Increasing the KiwiSaver contribution rates will, over time, help lift retirement balances and reduce reliance on the public purse. That matters not just for individuals, but for the resilience of the whole economy.<\/p>\n
The KiwiSaver changes create a natural moment for people to engage more actively with their retirement planning. Are they investing in funds that align with their age, risk tolerance and time horizon? These are not questions with one-size-fits-all answers \u2013 but they are questions worth asking.<\/p>\n
How else to incentivise saving?<\/p>\n
Higher levels of private saving provide individuals with more choice in retirement, and ease pressure on public finances over the long term. That is why, despite the immediate impact on take-home pay that the change to contribution rates will have, encouraging private saving needs to remain on the agenda of future governments.<\/p>\n
We think more incentives should be considered. For example, enabling \u201csalary sacrifice\u201d, where employee contributions are paid from pre-tax income. This would result in people making higher contributions. It would also reduce the Government\u2019s tax take \u2013 but a limit could be set, such as allowing salary sacrifice of up to $3000 for KiwiSaver contributions each year. In the current fiscal conditions this may not be feasible, but it is definitely worth considering in the medium term. Or, there could be a reduced tax rate up to a certain threshold \u2013 a good incentive that wouldn\u2019t cost the earth.<\/p>\n
Careful discussion needed<\/p>\n
New Zealand Superannuation has long been a cornerstone of our social contract. It provides certainty, dignity and stability for older New Zealanders after a lifetime of work. But its affordability is increasingly challenged by demographic change and other spending requirements.<\/p>\n
Today, New Zealand Super costs just over 5% of GDP. Under current settings that share is projected to rise significantly over the coming decades as the ratio of workers to retirees falls from around four to one now, to two to one in 2065. At the same time, New Zealand relies heavily on income tax, meaning a shrinking group of income taxpayers is supporting a growing retired population.<\/p>\n
This does not mean NZ Super is \u201cbroken\u201d, nor does it mean change is inevitable or urgent tomorrow. But it does suggest the affordability of NZ Super is unsustainable in the longer term and we should be open to exploring options for change \u2013 calmly and well before time.<\/p>\n
For example, we currently index NZ Super to wage growth, meaning it is adjusted to match that figure yearly. It could be indexed to the Consumer Price Index (CPI) instead, which would still mean it maintains purchasing power against a basket of goods rather than labour market demand. Changing the indexation mechanism is likely to reduce the overall cost of NZ Super.<\/p>\n
We could also introduce greater flexibility around the retirement age, allowing people to retire earlier or later at adjusted rates of NZ Super. This is a novel approach which could be fiscally neutral and, if combined with stronger private saving incentives, should reduce the overall load.<\/p>\n
Starting the conversation, not finishing it<\/p>\n
The recent KiwiSaver changes are best understood as a reminder that retirement policy is not static, and that the decisions we make today will shape outcomes decades from now.<\/p>\n
The significant cost of NZ Super means it is closely tied to the sustainability of our tax base. Overall, better tax settings are needed to help address our demographic challenges and over-reliance on income tax. That will require an ongoing conversation about what we tax and how we tax it, including income, corporates, capital and goods and services.<\/p>\n
As chartered accountants, we see first-hand how individuals, businesses and governments respond when challenges are addressed early and pragmatically. New Zealand has an opportunity to do the same here. By strengthening private saving, being open to options around NZ Super, and having a mature conversation about how we fund retirement, we will ensure the system for ensuring New Zealanders can live comfortably in retirement is fair, resilient and sustainable \u2013 for today\u2019s retirees and future generations alike.<\/p>\n