 2027, every child born in New Zealand would get a KiwiSaver account with $1500 in it. It’s hard to argue against that!
Hopefully, parents and others will do the same for older siblings – or there will be cries of “unfair!” echoing across the land.
It would also be great if families set up small regular contributions to all children’s accounts – although this does raise the issue of wealthier families doing this, and poorer families not.
Over 65s. Like their younger workmates, they would receive compulsory employer contributions. Currently some do, but employers don’t have to include them.
Overall, these changes should help towards making KiwiSaver universal – which Prime Minister Christopher Luxon said was the goal. Finance Minister Nicola Willis added, “We don’t want haves and have-nots, we want everyone taking part.”
But what about beneficiaries? The proposed changes are in danger of leaving behind the people struggling most.
A recommendation in the Retirement Commission’s 2019 Review of Retirement Income Policies is to auto-enrol beneficiaries into KiwiSaver through a Government contribution.
Each beneficiary would have a KiwiSaver account, and the Government would contribute 3% of their benefit into that account – on top of the current benefit. The beneficiary wouldn’t be expected to contribute themselves.
I assume the 3% would rise with the employer contribution rate – currently 3.5%.
The review points out that it wouldn’t cost the Government much. In 2019, 3% of the job seeker rate was $382 a year, “at a total annual cost to the taxpayer of around $114 million”. It would be more now, but not that much more.
“We know that KiwiSaver exacerbates the wealth gap over time, as some New Zealanders can’t afford to save and so miss out on the compounding benefit of saving even a small amount of money, but over time,“ says the report.
“Our terms of reference stress the importance of providing options to lift retirement outcomes for the most vulnerable. We believe that targeted incentives would improve the chances of some of the most vulnerable New Zealanders being able to have a pool of savings to supplement their income in retirement.”
The report mentions a controversial issue. People sometimes say KiwiSaver’s purpose is to help people maintain the same standard of living during retirement as they had when still working.
Given that beneficiaries usually get a pay rise when they go on to NZ Super, “some argue that they are used to living on a low income, and so don’t need extra retirement income above NZ Super,” says the report.
That amounts to saying beneficiaries are used to being poor, so they can stay poor in their old age. Is that really what we want?
The inclusion of beneficiaries in KiwiSaver is the change I would most like to see. How about it, Labour?
Other changes that would help bring KiwiSaver closer to being universal:
Employers should contribute regardless of whether employees do. People on a hardship suspension – the ones most in need of support – wouldn’t miss out.Ban total remuneration. This practice used by some employers effectively makes employees pay not only their own contribution but also the employer contribution. National has said it will consider such a ban. Let’s see it happen.The introduction of a “sidecar” account. This has been supported by the Retirement Commission in the past.
A portion of contributions to KiwiSaver would go in a separate account, until it totalled, say, $3000. Members could withdraw that money in emergencies, and would then build it up again to $3000. This would reduce hardship withdrawals.
Two final comments:
Assumptions. National’s calculations of how much the Baby Boost will grow, and so on, assume a 7% return. This is a fair bit higher than the after-fees returns of 5.5% to 6.3% (depending on the person’s tax rate) that the Retirement Commission uses in its online tools for aggressive funds, which have the highest average returns.
The 7% return makes total savings considerably higher than they might, in fact, be. Not a big deal, but…
There have recently been renewed calls for tax incentives to encourage KiwiSaver contributions. But that’s not a good idea.
Because tax rates are higher for people on higher incomes, tax incentives benefit them more. Any new government incentives should be at a flat rate – the same for everyone – just like the current government contributions.
Would compulsion hurt early retirees?
Q: I agree that KiwiSaver is a great idea for all the reasons everyone knows. However, in the discussion about making it compulsory no one talks about the other group of people, those with great financial literacy and skills.
I was an accountant and I have been investing for 30 years. I am not rich but I have done well enough that I have retired early. I am not 65 yet.
But if I had been made to go into KiwiSaver on the first day, I would not have been able to retire early.
This is due to the KiwiSaver portion being unavailable to me until I am 65 (or later as the retirement age rises).
