What the election could mean for your KiwiSaver

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1. 0:06Speaker 1: Kia ora, I'm Chelsea Daniels, and this is The Front Page, a daily podcast presented by the New Zealand Herald.
2. 0:16Speaker 2: KiwiSaver might be about to get a makeover.
3. 0:19Speaker 1: The parties are pitching very different ideas for what should happen to your retirement savings, from changing contribution rates to
4. 0:27Speaker 1: tweaking who gets government support. But what would these proposals actually mean for your KiwiSaver balance and who stands to
5. 0:36Speaker 1: gain or lose? Today on the front page, Financial Services Council CEO Kirk Hope is with us to unpack the
6. 0:43Speaker 1: party's promises and what they could mean for your retirement. So, Kirk, we're here to talk about KiwiSaver, obviously, and what different
7. 0:54Speaker 1: parties are promising. The latest came from ACT at the weekend.
8. 0:58Speaker 1: They vow to remove the tax on KiwiSaver earnings and also remove government contributions.
9. 1:05Speaker 2: What do you make of this?
10. 1:06Speaker 3: Yeah, look, I mean, I think one of the interesting things is that we haven't really had a national conversation about tax settings for KiwiSaver for some time.
11. 1:15Speaker 4: The last time it was really looked at was.
12. 1:19Speaker 3: through the tax working group that Michael Cullen shared. I was actually part of that working group and they looked at the tax settings particularly for lower income people around KiwiSaver.
13. 1:28Speaker 3: So this is the first time really a mainstream political party has looked at tax.
14. 1:33Speaker 4: I think it's a really, really.
15. 1:35Speaker 3: Important part of the conversation because obviously that enables people to build much more significant balances over time. And it's one of the reasons I think the Australians have a
16. 1:47Speaker 3: relatively significant number of tax breaks within their superannuation scheme in Australia.
17. 1:53Speaker 4: So look at a really important contribution.
18. 1:55Speaker 3: Obviously the equity component of removing the government contribution is something that probably needs to be looked at further. But
19. 2:07Speaker 3: I guess if you're proposing to remove all tax of contributions and the tax that occurs within a scheme, that's a pretty significant tax break. So that would almost certainly
20. 2:17Speaker 3: counterbalance anything that the government would be contributing. So overall, we think it's a pretty positive policy. And again, because
21. 2:27Speaker 3: that conversation around tax is still one that we've.
22. 2:29Speaker 4: Got to have.
23. 2:30Speaker 2: In terms of taxing KiwiSaver, how does it work at the moment?
24. 2:34Speaker 4: So there is a thing called the Pai regime.
25. 2:37Speaker 3: So there is a favourable tax regime there.
26. 2:42Speaker 4: Against what your marginal tax rate might be.
27. 2:46Speaker 3: So there is a tax discount, if you like, that operates within KiwiSaver. So that is an incentive to save
28. 2:52Speaker 3: through KiwiSaver. But the top rate is still at 28%.
29. 2:58Speaker 3: There's still a couple of other rates in there which impact people. If you were to remove that entirely, that's a pretty significant win for savers.
30. 3:09Speaker 2: So we move on to National.
31. 3:10Speaker 1: They want to make it compulsory for all workers by July 2028. Contributions would rise to 6% by 2032, which I think is across the board. I think Labor wants
32. 3:20Speaker 1: something like that as well. And they'd also introduce a $ 1, 500 baby boost. First off, should KiwiSaver be compulsory?
33. 3:29Speaker 3: Yeah, look, I think we're probably at the point where it needs to be. I mean, there's an argument to say that the auto-enrolment process has worked, but If you look at how it's worked in Australia, it's been compulsory
34. 3:41Speaker 3: from day one. The balances are much more significant. So the challenge with the New Zealand system.
35. 3:47Speaker 4: Is that you can pull out of it.
36. 3:49Speaker 3: If you don't currently contribute, then your employer doesn't need to contribute, right? And then no one's contributing anything. So that is highly problematic. So you might have people who
37. 3:58Speaker 3: are members of KiwiSaver or a KiwiSaver scheme, but they're contributing nothing. So they're not really achieving anything. So I
38. 4:05Speaker 3: think we're probably at the point KiwiSaver has been around since 2007, so nearly 20 years old. It's probably an
39. 4:16Speaker 3: important next step to say that compulsion is probably the right thing to be considering.
40. 4:24Speaker 2: Kind of like getting the training wheels off after 20 years.
41. 4:29Speaker 4: Yeah, a little bit.
42. 4:29Speaker 3: I mean, I think one of the things that the original scheme was designed to do is get people into the habit of saving. And I guess, you know, there's over 3 million Kiwi sailors now.
43. 4:40Speaker 4: Some people, though, are not contributing, as I said.
44. 4:43Speaker 3: So it's really important to, you know, figure out, A, why they're not contributing and the cost of living challenges could.
45. 4:50Speaker 4: Be contributing to that.
46. 4:51Speaker 3: But B, But by and large, what you do need to be doing is having people saving much greater sums for their retirement. Otherwise, the state is going to end
47. 5:02Speaker 3: up picking up the tab in the future. And I guess that's really the last place that you'd want to be.
