Commerce minister reveals his KiwiSaver reform aspirations
Commerce and Consumer Affairs Minister Andrew Bayly has set out his aspirations for KiwiSaver reform as financial hardship withdrawals from the scheme hit an alltime high.
Speaking at the Retirement Commission Te Ara Ahunga Ora’s Auckland strategy conference, Bayly said he planned to consider whether KiwiSaver contribution rates are high enough.
Bayly said KiwiSaver balances had passed the $100 billion mark. However, they were dwarfed by the enormous pool of super savings in Australia, which is credited with boosting Australian living standards.
“I plan to turn my mind to the ongoing debate about whether the KiwiSaver contribution rates are appropriate,” Bayly told delegates, though acknowledged that financial hardship withdrawals were at an all-time high.
The latest data from Inland Revenue Te Tari Taake showed a record $29 million was taken out in hardship withdrawals in March alone, the highest amount on record.
“There is a case for increasing the employment contribution rate from 3%,” he said, although he added that would be difficult in a cost of living crisis.
Currently, people saving into KiwiSaver directly from their salary have to make minimum contributions of 3% of their gross salary, and most employers choose to make a matching contribution of a further 3%.
“This is something I am willing to seek feedback on,” he said.
Bayly also expressed concern about how some people were not getting a fair go at KiwiSaver, including women, older people, younger workers and some ordinary workers. Bayly said he also intended to look at whether employers should be required to make employer contributions to the KiwiSaver accounts of people aged under 18, or over 65.
Currently, the law allows employers not to do so, but Bayly said people were working beyond the age of 65, and Kiwi-Saver settings should match demographic changes.
He also expressed concerns that women who went on maternity leave missed out on the chance to contribute to their KiwiSaver.
“This is unequal, and we shouldn’t be unfairly punishing women for having children,” he said.
“It’s something we actually want to support. I have three children myself, but the reality is it’s actually becoming harder, more expensive, and less appealing for many to have families.”
He also said there was clearly an issue with “total remuneration” employment packages, which allowed employers to avoid making matching KiwiSaver contributions for their employers.
When KiwiSaver was launched, all employers had to make contributions to their workers’ KiwiSaver accounts, if the workers were making contributions from their salaries.
However, in 2008 a National Government made changes to the law to allow employers to offer total remuneration packages in which workers who wanted to save into KiwiSaver were paid a total amount, including the contributions, that was the same as those workers who did not.
Labour MP Tracey McLellan is attempting to fix with a private member’s bill, and it appears Bayly has sympathy for her efforts.
“Young people, and particularly hairdressers, young women have come into my office wanting to contribute to KiwiSaver, but their employers said to them that if they wanted them to contribute, it would come out of their total remuneration,” he said to the Retirement Commission conference on Wednesday.
That stopped them from engaging in KiwiSaver, he said.
“That’s fundamentally wrong.
“If young people don’t sign up to KiwiSaver with that first job, we lose that crucial window of opportunity.
“We are disincentivising young people from engaging in KiwiSaver.
“Many people are not contributing enough to be financially comfortable in retirement.”
The average balance in KiwiSaver was only around $38,000, he said, and 38% had less than $10,000 saved in KiwiSaver.
He also complained that too much KiwiSaver money was being invested in low-return passive funds overseas, bringing little benefit to the New Zealand economy.
Bayly outlined other aspects of his aspirations for New Zealanders’ money lives, especially the young.
He said National had campaigned on making financial literacy more widely-available in schools, and it was an area he had been working on with Education Minister Erica Stanford.
“This is something I intend to deliver on. “Young people are constantly being bombarded with a messages of spend, spend spend, when really we want to engineer a culture towards save, invest and grow.
“The time is right for taking a more coordinated approach to financial education,” he said.
Reform of KiwiSaver would be part of his efforts to reform the wider financial landscape of New Zealand.
Just last week Bayly introduced a bill to Parliament to make insurance fairer, which has cross-party support, and said he was very close to introducing a Consumer Data Rights bill to make it easier for people to shop around for banking, electricity and telecoms services.
He has also been reforming lending laws to make it easier for people to get loans, but that is worrying some budgeting services, which fear it will open the door for lower tier lenders to exploit vulnerable people.
Bayly also faced questioning at the conference from budget mentors upset that their government funding was about to decrease just when mortgage arrears and financial hardship was at its highest point since the Global Financial Crisis more than a decade ago.
Bayly said the Government had not cut their funding, but time-limited funding put in place during the Covid pandemic was about to expire.