Can’t afford KiwiSaver right now? Labour says your boss should still pay 6%

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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. What
2. 0:16Speaker 1: we should do with KiwiSaver continues to be a hot topic this election season. The latest party to throw their idea into the ring is Labor, which wants to lift
3. 0:26Speaker 1: the employer contribution rate to 6% by 2032. They would also introduce compulsory employer contributions, even when employees have paused
4. 0:36Speaker 1: or reduced their own share, and extend employer contributions to workers over 65. Nicola Willis was quick to call the
5. 0:44Speaker 1: policy a watered-down version of Nationals. Both New Zealand First and National are proposing compulsory contributions for all workers, but
6. 0:52Speaker 1: have also both announced policies that would automatically enrol babies and children. Today on the front page, Labor's finance spokesperson, Barbara Edmonds, is with us to talk through the plan
7. 1:04Speaker 1: and why it is actually different from the other parties. So, Barbara, is this policy, as the finance minister or nationals finance
8. 1:16Speaker 1: spokesperson described it, a watered down version of nationals?
9. 1:20Speaker 2: No, it's a smarter version because the national policy fails to address whether the employee can actually afford it. So,
10. 1:30Speaker 2: for example, because they failed to ban total remuneration packages, an employee by 2032 may have an up to 12%
11. 1:40Speaker 2: reduction in their take-home pay. And I don't know about you, but lots of people I speak to, a 6% mandatory contribution would be really difficult right now and possibly for
12. 1:51Speaker 2: a little bit longer.
13. 1:52Speaker 1: So banning the total remuneration, what does that mean?
14. 1:56Speaker 2: So currently, when you go to negotiate your employment contract, you could be afforded a total remuneration package. Now that
15. 2:06Speaker 2: total remuneration says that your salary is going to be X and that includes your KiwiSaver contribution. Or if you've
16. 2:14Speaker 2: just negotiated perhaps a normal non-total package, you could say, well, this is my base salary and then my KiwiSaver is
17. 2:23Speaker 2: topping it up. Around 55% of employment agreements are actually total rem packages or total remuneration packages. What we're looking
18. 2:33Speaker 2: to is saying in the future, You can't enter into these forms of contracts because you need to be transparent about what is the base salary and what is the top up for KiwiSaver.
19. 2:44Speaker 1: Because that was going to be another one of my questions as well later down the track, but we may as well address it now, is that how do we guarantee that employers won't actually just cut wages to offset
20. 2:54Speaker 1: that higher compulsory contribution? Because I can see a world where companies say, well, we are only offering you 1.25% this year because, you know, those contributions to your KiwiSaver.
21. 3:05Speaker 2: Yeah, so if it's sort of during your normal pay rounds, then it always goes back to the initial employment agreement.
22. 3:12Speaker 2: But it's more about new employment agreements going forward. And actually what you've set out is the status quo already.
23. 3:20Speaker 2: And that's because the incidence of KiwiSaver always ultimately falls on the employee. So they're the one that's impacted by
24. 3:29Speaker 2: that contribution or by that salary and wage increase, for example.
25. 3:33Speaker 2: So ultimately, it is the status quo at the moment.
26. 3:37Speaker 2: We could compare ourselves to other countries. We like to compare ourselves to Australia around wages, but there are also other elements around their conditions, such as fair pay agreements
27. 3:49Speaker 2: or reward systems. that they can negotiate based on. So that's the current status quo. And for us, just saying by banning the total rent, it has to be more transparent.
28. 3:59Speaker 1: How does Labor's plan compare with Nationals and New Zealand Firsts?
29. 4:04Speaker 2: So I haven't actually seen the New Zealand First one.
30. 4:06Speaker 2: I have heard a lot of people taking credit for the National Party one. I have looked in depth in the National one. There are some key differences. So, for example,
31. 4:16Speaker 2: the employer contribution is the same. They're both mandatory. They're both 6% to 2032. However, where we differ is that
32. 4:25Speaker 2: the employee contribution is now optional or they get to elect their contribution rate. But we'll use a default rate
33. 4:34Speaker 2: of 4%. And once a year, they get to lock in what is their rate going to be for that, their contribution rate for that year. We're also similar on
34. 4:45Speaker 2: the paid parental leave that the government contributions should still continue because technically the government becomes the employer during a paid parental leave period. We're also the same around over 65s.
