1. society
2. work
3. retirement

How to Supersize
Retirement Incomes
www.fsc.org.nz
How to Supersize Retirement Incomes
Saving our Savers
NZ Super is a wonderful scheme to stop people
falling into poverty in old age, provided they own
their own home, mortgage free, by retirement.
Our work shows that NZ Super alone is not enough, and
to have a comfortable retirement we need to save to buy
a second pension to provide an income about twice the
level of NZ Super. Most people look at using KiwiSaver
as the vehicle.
We did the numbers last year to see just how much
people would have to save to have a secure and
comfortable retirement with an income that is double
NZ Super. On the current settings people need to save
10% of their income every year over 40 years from age
25. If you wait another 10 years you’ll need to save
15% of your income and on it goes and if you wait
till you are 55 then you’ll need to save 50% of your
income!
Many of the 2 million people enrolled in KiwiSaver are
not actively contributing and many of those who are
saving are saving 6% of their income – it is not enough,
especially for those closer to retirement, and way short
of being able to buy a second pension sufficient to fund
a comfortable retirement.
We know from our research that people know they
have to save if they want more than NZ Super which
they say is not enough on its own for a comfortable
retirement. The trouble is that it is too big an ask for
many people to save 10% of their annual income from
day one.
So how can we make KiwiSaver fair, accessible and
affordable for everyone so that all New Zealanders can
have a comfortable retirement with sufficient savings to
buy a second pension to have income double NZ Super?
ounger
at for a y
th
e
v
e
li
e
nal
“I don’t b
that natio
r
la
u
c
ti
r
a
p
g to be
person in
on is goin
ti
a
u
n
n
a
so
r
supe
term, and
g
n
lo
e
th
r
ble life in
enough fo
comforta
a
t
n
a
w
ve to
if you
oing to ha
g
e
’r
u
o
y
t,
save.”
retiremen
il
food reta
in a fastr
e
d
y
ie
lo
rr
p
a
m
8, e
rua, m
Female, 5
ean, Roto
f
p
o
e
ro
u
m
E
o
c
Z
,N
ehold in
s
u
o
business
h
,
k
e
0
5
s at hom
under $
and no kid
www.fsc.org.nz
PAGE 3
PAGE 4
How to Supersize Retirement Incomes
We have a plan to:
•g radually increase the KiwiSaver contribution rate to 7% starting at 1% for new KiwiSavers so you can
buy a second pension to provide a retirement income double NZ Super- that’s only 1% more if you are
already putting aside 6% (3% from the employee and 3% from the employer)
•keep NZ Super as is
To get to the 7% KiwiSaver contribution target four things need to happen:
•move savings to higher earning funds depending on your life stage
•offset the higher risk with insurance to guarantee a level of savings at retirement
•level the tax playing field for KiwiSaver with other forms of savings
•target the money spent on KiwiSaver incentives to fund the lower tax rates to make it fiscally neutral
And to get that to happen we need all the parties represented in Parliament to agree and commit to
providing a new, updated retirement savings policy that:
•continues to support KiwiSaver to help New Zealand employees save for a comfortable retirement over
their working lives
•progressively steps up KiwiSaver contributions and coverage
•does not put New Zealanders who save for retirement in KiwiSaver at a disadvantage
compared with other savers
•lowers taxes on KiwiSaver funds over time to level the playing field so KiwiSavers
are not at a tax disadvantage in saving for retirement
www.fsc.org.nz
PAGE 5
New Zealanders can achieve a comfortable retirement
by contributing 7% of their income into KiwiSaver over 40 years
Tax payer funded NZ Super
Self-funded pension KiwiSaver
70000
60000
50000
40000
30000
20000
0
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
$pa
10000
Age
Source: Infometrics 2013
Safe and Sound Political Decision
•The FSC has developed options, supported by independent consumer research, expert analysis and financial
modelling that show that the majority of people want to save but need and want help, so it is a safe issue for all
political parties to bring in a new agreement on retirement income that updates the one last negotiated 20 years
ago in 1993.
•Our independent research (Horizon Research December 2012) shows that at least 60% of Kiwi adults are behind
a universal (compulsory) KiwiSaver scheme for employees.
•The way is clear for cross-party consensus for a new
retirement income policy agreement with the people already
signalling their openness for a universal employee KiwiSaver
scheme and their willingness to save more for a comfortable
retirement and quality of life.
PAGE 6
How to Supersize Retirement Incomes
f the
en a fan o
e
b
s
y
a
lw
“I’ve a
s ch e m e
ntributor y
o
c
a
f
o
n
been
notio
Australia’s
.
d
n
la
a
e
e.”
in New Z
, long tim
g
n
lo
a
r
uranga,
doing it fo
gallery, Ta
e,
er, art
h, employ
ids at hom
Male, 60is ean, married, no k
0
er $5 k
NZ Europ
me of und
o
c
in
ld
o
h
house
www.fsc.org.nz
PAGE 7
PAGE 8
How to Supersize Retirement Incomes
The Financ
ial Services
Council w
ishes to ac
our sponso
knowledg
rs for thei
e
r generous
contributio
n:
Future
of Super
Conferen
ce
Options for Consideration
Monday 14
FSC’s options, presented at the Future ofDowSuper
Conference on
nload the
conference
app
October 14 in Auckland, provide policymakers with researchGo to your
supported scenarios on how to:
app store an
d
•Keep NZ Super available on the current formula
October, P
ullman Auc
kland
search for
“Future of
Super Conf
erence”
OR go to ht
tps://crowd
.cc/s/1m1K
OR scan th
e QR code
.
Conference
WiF
i
•Provide a new Year One KiwiSaver starting
option
of a 1%
1. Select
the Pullman
conference
2. When
WiFi from
contribution rate split between employeracand
employee
cessing th
your device
e intern
Any issues,
please see
et, enter th
e code “Sup
er2013”.
the registra
tion desk.
•Progressively increase year-by-year the contribution rate to 7%
(3.5% from employer and 3.5% from employee). This will enable
New Zealanders to use the power of compounding interest
www.fsc.o
rg.nz
•For people already contributing to KiwiSaver at 6% this only
requires a 1% increase in annual contributions split with your employer
•Move default KiwiSaver assets from conservative to balanced or growth investment portfolios so they earn more
•Provide an insurance-based capital guarantee to offset the increased risk and a tax payer funded top up for
those who contribute for 30 years or more but don’t quite save enough in their KiwiSaver account to purchase
a full second pension
•Level the playing field for taxing KiwiSaver investments so they face the same effective tax rates as investments
in other forms of retirement savings such as rental property
•Pay for most of this by removing the incentives for participating in KiwiSaver
•Look at possibly reducing investment management fees in the future.
The Issue
The shortfall in retirement income is an increasingly urgent issue for decision makers to get to grips with and
every adult, even if you’re just starting your working life, needs to take charge and help yourself because the
forecasts are for a long life and a long, long life in retirement.
