KiwiSaver making rich richer
Of the 3.7 million KiwiSaver members, 43 per cent are not making regular contributions.
OPINION: KiwiSaver has had many successes in its 10 years of operation. But its biggest failing may be that it is increasing the divide between those who are ‘‘better off’’ and those who are not.
The retirement savings scheme now has almost 3 million members and $40 billion under management.
But in 20 years’ time it could be quite apparent that those who have done the best out of it are people who were set for a more comfortable retirement, anyway.
In my job, it’s easy to get a slightly skewed view of the world. I spend a lot of time talking to people who tell me contributing to the scheme is a ‘‘no-brainer’’ and how we should all be contributing more money. (And paying down our mortgages and setting up emergency savings funds.)
What we sometimes forget is that there is a proportion of people for whom this is not possible. In some cases, that’s because they have decided they would rather spend money elsewhere.
But some budgets are too tight for contributions.
Of the 2.7 million KiwiSaver members, 43 per cent are not making regular contributions. NZIER research found less engagement with the scheme among people with lower disposable household incomes.
With KiwiSaver being voluntary, and employer-based, it means those who are earning enough to make their contributions get ahead with their retirement savings much faster than those who cannot afford to be part of the scheme.
Even if many of those KiwiSaver members are not in the right fund for them (we know too many are in too conservative investments) they are still going to retire with at least a couple of hundred thousand dollars.
On top of the pension – assuming no one completely nixes it between now and then – and if they have a freehold house, they should have a relatively comfortable retirement.
But those who have not been able to afford KiwiSaver during their working lives will be on the back foot. If they have saved nothing and are still renting they may receive an accommodation supplement but in many cases, they are likely to be on their own.
This is something that requires attention – making the scheme compulsory would only really fix it if people can manage the payments, Otherwise, we might just see a lot more members on contribution holidays, not putting anything in their accounts.
Some ways to bridge the gap could include introducing 1 per cent or 2 per cent contribution levels for employees contributing from their pay. There could be more publicity about the fact that people can make voluntary payments to their KiwiSaver provider, even if they are on a contributions holiday, or receiving a benefit.
The incentives for the scheme, such as the Government’s contribution of 50c for every $1 saved up to $1042, have a bigger effect on the balances of those on lower incomes. But we have to make sure that these people get them in the first place.
For KiwiSaver to be counted as a true success, it needs to get people saving who otherwise would not and leave everyone better off – not just a select few.