35. 4:57Speaker 2: Another key difference is that we are banning total remuneration packages.
36. 5:01Speaker 2: They're not. And another key difference is they have an element for Kickstart for babies, new babies. We've made a
37. 5:11Speaker 2: different choice not to do enrolment and birth for a couple of reasons. One is that we need to try and address the inequities within the adults first. Definitely, we'll
38. 5:23Speaker 2: always have an eye to the future for our children and our babies, but that comes at a fiscal cost, which for us at the moment, given we're going to have to clean up a whole bunch of things, including
39. 5:34Speaker 2: pay equity, right now we can't do it in our first term.
40. 5:38Speaker 1: If the goal is to get more New Zealanders to save more for their retirement, what is the argument for keeping membership voluntary?
41. 5:45Speaker 2: So it's still compulsory because their employer will be contributing, but it's the contribution rate that is voluntary. So ultimately, if,
42. 5:56Speaker 2: for example, against the status quo, if you're an employee or a worker and you cannot afford to contribute or match your employer in KiwiSaver, Your only other option is
43. 6:07Speaker 2: to opt out. So you get zero. Whereas under the labour proposal, you have at least 6% that has been contributed by your employer. The other difference as well as
44. 6:18Speaker 2: compared to the status quo is that perhaps they are in KiwiSaver, they are matching contributions, but for some reason life gets tough and they need to suspend their savings.
45. 6:29Speaker 2: Any contribution to KiwiSaver, including the employer, stops. What we're saying is by being able to have that election of a different contribution rate, you can control more of what
46. 6:40Speaker 2: you're getting in because also your employer is still providing that 6% if you make the hours work.
47. 6:47Speaker 1: Small business owners have obviously been doing it tough. What do you say to those people who say, look, another compulsory payroll cost is just something that they can't absorb at the moment?
48. 6:58Speaker 2: Yeah, absolutely acknowledge them in doing it really tough. And that's why we've also got a small business action plan to help them with a bit more working capital by
49. 7:07Speaker 2: increasing the immediate asset write-off from $ 1, 000 to $ 10, 000. So we've made some changes on and new policies on small
50. 7:15Speaker 2: business side as well. But actually for KiwiSaver purposes, What they need to understand is whether it's Labour or a national government, we are using the same track to 2032
51. 7:27Speaker 2: to get to 6%. That means they can plan for the next, you know, sort of six years as to how that looks like for their wage bill as well.
52. 7:38Speaker 1: Is lifting the employer rate to 6% by 2032, is that going far enough? Did you investigate maybe going a bit further? Because, as you said, we do love to compare ourselves to the Aussies. They're at about 12, 13 now,
53. 7:49Speaker 1: aren't they?
54. 7:50Speaker 2: Yeah, they are at 12 and 13, but they also have a different retirement system. So, for example, their pension is means-tested. New Zealand is universal. And they've had 40
55. 8:01Speaker 2: years to get to the point of 12%. So they're...
56. 8:04Speaker 2: pools of capital in their savings schemes is much more mature than New Zealand. What we were saying is, look, if the major party, which is the National Party, is
57. 8:15Speaker 2: going to 6%, we could have gone higher, we could have gone lower, but ultimately we think around 10%, for example, if the employee is putting in 4%, the employer is
58. 8:25Speaker 2: putting in 6%, it's still a 10% together is actually a good place to be. Ultimately, the employee will again
59. 8:34Speaker 2: have that choice to elect a different contribution rate. But I think that is a really practical reflection of life in general. So in particular, we know that most people
60. 8:46Speaker 2: that opt out of KiwiSaver now, the majority of them, they earn under 40k. And I've got personal experience with that.
61. 8:54Speaker 2: I'm a late committal to KiwiSaver. Because when I entered into the workforce and I had children and had a husband, we couldn't afford the contribution rate. And I couldn't afford
62. 9:06Speaker 2: to be in KiwiSupport because I couldn't match my employer contributions. Instead, we made the life choice that actually not paying rent and having a roof over our head was probably more important,
63. 9:16Speaker 2: given that I was also pregnant with number five at the time. So, you know, it just reflects the practicalities of life for your employees and for workers that some
64. 9:26Speaker 2: years you earn more, some years you've got bigger bills to pay.