Do you fancy working into your dotage or having your well off Aussie cousins gloating about the lifestyle they
enjoy? That’s cold comfort and not the future New Zealanders work for - nor what they deserve.
There’s no political panacea in sight. The current retirement income policy is 20 years old. It’s done a good job on
the whole, but our population of 65 pluses is growing faster than ever envisaged. It’s time to wake up and reach
a new consensus on how we can make the KiwiSaver savings scheme fairer, harder working and more accessible
to all, including women and the low paid, to provide a comfortable retirement for all employees.
www.fsc.org.nz
PAGE 9
PAGE 10
How to Supersize Retirement Incomes
The Financial Services Council Ready with Possible Remedies
The Financial Services Council (FSC) has 21 member companies from the financial and insurance sector
and 18 associate members who are entrusted to manage more than $80 billion in savings from 2 million
New Zealanders.
The FSC uses independent research and a wide network of New Zealand and international experts and
specialists to develop and promote evidence-based policies and practices to help Kiwis build and protect
their net wealth and make KiwiSaver more affordable for everyone.
The FSC wants to spark a national debate on retirement income policies and is putting up for consideration
safe and sound options to enable a cross party policy consensus on retirement income, based on NZ Super
and KiwiSaver.
We’ve gone out to research middle New Zealand’s needs, wants and fears, and have done the financial
analysis and modelling to provide people with choices about how they save for their retirement.
The FSC options show that a stronger, deeper national savings base is achievable and the majority of people
want it, so it is a safe issue for all political parties to bring in an agreement on retirement income that
updates the one last negotiated in 1993.
We’ve identified a number of routes that politicians can look at that would make KiwiSaver fairer, more
affordable, accessible and harder working and provide ordinary Kiwis with a comfortable retirement with the
ability to fund a second pension to give them a retirement income double their NZ Super - and more choice
of when to retire.
Getting the issue out in the open
The FSC’s options (released at the Future of Super Conference on 14 October 2013 in Auckland) provide
policymakers with research-supported scenarios on how to:
1.Leave NZ Super as is to provide stability and surety even if there is a gradual move to a higher age of eligibility
2. L ift KiwiSaver contributions and coverage progressively over a number of years so that most New
Zealanders could fund a second pension for a comfortable
retirement
av e r
ake KiwiS
m
ld
u
o
w
dI
“I
3. Reduce the taxes on KiwiSaver retirement savings so
people an
ll
a
r
fo
y
r
ye r s
compulso
KiwiSavers are not disadvantaged compared to
ake emplo
m
ly
b
a
b
o
ut … it’s
would pr
other investment options
as well. B
it
b
le
tt
li
ity not
pay a
sponsibil
e
r
’
s
e
e
y
yers.”
4.Move more KiwiSavers out of default conservative funds into
the emplo
the emplo
il
t-food reta
balanced or growth funds to match their needs and life stage
er in a fas
y
d
lo
ie
p
rr
m
a
e
m
,
,
8
otorua
Female, 5
of
ropean, R
e
u
E
(and the potential for reviewing fee structures as the savings
m
o
Z
c
N
,
in
s
ld
busines
, househo
k.
s at home
under $50
pool grows).
and no kid
www.fsc.org.nz
PAGE 11
Join the Discussion
•The conference, focused on The Future of Super, provided a platform to debate and discuss the viability of our current
retirement income policy, based on NZ Super and some take up of KiwiSaver, and what we can do about it.
•A cross section of international and local speakers were asked to present different perspectives on how to
make our retirement income policy both fair and affordable, with keynote conference speakers including OECD
Private Pensions Unit member, Stéphanie Payet, who works with public and private sectors from 37 countries
on the operation and regulation of retirement income systems, and former NSW Liberal Leader and CEO of the
Australian Financial Services Council, John Brogden, telling the story of how our neighbours have built a mighty
cache of retirement savings.
•The conference also featured discussions on how best to combine Pay as You Go (PAYGO ) schemes like NZ Super
and Save as You Go (SAYGO) schemes like KiwiSaver. We also presented research findings on middle New Zealand’s
hopes, fears, needs and being resigned to KiwiSaver becoming compulsory – and not a bad thing either.
•Panel discussions looked at how to make KiwiSaver fairer and more
accessible for those women who spend more time out of the workforce
and also for employees, the low paid and employers. The day ended
with expert presentations on developing a post retirement annuity
pension or drawdown market, followed by a networking event.
PAGE 12
How to Supersize Retirement Incomes
at
it ’s ju s t th
to [s a v e ]
e
v
lo
rs
a
y
ll
ll
re a
tw o d o
“ I w o u ld
o re th a n
m
t
e
g
e
in
ew
I’ m a
e v e ry ti m
happens.
g
in
th
e
m
so
d e s ti n e d
to g e th e r
th a t is n ’t
p
u
ro
g
tg o in g
o n o m ic
much ou
s o c io -e c
e re ’s s o
th
e
m e,
s
u
a
ec
r own ho
to s a v e b
u y in g o u
b
e
’r
e
W
e.
o s t th in g
a ll th e ti m
a n d fo re m
t
rs
fi
e
s th
o t to g o
a n d th a t’
ash has g
c
re
a
p
s
it ’s
and any
save but
w it h u s ,
u ld lo v e to
o
w
g.”
I
in
t.
n
a
e
th
app
to wa rd s
ju s t n o t h
h children
arried wit sehold
m
,
n
to
il
h, Ham
t, hou
Male, 50is f European descen
0k
o
r
s t ov e r $ 3
e
Z
ju
N
e
,
incom
at home
A snapshot of our future – reality bites
•The first person in New Zealand to live to 120 has already been born.
•Our life expectancy after age 65 is increasing by more than two years each decade.
•By 2055 New Zealand is forecast to have 1.7 million people aged 65 or older with an expected life span of 95 –
that is one person over 65 for every two people of working age.
•Something has to give if we are to avoid huge tax hikes and inadequate retirement incomes that in no way can
match the living standards we had when we were employed.
•Taxation funded NZ Super alone and our current rates of contributions for retirement under KiwiSaver will not
cover the cost of this retirement boom.
•And why is the effect of taxation on savings in KiwiSaver so much higher than on rental properties?
New Zealand taxes retirement savings heavily unlike most countries and that means:
–more than half of your KiwiSaver fund potential savings will go because of the impact of income tax
–almost half of your bank term deposit potential earnings will go because of the impact of time and taxes
–e ffective tax rates on savings are much higher than what a typical owner of a rental property pays
if that’s their way of saving for retirement.
www.fsc.org.nz
PAGE 13
Retirement in the 20th Century
Retirement in the 21st Century
Funding retirement incomes in 1955
Funding retirement incomes in 2055
• Over 65 population less than 300,000
• Over 65 population reaches almost 1.7 million
• Life expectancy at 65
- 12.8 years for males
- 16.9 years for females
• Life expectancy at 65
- 30.9 years for males
- 30.7 years for females
(Statistics NZ 2012 VLM Series)
• Seven working age people support one pensioner
• Two working age people support one pensioner
• Age pensions cost 3% of GDP when the universal pension
was available from 65
• Age pensions will cost around 8% of GDP if the age of
eligibility for NZ Super stays at 65
• Currently age pensions cost around 4% of GDP
• Later this century age pensions will cost around 10% of GDP
Now KiwiSaver is six…
•Six years on KiwiSaver has attracted more than 2 million members – just over half of them women. Looks good,
but many people signed up are not currently contributing any savings, some are children or already retired.
