Single parents who earned $75,000 a year would also not be able to cover their annual expenses if they contributed at least 4% to KiwiSaver.
Importantly, the NZIER didn’t factor in income support and tax credits, such as Working for Families, which can materially boost recipients’ disposable incomes.
It also acknowledged that everyone’s circumstances were different and some people would adjust their spending more than others should they be required to contribute to KiwiSaver.
Nonetheless, the point the NZIER’s research highlighted was that saving for the future came with trade-offs.
“A household can become better prepared for retirement while becoming less able to manage immediate financial pressures,” it said.
“For example, they could hold more savings locked up in KiwiSaver but: have less in emergency savings, repay their mortgages more slowly, [or] use more short-term debt to cover week to-week shortfalls.”
The NZIER noted those put under additional financial pressure by compulsory KiwiSaver contributions could also be pushed to make hardship withdrawals from their KiwiSaver accounts.
On the flipside, it recognised: “Households already saving outside KiwiSaver may be able to redirect some of their saving toward higher contributions with little change in the total amount they save and the amount they have available to spend”.
The NZIER also made the point that wage growth was likely to be suppressed if employers were required to contribute more to KiwiSaver.
Its research is topical as all political parties are campaigning on changes to KiwiSaver ahead of the November 7 election.
For example, National is proposing to make it compulsory for all employees and employers to contribute to KiwiSaver. It also wants to lift the default contribution rate to 6% by 2032.
Meanwhile, Labour wants to make it compulsory for all employers of people who choose to be in KiwiSaver to contribute 6% by 2032.
The NZIER urged policymakers to consider how changes to KiwiSaver would affect different cohorts of society.
It noted that if the point of increasing contributions was ultimately to reduce the cost of NZ Super, policymakers needed to explain how NZ Super settings would change and how higher KiwiSaver savings would support this.
Meanwhile, if the objective was better retirement living standards, policymakers needed to demonstrate how changes would improve households’ overall financial positions, accounting for debt and other assets alongside KiwiSaver.
The NZIER funded its own research. It is part of its Public Good Programme, which aims to inform debate on important economic and policy issues.
Jenée Tibshraeny is the Herald‘s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.