65. 9:35Speaker 3: New Zealand First accused National of copying them. Labour's going to come and take charge. You looked over my shoulder and stole my homework.
66. 9:44Speaker 4: It actually doesn't matter because if it's something that's good for the whole country, it shouldn't actually matter whose idea it was. And in fact, bipartisanship on TV is what we could all do with, especially if it's something that you're not going to get to access for 20, 30, 40 years.
67. 9:56Speaker 3: It'd be great if they could stop tinkering with it. Yeah, and you hear this from a all the time, as do I.
68. 10:02Speaker 4: You know, we go to these conferences and they say, I wish we could have bipartisanship on this.
69. 10:06Speaker 3: I wish we could have bipartisanship on this.
70. 10:08Speaker 4: And KiwiSaver and Super and the Super Age is actually something that we really should have bipartisanship on because it is about our future.
71. 10:16Speaker 1: You've promised to explore more flexible KiwiSaver options for self-employed New Zealanders.
72. 10:22Speaker 3: So that's just.
73. 10:23Speaker 1: Self-employed gig workers, etc. What options could be on the table?
74. 10:28Speaker 1: Is it because, so you've set that out to explore more options. Is that because it's like that part of the puzzle is actually pretty complicated to get right?
75. 10:36Speaker 3: A little bit.
76. 10:37Speaker 2: And also for the fact that their income is a little bit more lumpier. You know, some may take it as drawing, some may be actual employees of their self-directed business.
77. 10:49Speaker 2: But ultimately, the Retirement Commissioner did a really excellent report with Henry, which represents a lot of self-employed and sole traders.
78. 10:58Speaker 2: And they said you need to look at a number of options. For example, is payments better rather than at a pay period, maybe doing it with tax payments, like
79. 11:08Speaker 2: timing it with tax payments? The main reason why most self-employed and sole traders aren't in KiwiSaver is is because
80. 11:16Speaker 2: they need the flexibility of working capital. So they suggested maybe looking at a savings vehicle. So rather than using a hardship test, having some flexibility with a savings vehicle
81. 11:26Speaker 2: that is within a PUSODA scheme. The other element as well is really around the affordability of it. So it goes back again to that working capital. Some weeks they
82. 11:37Speaker 2: are able to put in more and some weeks they can't.
83. 11:39Speaker 2: And maybe you need to look at different payment times.
84. 11:42Speaker 2: So if you can't do it per week or per fortnight or monthly, maybe align it with tax payments or maybe align it where once a year they get to put it in once they do the residual tax income return.
85. 11:54Speaker 2: So there were different options that they looked at. And for us, just given our resource, being in a position, but also the fact that we probably really need to
86. 12:02Speaker 2: consult quite strongly on this. We thought, look, let's explore it.
87. 12:06Speaker 2: We've read the report. We've seen the good stuff. Let's work on it in government and make sure we get some consultation.
88. 12:12Speaker 1: We've had a lot of conversations about KiwiSaver on this podcast before and whether it's fit for purpose or not and how we're doing up against Australia and all these
89. 12:22Speaker 1: other things. I mean, But in the long term, do you think KiwiSaver, as it is, I suppose, is fit for purpose for the long term?
90. 12:30Speaker 2: Yeah, absolutely. And if you recall, when KiwiSaver was brought in, the Superfund was also brought in. And it was around that sort of dual ability for the government and individuals
91. 12:42Speaker 2: to be able to save for those retirement costs that are coming down the track. I do believe that it's been 21 years. That's why labour is coming with quite
92. 12:51Speaker 2: a significant shift in the decoupling of employee and employer contributions.
93. 12:56Speaker 2: It's about time for that. When I looked at the old policy papers to kind of understand what Sir Michael was thinking when he developed it, he didn't want it
94. 13:05Speaker 2: to be decoupled at the time because he wanted buy-in from both businesses and employees, but also he wanted to grow the KiwiSaver base. It's now over 90% for salary
95. 13:17Speaker 2: and wage earners, around 60% for self-employed sole traders. Obviously, contribution rates are a little bit lower than both those levels.
96. 13:26Speaker 2: But I think it is sound. It's provided the great foundations.