•Some are just putting in the minimum $1042 each year to receive the $1000 up front and then the annual $521
tax credit contribution from the Government.
•Most KiwiSavers who are contributing to the scheme are doing so at the 6% level – that’s 3% from the
employee and 3% from the employer - insufficient to fund a comfortable retirement even with NZ Super.
•Under the current savings and tax policies, New Zealanders need to save 10% of their income each year over
a 40-year working life to fund a comfortable income that is double NZ Super.
Help wanted
•Most New Zealanders are realists. Independent research by Horizon shows only 9% believe that the pension
(currently $357 per week after tax for a person on their own or $512 for a couple) will provide an adequate
income in retirement. The research shows that most Kiwi adults want to save, know they have
to save, but can’t afford to save enough to have an adequate
got
retirement income and want help.
I haven’t
e
s
u
a
c
e
b
...
yet, and
“Ner vous
ings plan
v
a
s
t
n
e
ink
•At least 60% of Kiwi adults are behind a universal (compulsory)
a retirem
d I don’t th
n
a
,
0
5
g
I’m pushin enough to live on.”
KiwiSaver scheme for employees. The politicians are not yet
is
,
n, Timaru
NZ Super
committed but see the benefits of having a healthy culture of savings
Z Europea
N
,
,
h
e
is
m
0
o
5
c
old in
Female,
0k househ children
4
$
r,
e
contributing to a more resilient economy with investments in New
v
a
non-KiwiS ) and two teenage
ve, and
parated
Zealand’s productive sector and a deeper pool of long term capital
hard to sa
g
ry
e
sin le (se
v
s
it
s
d
Fin
h she say
at home.
aver whic
iS
”
a
iw
e
K
available to allow infrastructure investment, job creation and keep
t
id
a
d
goo
is looking
is a “jolly
taxes down.
PAGE 14 How to Supersize Retirement Incomes
And then there’s Australia
•Younger New Zealanders could double their retirement income by moving to Australia (This compares New
Zealand Super to what someone in Australia would receive from their compulsory regime, the age pension plus
the Super annuation guaranteed income for someone on the medium or average income in either country).
2055
NZ pension
Australia
Ratio (AU/NZ)
pension median
income
Australia
Ratio (AU/NZ)
pension
average income
Retirement income
Dollars
$NZ 31000
$A 60800
2.31*
$A 69000
2.67**
% per capita GDP
34%
52%
1.5
59%
1.70
Contributions
2011
4.3%
7.2%
1.66
2055
7.4%
9.9%
1.34
Average 2011-2055 6.4%
9.2%
1.44
Source: Australian Treasury and Andrew Coleman Motu Research
•Australia has a treasure chest of over A$1.6 trillion from their 20-year-old compulsory Superannuation
Guarantee scheme – and it is growing. If we had the same contribution rates and coverage as Australia we
would have more than $1000 billion dollars invested in KiwiSaver by 2066. New Zealand scrapped compulsory
retirement savings in 1975 a move most New Zealanders now regret.
OECD Retirement: Income Replacement Rates in 2008 for Someone on an Average Wage*
70%
60%
50%
40%
30%
20%
10%
0%
Australia
new Zealand
OECD average
* Replacement rates are the proportion of a persons previous working income that their retirement income represents for someone on the average wage in that country
Source: AMP
While our NZ Super provides a better, base age pension than most countries provide for their poorest retirees,
New Zealand lags well behind in terms of pensions for people on average incomes or better compared with other
developed countries.
www.fsc.org.nz
PAGE 15
No Easy Country for Savers
•Our grandparents could look forward to 10-15 years in retirement. Our
children can expect 20-30 years living in retirement on average with
the rise in the 65 plus population and increasing longevity after age 65.
The cost to taxpayers of more people receiving NZ Super for longer will
increase from 4% to nearly 10% of GDP later this century. (Statistics NZ
VLM 2012 Projection.)
I’ve got
feel that
“I like to
s to
own fund
y
m
f
o
t
n
sufficie
do come
e when I
m
r
e
ft
a
k
aving
loo
without h
e
r
ti
e
r
to
uts from
around
ut hand-o
o
b
a
y
r
r
o
nment.”
to w
the gover
employer
uropean,
E
Z
N
,
h
about
Male, 70is ckland business,
u
one.
A
t
r except
in a Wes
KiwiSave
n
o
void
a
ll
a
to
,
ings
ten staff
nty of sav
le
tion
p
a
u
s
a
n
h
n
e
ra
upe
Says h
needing s
•To contain that cost more New Zealanders would prefer the age of eligibility
for NZ Super to move out rather than reduce the value of NZ Super.
•A majority of New Zealanders consider they would be comfortable if
their retirement income was about two times NZ Super. This requires savings of between $300,000 and
$450,000 in your KiwiSaver account at retirement depending on how you invest after you retire.
•We’ve estimated that you can achieve a comfortable retirement if you contribute 7% of your income each year
to KiwiSaver over 40 years. That would be sufficient to buy a second pension, on top of NZ Super, and provide a
combined income that is twice NZ Super. But, this is only achievable if KiwiSaver investments are taxed fairly to
level the playing field with other investments and people move to balanced or higher growth funds.
•If you don’t have 40 years before you retire then your contribution rate needs to be very much higher than
7% to fund a comfortable retirement.
•At the other end of the income scale, many potential KiwiSavers cannot afford to go straight to contributing
3% of income (along with 3% from their employer). Currently there is no option to start at 1% and steadily
move up contributions by say 1% each year.
•Some potential contributors are concerned that with their money tied up till they are 65,
for
they may struggle to deal with a financial crisis following the death or
ke, that’s
li
d
I’
s
a
u ch
e b o dy
“Not as m
sickness of a major bread winner in their household.
oan, som
m
a
S
g
in
be
y or gets
sure... Me
a birthda
s
a
h
r
o
s
o it’s
.
either die
months. S
h I would
e
is
e
r
w
I
th
r
y
o
r
ey
could arried eve
guess
h av e m o n
m
I
I
t
..
a
!.
