Author Katrina Shanks, CEO Financial Advice NZ. Article originally published in Stuff.co.nz.
OPINION: We’ve seen it on the news, the ongoing street protests in France as people protest a plan to raise the minimum pension age from 62 to 64. Polls show 68 per cent of people are opposed to it.
And it’s not the first time. Any attempt by earlier French governments to get people to work for longer has stirred heated resistance. In 1995, strikes and protests greeted the first attempt to move the age from 60 to 62, and there were similar scenes in 2010 before a successful change. But the French are actually better off than their near neighbours. Germany’s pension age is 67, while Britain’s is 66.
What the scenes from France have raised is further debate in New Zealand about our superannuation age, and that has coincided with a report that finds widespread opposition to raising our retirement age to 67, and to introducing financial barriers (means testing) for receiving NZ Superannuation.
The study, conducted by Otago University for the Retirement Commission, found almost a quarter of people ranked keeping the age of eligibility at 65 as the most important aspect of NZ Super, while raising the age to 67 was ranked by 61% of those surveyed as the “worst policy”.
In addition, the Retirement Commission’s 2022 Review of Retirement Income Policies found 40 per cent of people aged 65 and over have virtually no other income besides NZ Superannuation, while a further 20 per cent have only that and a little more. Even with NZ Superannuation, close to one in three people don’t think they will have enough for retirement unless they continue working past 65.
Massey University’s Retirement Expenditure Guidelines 2022 put the issue into sharp perspective when they calculated what different households in different areas would need in retirement:
- a two-person household in the main cities in 2022 would need to have saved $755,000 to fund a ‘choices’ lifestyle, while a couple living in the provinces would need to have saved $480,000.
- only a two-person provincial household living a ‘no frills’ lifestyle came close to being funded by NZ Super, though they would still need savings of $77,000. A metropolitan two-person household with a ‘no frills’ lifestyle would require $191,000 savings at retirement, in addition to NZ Super.
Concerningly, while the Retirement Commission says KiwiSaver is a vital second plank (after Super) in the retirement income system, balances “in general” are low, and likely to remain low even after the scheme matures.
It says ongoing improvements to the scheme and additional private savings options and education would be needed to pave the way for better retirement outcomes. It suggests these include additional government incentives such as reconsidering the minimum contribution level, incentivising KiwiSaver for those groups with lower balances or who do not receive an employer matching contribution (such as the self-employed), and under-18 and post-65 employer matching contributions.
It’s the part employers play in the whole KiwiSaver equation that I believe is worth exploring further.
Right now, they are legally required to contribute to their employees’ KiwiSaver at 3 per cent of their gross salary or wage. In the 2021-22 year they collectively contributed $2.7 billion, while employees contributed $11.3b, and the government $909 million (its annual contribution of $512).
But could they be doing more to influence or change a boost in retirement savings. Should they be doing more? Do they have a social responsibility to do that? And why is it that the majority of businesses only contribute the regulated minimum contribution?
I know times are tough for a lot of businesses – and will stay that way for a while yet – but I believe it’s worth exploring what more they could do, perhaps further down the track when the cost of living eases and the pressure goes off.
Here are Some ideas. They could:
- Help improve financial literacy by providing for employees’ access to financial advice. Or even bring in experts to discuss the benefits of KiwiSaver and investing for the long-term benefits of retirement. For many, good budgeting and financial behaviour tips can make a huge difference to carving out money from pay to pay to allow for greater KiwiSaver contributions.
- Offer increased contributions to KiwiSaver instead of bonuses or pay increases.
- Offer to match employee contributions on an agreed scale for long-service reward. This means an employer will match an employee’s contribution, increasing the total amount contributed each pay, which will grow the total of the contributions made significantly over time.
- Increase their contribution as part of the employment agreement from day 1, from the minimum 3 per cent to whichever of 4, 6, 8, or 10 percent employees opt for.
I believe these are all doable, particularly if they were incremental or introduced in stages.
And the government could play its part by making all employer contributions non-taxable. That would make it an even more significant partnership.
It shouldn’t be just about the Government and it’s not just about individuals, but maybe it’s about everyone – including business.
After all, a happy employee is a good employee who will contribute more, and stay longer, saving employers business disruption and improving efficiency.
In the long run, whichever ways were chosen, everyone would be a winner, with savings rates increasing and more money going into investing in New Zealand infrastructure and helping lower our reliance on overseas borrowing.
In the end, there’s a collective social responsibility here that will benefit everyone.