KiwiSaver employer contribution should be compulsory: finance boss
Employers should have to contribute to their workers’ KiwiSaver accounts, regardless of whether the employee does so, a funds management boss says.
Scott Alman, founder and managing director of Consilium, which offers solutions for independent financial advisers and financial institutions, said KiwiSaver had been a great start for New Zealand’s retirement savings journey but it needed some tweaking.
He said employer contributions needed to be compulsory and built into the total remuneration package offered to employees.
“Rather than saying “we’ll offer you $80k and match your 3 per cent KiwiSaver contributions if you choose to make them’, it should be $80k and 3 per cent KiwiSaver, regardless.”
Some employers use a total remuneration approach but most offer a salary or wage with the KiwiSaver contribution on top. Currently, employees who don’t contribute to KiwiSaver don’t get any employer contribution.
Alman said employers’ contributions were tax deductible expenses to the employer whereas employee contributions are after tax contributions.
“In time, the minimum contributions also need to increase.”
The minimum rate is 3 per cent although workers can also contribute 4, 6, 8 or 10 per cent of their income. Some employers also offer higher employer contributions.
Fund managers look with envy at Australia’s gold-plated pension savings regime, which is compulsory and set at an initial 11 per cent of wages.
“Having been around for only 15 years longer than KiwiSaver, those schemes have more than A$3.7 trillion under management.
“This is compared with our $100 billion here.
“Living a comfortable retirement is so important, so it’s integral we make the tweaks to KiwiSaver now to ensure New Zealanders can live better retirements in years to come.”
Alman said it was no accident that Australia had not experienced a recession for more than 30 years. That was in part due to the investment different super funds make each year that help keep the economy ticking over.
He said KiwiSaver is growing every day but there are some improvements that could be made.
“It’s not broken but perhaps it’s time it changed with the times.
“There is the unintended consequence of the simplicity of KiwiSaver today has been that it is viewed as a product - just like a mortgage - a one-size-fits-all product - one set of specifications for it, and people sell it like a product.
“As a balance grows, the type of product employed becomes more of an issue.
“It is what we have got, but there are some things that could be fixed with minor tweakings.”
Alman said the portfolio of the average New Zealand investor tended to be more defensive than the average Australian investor.
“We will have far more bonds, far more property in our KiwiSaver portfolios.
“Wet end to be more conservative balanced whereas in Australia they tend to be more growth-balanced.
“I think that comes down to Australians having accepted that a bit of extra volatility that shares give you, and you get rewarded with a higher return,” he said.
Alman said New Zealanders tend to view their KiwiSaver as just another account, but they will in time become more engaged with their KiwiSaver schemes as their balances increase.
“We’re at this real inflection point in New Zealand where KiwiSaver is maturing and investors are starting to say: ‘My balance is at a level where this is serious, and my actions need to be more considered’.”
Once a KiwiSaver balance matches the saver’s salary - or once it hits six figures - it becomes more meaningful.
“Once a large amount of money is at stake, an investor’s actions and behaviour can have a meaningful effect on investment outcomes. These outcomes can be good or bad depending on the decision taken.”