48. 5:10Speaker 1: Now, I think everyone across the board kind of agrees that we need to raise the minimum contribution rate. Obviously,
49. 5:19Speaker 1: Labor and National want it to 6% by 2032. New Zealand First would go that extra mile, making it compulsory, but also lifting those contributions to 10% each for the employer and employee.
50. 5:31Speaker 2: In terms of.
51. 5:31Speaker 1: Raising those contributions, is there a sweet spot?
52. 5:34Speaker 4: Yeah, I think so.
53. 5:36Speaker 3: One of the things, we talked a lot to the government about this when they confirmed the policy to raise KiwiSaver this year to three and a half and then
54. 5:47Speaker 3: go to four in 2028. What we said is, you know, make sure that people understand that is the pathway and and that you are committed to that pathway, and they
55. 5:58Speaker 3: can plan for it, particularly employers, but also employees who are going to have to put another way, another half a cent every couple of years. So I think making
56. 6:09Speaker 3: sure that people understand that it's coming, it's no surprises, and giving them a clear runway so that they can make sure that they can afford it and they can plan for it, and that they, you know, obviously if
57. 6:20Speaker 3: you have compulsion, they can't, pull out or drop out, but you're not.
58. 6:24Speaker 4: Putting them in a difficult situation.
59. 6:25Speaker 3: And actually, they are, you know, they're there for the long haul.
60. 6:30Speaker 4: So is there a sweet spot?
61. 6:31Speaker 3: Look, I mean, I genuinely think there's a few different answers to that. One of the things that we always look at is the Massey University has done a great study on.
62. 6:46Speaker 4: How much money you're going to need to live in retirement.
63. 6:49Speaker 3: And so the six plus six is around about the amount that you're probably going to need to live a reasonably dignified retirement.
64. 7:01Speaker 4: So that's six plus six.
65. 7:03Speaker 3: Again, well signalled and well spread out is probably about.
66. 7:09Speaker 4: The sweet spot.
67. 7:10Speaker 3: There'll be other arguments. I mean, I think the Society of Actuaries has said five plus five. That doesn't necessarily take into account housing costs. So the Massey University stuff is, is the Massey University work, I should say, is the
68. 7:22Speaker 3: place where you're going to find the best evidence to determine the amount of money that people are going to need to live for a particular period of time in their retirement years.
69. 7:32Speaker 1: So, Labor wants to make compulsory contributions, but only those made by the employer. Basically saying, well, some people, you know,
70. 7:42Speaker 1: oftentimes come into hard times. They might want to stop contributing.
71. 7:47Speaker 1: But if you stop contributing, then, of course, your employer stops contributing as well. And then that makes things really difficult in the long run. What do you make of that idea?
72. 7:55Speaker 3: I think, again, if you make it compulsory, you make it compulsory for everybody. Interestingly, and I'm not sure how
73. 8:03Speaker 3: well this is understood in New Zealand, in Australia the employers pay the entire amount. So it's compulsory and employers
74. 8:14Speaker 3: pay the 12%.
75. 8:17Speaker 4: So that's quite different in New Zealand.
76. 8:18Speaker 3: So you'd think it's quite radical to say just employers, it's going to be compulsory for just employers. My view is that probably you need it to be compulsory for
77. 8:30Speaker 3: employers and employees. But you just know that there might be specific policies that you need to support employees to continue to contribute. And those might be different things, but
78. 8:41Speaker 3: you kind of don't want a differentiated scheme, I don't think.
79. 8:50Speaker 5: The big thing we do need is certainty on KiwiSaver and it's a bit like the superannuation settings. I mean, let's get the, you know, election out of the way
80. 9:00Speaker 5: and then perhaps have a, you know, compact right across Parliament that actually tells you what the settings are going to be because it's very disruptive what we currently have.
81. 9:14Speaker 2: So you mentioned New Zealand First there.
82. 9:16Speaker 1: They're also offering a baby boost, as they've colloquially called.
83. 9:22Speaker 1: National is offering up $ 1, 500 and New Zealand First said every Kiwi would be enrolled at birth with a $ 1, 000 boost. Now, this baby boost idea keeps coming up.
84. 9:34Speaker 2: What's the logic behind that?
85. 9:36Speaker 1: Because it looks and feels to me like it's just a tactic, one of those election campaign kind of things here.
86. 9:41Speaker 1: There's a you know, a pot of money, we're going to give it to you kind of thing? Or is it there actually evidence to suggest that giving a baby $ 1, 500 is going to make it better for their retirement
87. 9:52Speaker 1: in 65 years' time?
88. 9:54Speaker 4: Yeah, I mean, that's a really great question. It's not an election gimmick.