“I wish I
?
th
r
e
e
r
nsw
king su
that.”
t for an a
about ma
tribute to
e enough
n
k
o
a
c
m
How’s tha
to
’t
n
o
o young
I just d
rt.”
married, tw f $80k
,
s
0
of an effo
3
y
rl
, ea
eo
st),
(inner we
, Auckland t probably
n
ia
d
In
,
h
Male, 40is give his income bu k or so
0
uldn’t
t that
around $7
single, wo
e] it’s jus
ve to [sav
lo
y
ars
ll
a
re
n two doll
“I would
more tha
t
e
g
e
ir
w
u
e
t req es
every tim
ppens tha
a
h
g
in
th
at isn’t
some
together
ic group th
m
o
n
o
c
-e
socio
s o m u ch
it. I’m in a
e there’s
s
u
a
c
e
b
wn
to save
ying our o
destined
. We’re bu
e
m
g
ti
e
th
th
all
most in
outgoing
t and fore
rs
fi
e
th
g
s
got to o
d that’
cash has
home, an
re
a
p
s
y
n
nd a
it’s just
with us, a
s av e b u t
to
e
v
lo
ld
ning.”
at. I wou
not happe
towards th
h children
arried wit sehold
m
,
n
to
il
m
h, Ha
t, hou
Male, 50is f European descen
0k
o
r
s t ov e r $ 3
e
Z
ju
N
e
,
e
m
inco
at hom
PAGE 16 How to Supersize Retirement Incomes
Male, Pas
m
ifika
ehold inco
kids, hous
oI
e scar y. S
it
u
q
’s
it
est,
’s really
To be hon
out it... It
b
a
t
e
g
r
nd
tend to fo
rement, a
ti
e
r
r
fo
e
t to sav
. But I
importan
nest egg..
a
e
v
a
h
e
I’d love to
tant and th
r
o
p
im
y
r
it’s ve
lp us
d o k n ow
able to he
e
b
’t
n
o
w
on.”
nt
me goes
g ov e r n m e
ti
s
a
t
u
o
d,
all
tt, marrie
u
ropean, H
g
ish, NZ Eu
5
4
-o). Workin
,
-y
le
5
a
1
m
to
Fe
(8
u
e
o
e ab t
at hom
hold incom $80k
four kids
e
s
u
o
h
,
e
ll tim
almost fu
Hear the People
Verbatims from Horizon-Tasman qualitative research July 2013 with 23 employees and 10 employers. They
were from one on one interviews with:
•Employees on below-average incomes, who found it hard to save, were not enrolled with KiwiSaver but
weren’t strongly opposed to the idea of a compulsory savings scheme
•Employers who said their business was finding it “tight” at the moment, and weren’t strongly opposed to the
idea of a compulsory savings scheme
•A smaller group of employees who were already in KiwiSaver to test for consistency in the results.
“I haven’t
ye a r s
last 5 or 6
e
th
r
e
v
O
“
d off
as droppe
h
d
a
lo
k
r
st
o u r wo
we are ju
d
n
a
ly
b
oing
considera
actually g
e
’r
e
W
r.
o,
wate
t as we g
b
e
treading
d
in
r
e
s. Deep
ve to
b a c k wa r d
ing we ha
th
y
r
e
v
e
r
l.”
y fo
in genera
fe
just to pa
li
in
r
pay fo
, builder,
done any
thing.”
,
l Auckland
an, centra as done
e
p
ro
u
E
Z
,N
dh
Male, 40s
e debt an
, IT, in som ing for retirement
le
g
in
s
,
k
$60
no plann
t.
of though
ts
lo
it
e
iv
ilty. I g
bout it.
“I feel gu
attacks a
ty
ie
x
n
a
age
I h av e
the mortg
w
o
n
k
I
.
ut then
Worried..
rement, b
ti
e
r
y
b
id
ke e p
will be pa
e n e ra l u p
g
e
th
s
y
a
it does
there’s alw
ell. Yeah,
w
s
a
e
s
u
ially
of the ho
lot. Espec
l
fu
w
a
n
a
r own.”
s c a re m e
’re on you
u
o
y
n
e
h
w
Zer of
, single, N
an
Z Europe
at
Maori / N
,
h
ied, kids
is
rr
5
a
4
M
,
.
re
o
Male
h
S
atly, but
’s North
varies g re 100k
Auckland
e
m
o
c
in
$
usehold
$30k and
home. Ho
between
certainly
than
ch better
u
m
is
e
d
do it lots
“My attitu
, I should
in
s
A
t.
p
n I do.”
my attem
more tha
argill,
ean, Inverc
p
ro
u
E
,
Z
N
0ish,
s at home
Female, 5
o older kid income.
tw
h
it
w
rking
$40k
single, wo
s
stchurch
(low wage
0ish, Chri
Female, 5
w income
’t
lo
n
t,
s
n
e
e
o
c
d
s
,
e
n
d
ducatio
e
l
European
o
o
h
e
c
v
s
a r
ime), high
rt of KiwiS
and part-t e at all and not pa
s av
“I mainly
save for
retireme
should h
nt. I
ave retire
d ye a r s a
I suppose
g
o...
it’s part o
f the rea
I ke e p w
son
orking...
obligatio
But I feel
n to the s
an
taff to ke
ep the
Male, 70is
place go
h, NZ Euro
ing.”
pean, em
ployer in
a West
Auckland
business
“Im
It really
possible.
ible
is imposs
”
[to save].
n, builder,
Z Europea kids at
N
/
ri
o
a
M
h,
ied,
Male, 45is
hore. Marr atly, but
’s North S
d
gre
n
s
la
e
k
ri
c
a
u
A
ome v
k
and $100
sehold inc
u
k
o
0
H
3
.
$
e
n
m
e
e
ho
tw
e
b
ly
certain
www.fsc.org.nz
PAGE 17
Taxing Issues
The current tax system strongly discourages longer term saving using the preferred vehicles of KiwiSaver and
bank term deposits, which feature compounding returns, while strongly encouraging investment in rental property.
Understanding Compound Returns and the Impact of Tax and Time:
Applying the Rule of 72 - if you can do this you are smarter than most New Zealanders
Have you ever wondered if there is an easy way to calculate how long it takes to double your savings? There is a
way, just divide the number 72 by the interest or growth rate. Example:
aland
e
Z
w
e
N
If the
s by
w
o
r
g
y
m
econo
r
2% a yea
2
it takes 7
÷2
us to
r
o
f
s
r
a
e
= 36 y
omes.
c
n
i
r
u
o
double
e1
During th
990s
was
y
m
o
n
o
c
China’s e 10% a year
by
growing
bling
u
o
d
e
r
e
so they w mes ever y
their inco 7.2 years.
72 ÷ 10 =
The rule of 72 provides a very good estimate of how compound returns (interest on interest) works. It is less accurate once the interest or growth rate exceeds 20%, but if you are promised a 20% interest
rate or growth rate it is probably a scam.
A simple illustration of how tax and time can eat into your potential savings
Suppose your Grandmother gives you a $1000 investment bond earning 6% a year tax free as a 17th birthday
present for you to cash in when you are 65. How much will you have at 65 (using the rule of 72)?
