Means testing KiwiSaver and what that could mean for your future

To go forward, firstly we need to step back.

KiwiSaver was introduced in New Zealand back in 2007, the same year I moved here from Canada.

There was much fanfare, PR and hype about the workplace savings scheme and a compelling reason to enrol.

Joiners received a $1,000 kick-start, and a matching annual gift of $1,000 if you contributed around the same yourself, in addition to a mandatory employer minimum payment of 3% of your gross salary or wages.

At the time of its introduction, New Zealand was late to the savings game and so these much-vaunted sweeteners gave KiwiSaver a huge jump-start in enrolment. It hasn’t slowed and is more than 2.8 million now.

It wasn’t long before successive Governments started to chip away at the scheme, tinkering here and there and diminishing its offer, including removing the sign-up bonus of $1,000 and cutting in half the Government contribution portion to $521.

The latest encroachment ~ talk of means testing the $521 Government contribution portion ~ is something our current Finance Minister Nicola Willis is currently toying with in her ambition to get Government books in balance by 2030.

Under current rules, for every $1 you pay into the scheme, the Government matches you by 50 cents up to a maximum of $1,043. The whole point of KiwiSaver is to get people saving more for retirement and similar incentives were put in place in other jurisdictions.

In Canada, savers are encouraged to contribute into a Registered Retired Savings Plan. This is separate from the Canadian Pension Plan which most people pay into via their work. RRSPs contributions can be used to offset personal income tax up to a point. It is not mandatory but it is an incentive to save and invest and it works.

KiwiSaver snowballed to over $100 billion largely on the back of incentives. That’s just human behaviour.

In Australia, superannuation is compulsory. As a result, their collective honeypot has soared to NZD $4.6 trillion. Not only have they been at it longer,  contribution rates are close to 12%. Workers also earn more there on average so the savings are also driven harder.

Here, the average KiwiSaver fund is around $30k. Even with compounding interest and growth over 10-15 years, it is considered below what most are predicted to need to enjoy a comfortable retirement. Read more about how we stack up to our peers here. 

So why would the Government want to disincentivise people from contributing to their savings by shutting the doors to a good segment of savers?

Some see the Government contribution of $521 (an annual $1 billion line item) as a subsidy to the comfortable middle-class at the expense of needier folks whose financial well-being looks pretty grim in old age. These are the people who either aren’t in KiwiSaver, or don’t pay enough into it to qualify for the free money.

These concerns, while legitimate, are not good enough, in my humble opinion, to start means testing the Contribution. I believe it would undermine 17 years of goodwill spent building the brand and nest egg for savers.

Surely there are better, more creative ways to reduce the national debt than to erode the confidence of people who took politicians and regulators at their word that the scheme would not be played with.

People need incentives to save and they work. That’s how KiwiSaver got so big, so fast.

Taking away the reward for the people who bought into the KiwiSaver story when they could have invested somewhere else, punishes people for good financial behaviours and compromises the integrity and good name of the scheme.

Governments worldwide are facing similar debt and budgeting challenges and have tinkered here and there with retirement savings but largely without grossly compromising investors’ faith.

Canada, Australia and the UK have pushed retirement from 65 to 67.

In Australia, the Government pension (separate from workplace super savings) is means and asset-tested and has been for some time. That’s understandable and it’s why people channel more of their private savings into Superannuation schemes run by employers.

It’s an idea that has been batted about here too from time to time but to no avail as NZ Super is the sacred cow that no politician here dares to mess with. If necessity is the mother of invention, I would put money on the odds of this sacred cow, not KiwiSaver, taking the big hit in time.

All the more reason to self-manage when it comes to your retirement. Will you be ready?

The information above is purely informational in nature and should not be construed as personalised financial advice. Amanda Morrall is a financial mentor and offers one-on-one and group financial knowledge building sessions and guidance.