I know this is a small group, but surely the current setting allows people to opt out for perfectly valid reasons.
A: Yes, currently you can suspend KiwiSaver contributions whenever you want to. Under National’s plans you couldn’t.
But I don’t buy your argument. Anyone wanting to retire early would need enough savings to fund, say, 35 or 40 years of comfortable retirement, perhaps more.
That total would be considerably more than you would accumulate in KiwiSaver with just compulsory contributions. You would have to make further savings elsewhere. And that’s the money you would use until you reached 65.
Should Mum move ?
Q: I want to suggest to my mum to move some money from a balanced Fisher Funds account to a Kernel balanced fund.
I think it’s a straightforward decision, but are there other aspects I should be thinking about before mentioning it to her?
A: Not really. Your main reason for the move may well be that the fees are lower, and that’s a perfectly valid reason.
Whether the funds are in or out of KiwiSaver, they will be listed in the Smart Investor tool on sorted.org.nz. You and your mother might want to read about each fund, to get a better feel for how they are run. It’s an easy read.
Once your mum is sure about the move, all she needs to do is contact Kernel, who should arrange it for her.
Told about NZ Super
Q: I read your Q&A headlined “Nobody told him about Super”.
I received an email from IRD to view a letter under myIR account telling me to apply for NZ Super. I will turn 65 later this month. The four-page letter even provided steps to apply.
So I am rather surprised your reader did not receive this notification if they were paying taxes.
A: That’s good news about the letter. Inland Revenue confirms that it sends those letters out about 60 days before someone turns 65.
“Customers must have an active record in our system and, based on the information we hold, appear to meet the criteria for New Zealand Superannuation,” says an IRD spokesperson.
“We do not assess whether a customer has previously paid tax. The letter is intentionally worded to state that customers ‘may’ qualify, as our information may not always be current or complete.
The letter is signed by both IRD and MSD.
“We have been sending this letter out for a number of years – I’m not sure of the exact year though,” she says. Presumably the practice hadn’t started when the previous correspondent’s hubby turned 65.
While we’re on pensions, another reader wrote: “You said that ‘most Aussies don’t get the Age Pension’. Not so; according to the attached 2026 article 56% of everyone over age 65 gets at least some.”
Oops! Still, many Aussies receive a fairly small amount, as the pension is asset and income tested.
Help from overseas
Q: There is a point that never seems to be mentioned when considering state pensions, and that is contributions from overseas governments. I am British and drawing a state pension in NZ. This is offset by my British pension that goes straight to the government, and I am not complaining.
In effect my NZ pension is being subsidised by the UK pension. I believe other countries have similar arrangements. I am sure that MSD could tell you the percentage recouped from overseas state pensions.
A: The situation is a little more complicated than it seems.
“Payment of overseas pensions into New Zealand can be made through two methods,” says Julia Bergman of MSD.
“In some situations, clients can use the Special Banking Option (SBO), which allows for a person’s overseas pension to be paid into a special bank account in New Zealand,” she says. The person then receives their full NZ Super.
The SBO is available to people receiving pensions from Australia, Guernsey, Ireland, Jersey, the Netherlands or the UK. Most people using it are from the UK, followed by Australia. Clearly you use the SBO.
The second, less common, way is for the overseas pension to be paid directly to the person. “The amount of overseas pension is then deducted from their New Zealand Superannuation payment,” says Bergman.
In total, about 9.3% of the people who get NZ Super also get an overseas pension.
The total coming in from overseas is more than $658 million a year. It’s a big number, but dwarfed by the $24.7 billion paid out this year in NZ Super, according to 2026 Budget papers.
What’s more, most of the $658m doesn’t actually help with current NZ Super payments.
That’s because the money that comes in via the SBO is paid into the New Zealand Superannuation Fund – sometimes called the Cullen Fund. That money won’t be used to help pay for NZ Super until later this century.
Only the $204m received by people not using the SBO reduces current NZ Super payments. So the subsidy you write about helps, but it’s not huge.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints Ltd. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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