72 ÷ 6% = 12 years
PAGE 18 How to Supersize Retirement Incomes
So your money doubles every 12 years at 6% interest tax free:
$1000
$2000
$4000
$8000
becomes
becomes
becomes
becomes
$2000 in 12 years
$4000 in 24 years
$8000 in 36 years
$16000 in 48 years
After 48 years your $1000 would have grown to $16,000 by the time you get to 65, assuming you kept
reinvesting all the interest each year and paid no tax on the interest earnings. So $1000 of savings has
produced a $16,000 nest egg at retirement.
Now……
Imagine instead of it being tax free you were taxed at 50 cents in the dollar on any interest you earned. That is a
50% tax rate. That means that rather than 6% interest each year you are earning just 3% interest after tax.
72 ÷ 3% = 24 years
So your money only doubles every 24 years at 3%
$1000 becomes $2000 in 24 years
$2000 becomes $4000 in 48 years
After 48 years your $1000 would have grown to only $4,000 when you get to 65 because of the impact of tax.
Ouch....
You can see the impact of the 50% tax rate on that initial $1000 investment, but what you can’t see is that
the effective tax rate is actually 75% over 48 years
Rule of 72 provides a good estimate of returns over time
No tax
Tax at 50%
(The nominal tax rate is 50%, but the effective tax rate is 75%)
$20,000
$16,000
$16,000
6%
$12,000
$8,000
$8,000
$4,000
$4,000
$1,000
$0
effective
tax rate
75%
$2,000
$2,000
$2,828
$1,414
age 17
age 29
age 41
age 53
$4,000
3% (6% net
of 50% tax)
age 65
Moving from 6% with no tax to 3% after tax does not halve your retirement nest egg it cuts it by three quarters.
That’s the difference between the marginal tax rate and the effective tax rate, when you earn compound returns
over time .
www.fsc.org.nz
PAGE 19
How do New Zealanders currently build their wealth? Step by Step
STEP
5
STEP
4
STEP
3
STEP
2
Use your funds left over to invest in rental
property, KiwiSaver, term deposits or shares
to prepare for retirement
Insure your assets, life
and ability to earn
Buy a house or flat with the aim to owning your accommodation
without a mortgage by the time you retire. Homes are a very tax
advantaged investment
Get a good job and keep as many members of your
family in employment as possible and save to invest
STEP Get the best possible education and training to earn a good income.
1
At all levels education is strongly subsidised by the taxpayer
0 2
AGE
10
20
30 32
40
45
50
60
70
Most New Zealanders traditionally have started saving seriously for retirement only when they reach their late 40s
or early 50s.
High price for procrastination
On our proposed policy settings people will need to save about 7% of their income every year over 40 years from age
25. If you wait another 10 years to start saving you’ll need to save about 10% of your income and on it goes, and if you
wait till you are 55 then you’ll need to save 50% of your income!
Growth Portfolio
Balanced Portfolio
Target account balance at 65
$450,000
$450,000
Starting age
Required contribution rate (%)
25
5.2
6.0
35
8.8
9.8
45
18.6
20.0
55
57.3
59.1
y should
idea. The
t
a
e
r
g
a
go.”
’s
in years a
“I think it
it
t
h
g
u
o
n. Not
h av e b r
an, Nelso
NZ Europe
ve at the
arly 20s,
hard to sa
it
Female, e
s
d
n
fi
d
moment
iSaver an
part of Kiw
PAGE 20 How to Supersize Retirement Incomes
Why saving a little for a long time in KiwiSaver does not work in New Zealand
The effective tax rate impact increases the longer the term of saving
Annual savings required
After tax
Before tax
Impact of tax on
cumulative returns
10
$37,481
$40,479
44.3%
20
$15,112
$17,918
47.7%
30
$8,,024
$10,529
51.2%
40
$4,730
$6,930
54.7%
50
$2,948
$4,845
58.2%
Years of saving
Assumptions: 4% real rate of return, 2% inflation, 28% PIR (Prescribed Investor Rate). Required annual savings shown is in 2013 dollars
and is assumed to increase with inflation. (Source: EY estimates prepared for the FSC)
The longer you save in KiwiSaver the greater the tax impact on the cumulative returns but if
you try to save over a shorter period of time the contributions required each
iSaver
aking Kiw
m
is
p
te
s
year are not affordable for most New Zealanders. Over 10 years it would require
utions
“The first
the contrib e....
g
in
s
a
re
c
employe
ry, and in
someone one the average wage to save almost all their income in KiwiSaver.
compulso
loyers and
In most countries it is usually considered easier to save by putting a little
away each week for a long time and earning compound returns (the interest
on your interest) to help build up most of your retirement nest egg.
Researchers estimate that for someone saving for retirement over 40 years
only 10% of your final KiwiSaver balance would derive from your initial
contributions and 90% from compounding returns. So how we tax those
compounding returns is crucial.
mp
uld not
for both e
utions sho
ib
tr
n
o
over time
c
e
of th
on them
s that are
The taxing
e
x
ta
e
th
ds to be
t... to
ibility nee
be subjec
g
li
e
f
o
e
g
to look
k the a
k we need as it
in
now. I thin
th
I
.
e
m
,
over ti
tion again
increased
uperannua ll the parties
s
g
n
ti
s
e
-t
a
at means
ke to see
y
usly... I’d li ve some cross-part
io
v
re
p
s
a
a
w
h
d
n
rd
a
a
rw .”
er...
ce going fo
get togeth
la
p
in
g
Z
in
someth
ng firm, N
ideas and
r, accounti
employe
e $130k,
Male, 44,
hold incom home.
e
s
u
o
h
,
in
, Duned
o kids at
European
married, tw
We wanted to know why New Zealanders seem to prefer to invest in property
rather than KiwiSaver and why saving for retirement tends to occur late in our
working lives and tends to favour rental property over KiwiSaver.
New Zealand’s tax system has a strong bias in favour of investment in rental property, the opposite of what
happens in other similar countries.
The greater the leverage (level of debt) in the rental property and the shorter the time it is held,
the lower the effective tax rate
Years before rental
Leverage ratio (Proportion of the property value funded by debt)
property is sold
0%
50%
80%
100%
10 years
22.68%
10.22%
(4.55%)*
(6.05%)
20 years
23.42%
12.83%
1.47%
(2.83%)
30 years
24.13%
14.79%
5.20%
(1.02%)
40 years
24.80%
16.37%
7.90%
0.37%
50 years
25.45%
17.71%
10.02%
1.55%
*These examples are for an investor in the 33% tax bracket. The tax rates in (brackets) are negative. In effect, the tax system pays you
(subsidises you) to receive this form of income.
www.fsc.org.nz
PAGE 21
What New Zealanders Think About Super
Superannuation: agreement with statements
Disagree
Neutral
Agree
80
60
40
20
0
20
40
60
80
The NZ Super pension is
enough for me to retire on
New Zealand should not have
a compulsory super retirement
savings scheme
Source: Horizon Research 2012
PAGE 22 How to Supersize Retirement Incomes
It was a mistake for New Zealand
to abolish its compulsory Super
scheme in 1975
New Zealand needs to catch
up with other countries with a
policy to keep NZ Super but also
make a scheme like KiwiSaver
compulsory for employees
Do Something ….
