Key Takeaways
- Actuaries suggest a 5 % + 5 % default KiwiSaver contribution rate may be optimal for most New Zealanders, balancing retirement income with pre‑retirement expenses.
- A 6 % + 6 % rate could give lower‑ and median‑income earners more spending power in retirement than they had while working, assuming NZ Super remains unchanged.
- Higher earners may still fall short of replacement income even at 12 % total contributions and are encouraged to seek personalised financial advice.
- Early withdrawals for a first home reduce retirement reserves, requiring savers to rebuild balances later, especially if withdrawals occur in the 40s or beyond.
- Setting default rates too high risks prompting more members to suspend contributions altogether, undermining the scheme’s purpose.
- Simplicity chief economist Shamubeel Eaqub views a 12 % total rate as broadly appropriate, aligning New Zealand with Australia and Canada, but stresses the need to consider possible future changes to NZ Super.
- Policy makers should be transparent about any moves toward means‑testing NZ Super, as compulsion could be a first step toward such reform.
- National’s proposal to reach a combined 12 % rate by 2032 aims to set a minimum savings standard while acknowledging that individual circumstances vary.
- The overarching goal is to ensure retirees can maintain dignity without relying solely on government support, while avoiding overly prescriptive rules that discourage participation.
Overview of the Actuaries’ Report
The NZ Society of Actuaries Retirement Income Interest Group recently released a report examining KiwiSaver contribution rates. It argues that a default rate of 5 % employee contribution plus 5 % employer contribution (total 10 %) is likely the optimum for most workers. The analysis weighs the desire to smooth consumption over a lifetime against the realities of pre‑retirement expenses such as childcare, mortgages, and other debts. By targeting a moderate default, the report seeks to avoid both under‑saving and over‑burdening workers, especially those on lower and median incomes.
Projected Impact of a 6 % + 6 % Rate
Actuaries note that if contributions were set at 6 % from employees and 6 % from employers (total 12 %), many lower‑ and median‑income earners could actually enjoy greater consumption power in retirement than they had while working. This outcome assumes that NZ Super remains available in its current form and that retirees do not face significant health‑related cost spikes. The extra savings would generate a larger nest‑egg, translating into higher annuity payments or draw‑down amounts that could surpass pre‑retirement disposable income after accounting for reduced work‑related expenses.
Why 5 % + 5 % Is Seen as Optimal
Ian Perera, convenor of the Actuaries’ Interest Group, explains that the 5 % + 5 % recommendation stems from the observation that many workers already face substantial outflows before retirement. By limiting compulsory savings to a moderate level, individuals retain flexibility to meet immediate financial needs while still building a sufficient retirement buffer. Perera stresses that this rate is not a one‑size‑fits‑all mandate; rather, it serves as a sensible baseline that can be supplemented by voluntary contributions for those who can afford more.
Effects on Lower and Median Income Earners
For households earning at or below the national median, a higher default rate could strain monthly budgets, potentially forcing cuts to essential spending or increasing reliance on credit. The actuaries warn that setting the default too high might lead to financial stress, prompting some members to suspend their KiwiSaver contributions altogether. A 5 % + 5 % default aims to preserve disposable income for necessities while still encouraging long‑term savings growth through compounding returns.
Considerations for Higher Earners
Higher‑income individuals may not achieve a satisfactory replacement income even with a 12 % total contribution rate, because their pre‑retirement earnings are substantially larger. Perera notes that these workers are generally better positioned to obtain tailored financial advice and make additional voluntary contributions or invest elsewhere. Consequently, policy should not rely solely on a flat default rate to secure adequate retirement outcomes for top earners; personalized planning remains crucial.
Implications of Early Withdrawals for a First Home
The report highlights that withdrawing KiwiSaver funds to purchase a first home—particularly if the withdrawal occurs in one’s 40s or later—significantly depletes retirement reserves. After such a withdrawal, savers must rebuild their balances, often requiring higher contribution rates or extended working years to reach the same retirement target. Actuaries advise that members consider the long‑term impact of early access and, where possible, limit withdrawals to amounts that leave a sufficient core balance for future growth.
Risks of Excessively High Default Rates
Shamubeel Eaqub, chief economist at Simplicity, cautions that default rates set too high could backfire by encouraging more participants to opt out or suspend contributions. When compulsory savings feel unaffordable, the psychological effect may be disengagement, eroding the very safety net the scheme aims to provide. Eaqub advocates for a calibrated approach that balances adequacy with affordability, monitoring participation rates to detect any adverse trends.
Simplicity’s Perspective on a 12 % Rate
Eaqub further observes that a 12 % total contribution rate aligns New Zealand with retirement‑saving norms in Australia and Canada, making it “about right” from an international standpoint. He acknowledges that no public policy suits every individual in a nation of 5.5 million people, but argues that the rate is a reasonable baseline. Importantly, he urges policymakers to remain open to future adjustments to NZ Super, noting that the current calculations assume the benefit will remain unchanged—a significant assumption that may not hold.
Assumptions About NZ Super and Future Changes
The actuaries’ models hinge on the premise that NZ Super will continue to be universally available at its present level. Eaqub warns that this assumption carries substantial weight; any future alterations—such as means‑testing, age‑increase, or benefit reduction—would markedly affect the adequacy of KiwiSaver savings. He encourages a transparent dialogue about the sustainability of NZ Super and the role of compulsory savings in supplementing a potentially evolving public pension.
Debate on Means‑Testing and Political Honesty
Contributors to the discussion, including Koura founder Rupert Carlyon, argue that pushing for higher compulsory contributions may be a covert step toward means‑testing NZ Super. Carlyon contends that if politicians are not candid about this intention, the policy lacks integrity. He asserts that honesty about the goals—whether to bolster retirement savings universally or to prepare for a targeted public benefit—would foster trust and enable better‑informed public debate.
National’s Policy Proposal for a 12 % Rate by 2032
The National Party has unveiled a plan to raise the combined KiwiSaver contribution rate to 12 % by 2032, bringing New Zealand in line with Australia and Canada. A party spokesperson frames the move as establishing a minimum savings standard that guarantees a more financially secure retirement for every working New Zealander while recognizing that individual needs vary. The proposal seeks to provide a clear, predictable pathway for savings growth, though it leaves room for supplementary voluntary contributions for those desiring additional security.
Closing Reflections on Retirement Adequacy and Policy Balance
Ultimately, the conversation underscores that retirement income adequacy depends on a mix of personal circumstances, voluntary saving behaviour, and the stability of public benefits like NZ Super. While a moderate default rate such as 5 % + 5 % can serve as a sensible foundation for most workers, policymakers must remain vigilant about the risks of过高 defaults that deter participation, the impact of early withdrawals, and the potential evolution of NZ Super. Transparent dialogue, flexible policy design, and access to personalized financial advice will be key to ensuring that retirees can maintain dignity without undue reliance on either the state or overly prescriptive compulsory schemes.