97. 13:30Speaker 2: The FMA report last week showed that there's around $ 40, 000 on average in PwS over accounts. It's now time for
98. 13:38Speaker 2: the next step. KiwiSaver 2.0 to start basically seeing how we can accelerate those savings through our savers.
99. 13:45Speaker 1: One thing about KiwiSaver that I find quite interesting as an Australian having moved over the ditch to here is that you can use your KiwiSaver to buy your first home. So,
100. 13:57Speaker 1: do you think, though, that housing withdrawals have turned KiwiSaver into a kind of de facto first home subsidy? Do we have any numbers or any idea on how many
101. 14:07Speaker 1: people are actually using KiwiSaver to buy their first home?
102. 14:10Speaker 2: So, I don't have the numbers right on me right now. However, what's interesting is in the last year, there are more people withdrawing from their KiwiSaver for hardship purposes than for
103. 14:21Speaker 2: their first home. And If I go back to that personal experience for myself that I talked about, it's around having that sort of certainty of most people buy their
104. 14:32Speaker 2: first time and know that at some point they'll need to downsize and hopefully they can sell it. The issue is that over time, house prices have been unaffordable and
105. 14:43Speaker 2: have sucked up too much of a person's personal income at around 60%. So I think it's relatively sound in the sense that it's just your first home. I think
106. 14:54Speaker 2: if you're going to broaden it, then you do weaken the wider KiwiSaver system because in some respects you can say buying your first home is, over time, works towards
107. 15:05Speaker 2: your retirement for when you need to downsize or as part of your asset base as you go into retirement.
108. 15:12Speaker 1: Are there any suggestions on actually taking that away entirely, just being like, no, we can't withdraw to buy your first home now. It needs to stay where it is until you reach retirement age?
109. 15:23Speaker 2: Not from labour. And the reason being is we've seen that for a number of people, that's been their first step into home ownership. which goes back down to that
110. 15:33Speaker 2: principle of having security of tenure, security of a roof over your pet. So we haven't looked at watering that down at all. But the main thing for us is
111. 15:43Speaker 2: if you're going to water it down further, for example, by going for other asset bases, that's when we've taken a much stronger view on and said, actually, that's not
112. 15:53Speaker 2: the purpose of KiwiSaver in the first place. That changed so you could withdraw for your first home. You know, there were elements of it in the first development of KiwiSaver.
113. 16:02Speaker 2: It was obviously brought in by a later government. But it doesn't seem to have the sort of behaviour that you would see in some other sort of tax changes
114. 16:12Speaker 2: where at the margins things aren't as good as they should be or behaviours aren't the way that the policy intended.
115. 16:18Speaker 2: It's still being used very much to get people onto the prophecy ladder so they can have a roof over their heads.
116. 16:25Speaker 1: And just lastly, for someone watching or listening who is struggling with mortgage repayments at the moment, for example, or even just getting food on the table for their whānau,
117. 16:35Speaker 1: retirement savings is probably just not the highest priority for them at all. So what do you say to those people?
118. 16:43Speaker 2: I absolutely understand. And my family was in the same position.
119. 16:48Speaker 2: I was in the same position. Where as much as you wanted to be able to save for your future and for your retirement, actually the everyday costs of today
120. 16:57Speaker 2: were more important. And actually the labour policy, because the employer contribution policy keeps going, even if you can't contribute
121. 17:07Speaker 2: or you can contribute only 2% rather than the 6% or the 4%, it means there's something still accruing for you so that you can deal with your everyday life
122. 17:17Speaker 2: without sacrificing what could be in the longer run for your betterment. So totally understand it. I've been in those shoes, which is why our policy is different from National's. because
123. 17:29Speaker 2: the employee gets greater flexibility to deal with those things that happen in life.
124. 17:34Speaker 1: Thanks for joining us, Barbara.
125. 17:35Speaker 2: Thank you so much.
126. 17:40Speaker 3: That's it for this episode of The Front Page.
127. 17:43Speaker 1: You can read more about today's stories and extensive news coverage at nzherald.co.nz. The Front Page is hosted and produced
128. 17:51Speaker 1: by me, Chelsea Daniels. Kane Dickey is our studio operator, Richard Martin, our producer and editor, and our executive producer is Jane Yee. Follow The Front Page on the iHeart
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