Our plan, based on independent expert analysis and researching the needs, wants and preferences of ordinary
New Zealand, looks at answering the following key questions:
•Can we get the KiwiSaver contribution rate to fund a comfortable retirement down below the 10% required on
current policy settings to a more affordable level, say 7%?
•Can we remove the tax bias so there is a level playing field between investing in KiwiSaver and other investment
opportunities like rental property or by an offsetting reduction in KiwiSaver PIE tax rates. Would the removal of
the KiwiSaver incentives pay for this?
•What would be the benefit in lower contribution rates from moving default KiwiSaver investments into balanced
or growth funds depending on their life stage rather than the current conservative assets?
•What is the future potential for reducing fees as account balances and Funds Under Management (FUM)
increase and greater competition occurs?
Expert Modelling and Analysis
We asked some experts to help us answer these questions and do the financial modelling and analysis to provide
a package of options:
Fair Taxation for Retirement Savings
•Robin Oliver, Principal, Oliver Shaw, former IRD Deputy Secretary Policy
•Paul Mersi, ex PWC and IRD, Member of Savings Working Group
Effective Tax Rate and Tax Reform Analysis is based on modelling work done for FSC by EY with input from
•Peter Goss, Director, Transaction Advisory Services, previously in Treasury tax policy
•Aaron Quintal, Director, Tax, previously in Treasury tax policy
•Blair Tomblin, Senior Consultant, Tax, formerly with IRD Policy Advice Division
Retirement Income Policy Modelling
•Adolf Stroombergen, Infometrics
Peer Reviewers
•Prof John Piggott, University of NSW, an expert on the taxation of
superannuation and a member of the Henry Review
•John Savage, former NZIER Researcher for the review of the
financial and tax modelling
Polling
•Quantitative, Graeme Colman, Horizon Research
•Qualitative, Andrew Stephenson, Tasman Research
“I would
look at th
e Australi
u p. A n d 2
an set3 [sic] ye
ars after
started th
they
eir comp
ulsor y sy
it’s totall
stem
ye
think com mbedded. That’s
w hy I
pulsor y s
uper at a
level is th
decent
e right an
swer... G
ra d u a l
Male, late
introducti
5
0
on.”
s, NZ Euro
financia
pea
l advice b
n, employ
usiness,
er with
income o
D
u
n
edin, hou
ver $150
sehold
k, marrie
d with tw
o older
kids at h
ome
www.fsc.org.nz
PAGE 23
Pathways to retirement prosperity: Options to provide Kiwis comfort and security in retirement
Universal KiwiSaver pathway (Compulsory for employees)
Aim to achieve a comfortable retirement for employees at 2 x NZ Super
Provide for the option to retire from age 65 even if the age of eligibility for NZ Super moves out
o requirement for employees on low, benefit like incomes in that year to make contributions to KiwiSaver
N
(bottom income deciles 1 and 2)
Move default investors from conservative funds to portfolios with more growth assets in them depending on their life stage
Remove the tax bias against retirement savings to level the tax playing field with rental property investments by:
- Lowering the PIE marginal tax rates to 4.3%, 8% and 15% from the current 10.5%, 17.5% and 28%.
- Removing the annual $521 KiwiSaver tax credit to fund the change
Add an option of starting KiwiSaver with a minimum contribution of 1% for Year One, split with the employer for
those concerned about affordability
Phase in an annual 1% increase as wages increase, split between employee and employer, to lift contributions
to the target rate of about 7% needed to fund a comfortable retirement
L ook at investment management fees reducing in the future as account balances, Funds Under Management
(FUM) and competition all grow
Require a proportion of your KiwiSaver balance at retirement to be used to buy a second pension to the value of
NZ Super so you retire on 2 x NZ Super
The balance of your KiwiSaver account not used to fund a second pension will be available as a lump sum
Include insurance to top up KiwiSaver balances at retirement to ensure anyone can purchase a second pension,
equivalent to NZ Super, even if you don’t quite get to the balance required after say 30 years of contributions
L ook at the option of bundling a base level of life and income protection insurance into KiwiSaver to better meet
hardship situations
Allow the option of self-managed KiwiSaver but without the top up insurance
dI
tastic an
n
a
f
’s
it
k
d
ally I thin re when I starte
“Person
e
h
t
le
n
ad bee
en peop
wish it h up in a time wh
n
got seve
rew
work. I g out money... I’ve
u
f s
ll nine o
lk ab
a
a
t
d
n
’t
a
n
r
id
e
.
d
t
h money
and a sis
it
s
w
r
s
e
s
h
t
le
o
br
hope
this
bsolutely gs scheme like
are all a
it would
d a savin
ey into,
If we ha
n
o
m
t
u
rfect.”
had to p
n just pe yer,
e
e
b
that we
e
v
lo
ha
ori, emp
ult
ean/Ma
Z Europ . Single, two ad
N
,
4
6
,
le
re
as
a
o
e
m
h
z
e
S
e
F
e
ent squ
d’s North
Aucklan ees the retirem “frightening”
home. S
kids at
PAGE 24 How to Supersize Retirement Incomes
Voluntary KiwiSaver pathway
Aim to assist those who want to achieve a comfortable retirement income at 2 x NZ Super
Regular days of automatic enrolment, say every 3 years from 2015
Phase out tax bias against retirement savings as Governments achieve surpluses
Possibly allow KiwiSaver balances to be used to fund a deposit on either a business or tertiary education or a
home deposit as currently provided for
To keep KiwiSaver incentives, make it a requirement to step up KiwiSaver contributions each year until they
reach the level to fund a comfortable retirement. Currently you need to save 10% of your income over 40 years
in the absence of tax reforms to level the playing field with rental property retirement investments
Possibly allow KiwiSavers the option to insure for a capital guarantee on their KiwiSaver account balances priced
on the type of fund chosen or defaulted into. (Estimated to cost less than 1% in additional contributions)
Allow self-management of KiwiSaver investments
This would only work if you chose not to take up the option of a capital guarantee
“It’s actu
ally a go
od idea..
myself fo
. I do kic
r not star
k
ting whe
n I starte
in the co
d
mpany te
n ye a r s a
Male, 40is
h, Indian
go.”
, Aucklan
single, w
d (inner w
ouldn’t g
est),
ive his in
employed
c
ome but
with an in
he’s
surance
company
probably
so
around $
70k or so
www.fsc.org.nz
PAGE 25
And here’s how it could work
New Zealand stands out as the only country that combines:
•Comprehensive accrual taxation of the returns from debt instruments (that includes much of your savings in term
deposits and KiwiSaver)
•No capital gains tax on rental property for most investors
•Unconstrained deductibility of interest on debt used to purchase rental property.
