Make KiwiSaver compulsory

A majority of people say KiwiSaver should be compulsory, a new national survey suggests.

The survey by KiwiSaver advice company National Capital comes at a time when 480,000 people have fallen behind in payments on their loans and power bills, according to data published on Tuesday by credit reporting company Centrix.

Clive Fernandes, founder of National Capital, said as an alternative to making KiwiSaver compulsory, politicians could look to strengthen KiwiSaver’s “soft compulsion”.

He was not alone in that, with KiwiSaver expert David Boyle, chairman of the Whai Rawa savings scheme run by Ngāi Tahu, calling for a review into why so many people are not contributing to KiwiSaver.

Commerce and Consumer Affairs Minister Andrew Bayly said in January that he wanted to get more out of KiwiSaver, and had put it on his to-do list for the second half of the year.

But Fernandes said low contribution rates, and the many people who are not contributing, will see many arrive at retirement with disappointingly small nest eggs.

National Capital estimated the failure to save even the minimum 3% of gross salary by many people meant collectively KiwiSaver members would arrive at age 65 with about $113 billion less than they should.

Fernandes said contribution rates had dipped in recent months.

“It suggests that many Kiwis prioritise immediate financial needs over future savings because of the pressure of rising expenses,” he said.

Soft compulsion was built into KiwiSaver’s design. When someone over the age of 18 who is not already in KiwiSaver joins the workforce they are automatically enrolled, but can choose to then opt out. Similarly, someone in the workforce who is not in KiwiSaver is automatically enrolled if they change employer, and again, they can choose to then opt out.

People can stay in but put their contributions on hold through a “savings suspension”.

The Financial Markets Authority Te Mana Tātai Hokohoko records that of the 3.25 million people in KiwiSaver, 1.13 million were classed as “non-contributing”. Just over 100,000 are on savings suspension.

Boyle said it was time for a thorough review of why that was happening.

He said reasons included many people not being paid a salary and instead being paid under “total remuneration” deals with employers, while others were either working on contract, or were self-employed.

Some employers also may be failing to fulfil their legal obligations to workers, he said.

“I reckon there’s 700,000 to 800,000 people who are employed, but for whatever reason are not making contributions,” he said.

That did not need to be the case, he said. KiwiSaver’s soft compulsion could be tweaked to require everyone who is employed in all different forms of employment relationships to contribute, unless they chose to take a savings suspension.

Inland Revenue Te Tari Taake systems were sophisticated enough to calculate contributions for people who were employed on non-standard employment arrangements, he said.

Other KiwiSaver settings could be changed, he said, for example reducing the maximum length of a savings suspension before it must be renewed from one year to six months.