89. 9:58Speaker 3: So, you may be aware of Fraser Winneray has done a bit of work on his kind of KiwiSaver 2.0
90. 10:06Speaker 3: that came out of the Prime Minister's Business Advisory Group a few years ago. That's one of the policies that Fraser was pretty keen on. And To be honest, it
91. 10:17Speaker 3: makes a lot of sense because if you're going to get a lot of value out of the compounding, the individual is going to get a lot of value out
92. 10:26Speaker 3: of the compounding rates of return that occur over that 18-year period before they can access it, right? And if you think about, you know, that policy allows for other
93. 10:37Speaker 3: people to contribute into the baby-boosted KiwiSaver, if you like.
94. 10:42Speaker 3: So you have every 18-year-old kid then in the country contributing with a balance of something like beyond $ 20, 000. So
95. 10:52Speaker 3: that is a great start in terms of having a financial asset. That financial asset then can be used to
96. 11:01Speaker 3: buy their first home or whatever it is. But what it does is provide a great deal more resilience, financial resilience for the next generation of people coming through than
97. 11:11Speaker 3: we have today. I do think it's a pretty cost-effective policy to get that resilience because many of those kids would be getting to 18 and have nothing and then
98. 11:23Speaker 3: having to build their careers and so on and so forth.
99. 11:26Speaker 3: So to have that earmarked as a financial asset for them really does contribute to financial resilience. And we've talked about in a range of other policy areas outside of
100. 11:36Speaker 3: KiwiSaver that The goal for the FSC is to ensure that New Zealanders have financial resilience and we are able
101. 11:45Speaker 3: to ensure that for more New Zealanders more frequently through a range of different policies and some of the product sets that members of the FSC provide.
102. 11:54Speaker 1: Now, the Opportunity Party, they're proposing a kind of KiwiSaver 2.0.
103. 11:59Speaker 1: They also want to lift contributions to 6%, but taking away that withdrawals for hardship or first homes. Now, is there an argument there for ending that first home aspect
104. 12:10Speaker 1: of KiwiSaver?
105. 12:11Speaker 4: I think there always has been.
106. 12:13Speaker 3: I mean, but my observation is it's really embedded now.
107. 12:17Speaker 3: I guess their argument is that, you know, they want to see.
108. 12:21Speaker 3: Probably that money invested into the productive economy and away from housing. But New Zealanders have a long history of saving through their houses.
109. 12:32Speaker 4: So I don't think that's going to change.
110. 12:34Speaker 3: And so my observation would be you want to keep
111. 12:40Speaker 3: with hardship withdrawals to the lowest level possible. But I suspect you wouldn't want to include first home buyers in that.
112. 12:51Speaker 3: I mean, just to give you an example, I think the National Party's got a policy or is going through
113. 12:58Speaker 3: sort of confirming a policy of withdrawals, TSA.
114. 13:03Speaker 4: Withdrawals for farms.
115. 13:04Speaker 3: Again, you know, the more you allow people to use those funds for other investments than retirement, the less you're going to have in retirement. So it does become problematic. And,
116. 13:16Speaker 3: you know, again, you want to kind of limit those withdrawals to as low as possible. The other thing that I'd say is we've been trying to convince the government
117. 13:24Speaker 3: on this to remove fringe benefit tax on life and health insurance. So what we're seeing is a lot of withdrawals,
118. 13:33Speaker 3: hardship withdrawals from KiwiSaver are for medical procedures. We say actually that's exactly the wrong thing to be doing. You want to keep KiwiSaver for savings and you want to
119. 13:43Speaker 3: enable people to access perhaps insurances or whatever else it is to ensure that they can stay healthy So we're continuing to fight the.
120. 13:53Speaker 4: Good fight on that one.
121. 13:54Speaker 1: Why do you think that KiwiSaver has become such a big election topic?
122. 14:00Speaker 3: Well, I mean, I think probably, you know, we've been advocating for the better part of two years around some
123. 14:08Speaker 3: changes to KiwiSaver. I think the other thing that has really occurred is that political parties are seeing the state of,
124. 14:19Speaker 3: the books for the next few years, noting that, you know, there are very few.
125. 14:25Speaker 4: Policy areas where they have a wriggle room.
126. 14:28Speaker 3: This is really a set of policies which relate to New Zealanders saving more for themselves and being less reliant on the state potentially in the future. So I think
127. 14:39Speaker 3: every political party has had to look at the reality of what New Zealand's fiscal position looks like for the future and said, OK, we're actually going to need to back people to save more And that's taken a, you know,
128. 14:50Speaker 3: it's been a dawning realisation as we, you know, the economy has been fairly, you know, the recovery has been
129. 14:59Speaker 3: fairly brittle. We've buffeted around by some pretty tricky international circumstances.
130. 15:06Speaker 3: So this is something that can be done domestically.
131. 15:08Speaker 2: Thanks for joining us, Kirk.
132. 15:09Speaker 4: Pleasure.
133. 15:13Speaker 2: That's it for this episode of The Front Page.
134. 15:16Speaker 1: You can read more about today's stories and extensive news coverage at nzherald.co.nz.
135. 15:23Speaker 2: The Front Page is hosted and produced by me, Chelsea Daniels.
136. 15:27Speaker 1: Kane Dickey is our studio operator, Richard Martin, our producer and editor, and our executive producer is Jane Yee.
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