Levelling the tax playing field for savers
New Zealand stands out as a country that taxes superannuation savings more than other investments
50
SUBSIDY (+)
40
30
20
TAX
WEDGE
+VE
10
0
TAX
WEDGE
+VE
TAX (-)
-10
-20
TAX
WEDGE
-VE
-30
-40
-50
UK SUPER
UK RENTAL
PROPERTY
Source: Mirrlees Report
AUSTRALIAN
SUPER
Source: Henry Report
Note:
• For these examples it is assumed there is no debt (leverage) in the
property investment and the duration of ownership is 25 years.
• In New Zealand the leverage level is typically much greater than zero
per cent which substantially reduces the effective tax rate, as does
owning the rental property for a shorter period of time than 25 years.
AUSTRALIAN
RENTAL
PROPERTY
NZ
KIWISAVER
NZ RENTAL
PROPERTY
Source: EY prepared for FSC
doesn’t
tirement
e
r
r
fo
g
of
Savin
eing part
b
n
a
e
m
]
rily
ave to
[necessa
. I could s
e
m
e
h
c
s
es...
a savings
l properti
ta
n
e
r
.
..
perty
look at
buy a pro
o re h ow I
m
ly
b
a
a
b
ture, than
that’s pro
fu
e
th
r
fo
nt
cheme.”
investme
savings s
st),
r we
land (inne
dian, Auck come but he’s
In
,
h
is
0
4
Male,
e his in
pany so
uldn’t giv
single, wo h an insurance com or so
it
0k
w
7
d
$
around
employe
probably
PAGE 26 How to Supersize Retirement Incomes
New Zealand effective tax rates on different types of investments*
Tax rate
0%
10.5%
17.5%
28%
30%
33%
Owner-occupied home, debt-free
0%
0%
0%
0%
0%
0%
General rental property (100% leverage)
0%
(1.13%)**
(1.75%)
(2.52%)
(2.65%)
(2.83%)
General rental property (80% leverage)
0%
0.38%
0.68%
1.20%
1.31%
1.47%
General rental property (50% leverage)
0%
4.27%
7.01%
10.99%
11.73%
12.83%
General rental property (no leverage)
0%
7.70%
12.70%
20.02%
21.38%
23.42%
PIE / KiwiSaver with no subsidies***
0%
14.27%
23.78%
38.05%
38.05%
38.05%
Foreign shares
0%
13.13%
21.88%
35.00%
37.50%
41.25%
Bank account term deposit
0%
15.60%
26.10%
41.70%
44.70%
49.20%
* For rental property it is assumed that the property is sold after 20 years ** Numbers in (brackets) are tax subsidies the investor is being paid to hold their assets.
*** The KiwiSaver government incentives encourage people to join the scheme but do not increase return at the margin and so do not change these results.
We have the largest tax bias in favour of investing in rental property and against saving for retirement in
financial assets, such as KiwiSaver or bank term deposits, of any comparable country we could find.
In most countries the tax system is strongly biased in favour of retirement savings and against investment in rental property.
•The current tax system both discourages savings and encourages investment in real estate over investments in
debentures, bank term deposits and KiwiSaver.
•Almost every possible direct change to the taxation system to remove the bias in favour of real estate investment and to
not penalise other forms of saving lacks political support.
•Replacing income tax with a much higher rate for GST has no political support.
•The tax benefit of having the imputed income value of equity in owner occupied homes as tax free income is estimated
to be worth $4 billion a year - about twice the level of Government assistance for state house rental subsidies and
accommodation benefits.
•No political party has ever proposed removing the tax concession for the imputed rental income benefit of owner
occupied homes.
•Similarly, no political party has proposed having a capital gains tax on owner occupied homes even on a realisation basis.
•If owner occupied homes are sacrosanct with respect to taxation then some 60% of real estate by value is outside the
potential housing tax base.
•A land tax on the unimproved value of land has also been proposed from time to time but this has difficulties when land
owners are asset rich but cash poor.
Possible Way of Reducing the Relative Over-taxation of Accumulating Savings
•Reduce tax rates on certain types of income
•Reduce tax rates on certain entities, Portfolio Investment Entities (PIEs)
•Reduce tax rates only for KiwiSaver funds and similar entities holding locked-in savings which is what we recommend.
If we can’t fix the tax base by having an accruals capital gains tax on property and only allowing the
deduction of real interest rate costs, we should fix the PIE tax rate on KiwiSaver funds to level the playing
field for KiwiSavers.
www.fsc.org.nz
PAGE 27
Getting down to a 7% KiwiSaver rate contribution rate for 40 years
The big goal is to make it possible for most New Zealand employees to
contribute at least 7% of their annual income into KiwiSaver so they then
can fund a second pension, or have a drawdown facility, to provide for
a comfortable retirement. Kiwis tell us that “comfortable” means an
annual retirement income that is double NZ Super.
“I do like
KiwiSave
thinking
r, I like th
behind it
e
. I like th
can’t tou
at you
ch it, exc
ept for yo
home... b
ur first
ut becau
se you ca
n’t touch
it, it just
Female, 5
s
it
s there.”
0ish, Mao
married
ri, Au
ckla
, ma
household in income earner, nd/Gisborne,
non-KiwiS
income a
bout $60
k, mortga aver,
ge paid
off but litt
le other s
avings
FSC’s options to achieve this contribution rate are to:
•Keep NZ Super available on the current formula (66% of the
average wage after tax). If income or means testing tied to prices was
introduced the KiwiSaver contributions required to fund a retirement income at two
times NZ Super would have to increase. Any reduction in the level of NZ Super would also mean
contributions would have to increase.
•Depending on the investor’s life stage, move default KiwiSaver assets from conservative to balanced or growth
investment portfolios so they earn more with insurance to offset the additional risk.
•L evel the playing field for taxing KiwiSaver investments so they face the same effective tax rates as investments
in rental property.
•Pay for this by removing the incentives for participating in KiwiSaver. Government could eliminate either the
$1000 up front incentive and the annual $521 tax credit, or just the tax credit.
•Look at possibly reducing investment management fees in the future as account balances and Funds Under
Management (FUM) and competition grows.
And what about making KiwiSaver universal (compulsory)?
We conducted an independent survey late last year of 2,107 respondents who are members of the Horizon
Research Horizon Poll national panel and we’ve followed it up with more qualitative research to gain deeper
insights into how retirement savings can work harder, and be fairer, more accessible and sustainable.
The sample is weighted on age, ethnicity, personal income level, employment status, education level and party vote
in the 2011 general election, and has a maximum margin of error at a 95% confidence level of ±2.2% overall.
Respondents were told: “Some argue they cannot afford compulsory savings and it is up to individuals to provide for
their own retirement incomes if they want more than the state NZ Super pension”. They were then asked whether they
thought making savings into KiwiSaver compulsory for all employees would be good or bad for New Zealand’s future.
Overall, 67% of respondents thought this would be good for New Zealand’s future, with only 9% saying it would
be bad. KiwiSaver members were more likely than non-members to think it would be good.
PAGE 28 How to Supersize Retirement Incomes
Compulsory KiwiSaver – maybe not so bad after all
Overall, do you think making savings
into KiwiSaver compulsory for all
employees would be good or bad for
New Zealand’s future?
ALL
KiwiSaver
member
Non
member
In paid
workforce
Not in paid
workforce
Very good
24.8%
30.2%
18.5%
25.8%
23.3%
Good
42.4%
42.3%
42.4%
42.5%
42.4%
Neither good nor bad
16.2%
14.0%
19.1%
16.9%
15.2%
Bad
5.6%
4.3%
7.3%
6.2%
4.6%
Very bad
3.3%
3.2%
3.5%
3.5%
3.0%
Not sure
7.6%
5.9%
9.1%
5.1%
11.6%
Source: Horizon research
Oppose
KiwiSaver: overall support for approaches
Neutral
Support
100
Support
80
60
40
20
0
20
Oppose
40
The increase in the
minimum contribution
rate to KiwiSaver by both
employers and employees
from 2% to 3% on April
1 2013
A 1% increase in
contributions to KiwiSaver,
split between employer and
employee, each year until
contributions reach 10%
and provide a comfortable
level of retirement income
Require all employees to
belong to KiwiSaver
Require all employees to
belong to KiwiSaver with
new members contributing
1%, increasing by
1% each year until a
contribution of 10% of
income per year
is achieved
Generally, an increase of
1% a year in contributions
by KiwiSaver members until
contributions reach 10%
would be a good policy
“For you
ng people
, I think it
bloody g
’s a
ood idea
... and it
you the a
gives
bility to s
ave, whe
n you’re
Female, 5
young.”
0ish, NZ
single,
Europ
working
with two
ean, Inve
rcargill,
older kid
s at hom
e
$40k inco ,
me
www.fsc.org.nz
PAGE 29
The Political Pendulum – time to move
•Scrapping the compulsory retirement savings scheme in 1975 is now one of New Zealanders’ greatest regrets.
•Hindsight is a wonderful thing and it is not too late for individuals and politicians to take action and help the vast
majority of Kiwis who simply haven’t or can’t put enough away to fund their long life of retirement.
•If we had the same contribution rates and coverage as Australia we would have more than $1000 billion dollars
invested in KiwiSaver by 2066.
•Think about what that would mean for our future. Think about what that would mean for our country and our
wellbeing. If we expanded coverage and contributions into KiwiSaver we would have:
- higher incomes in retirement
- a lower dollar
“ I h av e a
- lower interest rates
state-sec
tor retire
s
a
ving sche
- more money to invest in New Zealand businesses and jobs
ment
me whic
h
into ever
I
p
u
t
money
y payday
•While new employees are automatically being enrolled into the scheme,
... and ob
my mortg
v
iously
age, so th
don’t rest easy. There’s no immediate fix from any quarter to get
main thin
ey’re the
gs... The
two
be a diffe
world’s g
retirement income up to liveable levels and in line with what Australian
oing to
rent plac
e in 20 y
so I tr y n
ears’ tim
retirees can expect.
ot to thin
e,
k that far
There’s a
a
h
e
lo
a
d
t
•Politicians need to be shaken and stirred to do what’s right. The
...
[of time]
to go befo
r
e
I
problem of so many Kiwis facing a big shortfall in reaching a
Male, 40is
get there
h
,
u
rb
.”
an
kids at h
comfortable income in their retirement is not going to go away. It
ome. NZe North Auckland, m
r of Europ
arried,
ean desc
is the elephant in the room.
ent, $80k
•There is an urgent need for a cross party policy framework
agreement that makes it easy, fair and attractive for people to save
sufficiently today so they can live a quality life in the future – starting with a fairer tax
treatment for KiwiSaver savings.
household
income
•We need a new cross party agreement on retirement income policy to update the one last negotiated back in 1993.
PAGE 30 How to Supersize Retirement Incomes
Tell them what you want
We want a fair, accessible and affordable KiwiSaver for everyone so that all New
Zealand employees can have a comfortable retirement with savings that enable
them to buy a second pension to have an income double NZ Super.
To get there our plan seeks to:
•g radually increase the contribution rate by 1% a year, split with your employer each year, until you reach 7% so
you can buy a second pension to provide a retirement income double NZ Super- that’s only 1% more if you are
already putting aside 6% (3% from the employee and 3% from the employer)
•keep NZ Super as is
To get the required KiwiSaver contribution rate down to 7% four things need to happen:
•move default KiwiSaver savings into higher earning funds depending on your life stage
•offset the additional risk with insurance to guarantee a level of savings at retirement
•level the tax playing field for KiwiSaver investments with other forms of retirement savings
•re-target the money from the KiwiSaver incentives to fund the lower tax rates to make the new policy fiscally neutral
And to get that to happen we need all the parties represented in Parliament to agree and commit to
providing a retirement savings policy that:
•continues to support KiwiSaver to help New Zealand employees save for a comfortable retirement over their
working lives
•progressively steps up KiwiSaver contributions and coverage
•does not put New Zealanders who save for retirement in KiwiSaver at a tax disadvantage compared with other savers
•lowers taxes on KiwiSaver funds over time to level the playing field so KiwiSavers are not at a tax disadvantage.
Bring it on…….
“It’s a gr
e
people ju at idea. Because
st don’t s
a lot of
ave. Yes,
difficult,
it can be
but it’s o
bvio
level of y
our wage usly tied to the
s... Proba
difficult fo
bly ver y
r
p
e
o
incomes
p
... People le earning lower
really sh
more tha
ould h
comforta n superannuation ave
bly
to
hard to li in the future. It’s live
ve on jus
pretty
t s u p e ra n
now, let
nuation
alone in
Female, 7
the futur
0ish, rura
e.”
l North A
owns tw
uc
klan
ob
European usinesses and a fa d, married,
descent,
rm, NZer
doesn’t s not part of KiwiSa of
ave due to
ve
low incom r,
e
www.fsc.org.nz
PAGE 31
Queries
Susan Robinson-Derus
Communications Manager
DDI: 0-9 630 5406 M: 021 723 207
E: susan.robinson-derus@fsc.org.nz
Website: www.fsc.org.nz Peter Neilson
CEO, Financial Services Council (FSC)
M: 021 395 891
E: peter.neilson@fsc.org.nz
t to
o
g
s
’
e
r
e
Th
o
b e m o re t
es,
x
a
t
n
a
h
t
life
ent
m
e
r
i
t
e
r
long
and death
Financial Services Council
of New Zealand
Level 12, City Chambers
Cnr. Johnston & Featherston Streets
PO Box 1514, Wellington 6140
New Zealand
Ph: +64 4 473 8730
Fax: +64 4 471 1881
Email: fsc@fsc.org.nz
www.fsc.org.nz
www.yourwealth.org.nz