National's latest KiwiSaver proposal has sparked plenty of debate. Some people see it as government overreach, while others believe it's a necessary step to improve retirement outcomes and prepare New Zealand for an ageing population.
National's KiwiSaver Proposal Has People Divided For One Key Reason
The proposal includes several significant changes designed to increase retirement savings over time.
James runs through the main announcements:
- KiwiSaver contributions would become compulsory.
- Every newborn would receive $1,500 into their KiwiSaver account.
- The Government would continue KiwiSaver contributions while parents are on parental leave.
- Employers would be required to contribute to KiwiSaver for employees over 65.
- Employee and employer contribution rates would gradually increase to 6% each by 2031, matching Australia’s combined 12%.
While each proposal has attracted different reactions, compulsory KiwiSaver contributions have generated the most debate.
James says he understands why some people don’t like the idea of being forced to contribute, but believes something has to change.
By 2060, New Zealand is expected to have just two workers supporting every retiree, compared with seven workers for every retiree in the 1960s. At the same time, the average New Zealander is retiring with around $120,000, which James argues simply isn’t enough.
Short-Term Pain vs. Long-Term Gain
Mike agrees that compulsory contributions won’t solve every retirement problem overnight, but believes they’re a step in the right direction.
James acknowledges the proposal would leave some people with less money in their pocket today, particularly during a difficult economic period. However, he believes the bigger picture matters more.
His view is that while people may feel the impact in the short term, stronger retirement savings over the next 10, 20 and 30 years would leave both individuals and the country in a much stronger position.
Closing The KiwiSaver Gap During Parental Leave
Another proposal focuses on parents taking parental leave.
James explains that much of the gap between men’s and women’s KiwiSaver balances develops after having children. Under the proposal, the Government would contribute the amount an employer would normally pay into KiwiSaver while someone is on parental leave.
Mike says he’s pleased the Government would fund those contributions rather than asking employers to carry the additional cost.
A $1,500 Head Start For Every Newborn
The proposal would also see every child receive $1,500 into a KiwiSaver account at birth.
James says that amount could grow to around $40,000 by retirement through compounding returns alone, before any future employee or employer contributions are added.
He also wonders whether another goal is to ensure every New Zealander has a KiwiSaver account from birth, rather than waiting until later in life to join the scheme.
More Contributions For Older Workers
Under the proposal, employers would also be required to continue making KiwiSaver contributions for employees over 65.
James says more people are choosing, or needing, to work beyond 65, so it makes sense they receive the same KiwiSaver benefits as younger employees doing the same job.
Mike agrees, saying there’s very little difference between someone who is 64 and someone who has just turned 65, making the current rules difficult to justify.
Why Matching Australia Matters
One of the biggest long-term changes is the proposal to gradually lift KiwiSaver contributions to 6% from employees and 6% from employers.
James believes this is one of the biggest differences between New Zealand and Australia. Higher contribution rates don’t just improve retirement balances, they also create larger investment pools that can be invested into businesses and infrastructure projects over time.
Mike points to the example of KiwiSaver providers investing back into New Zealand. He believes stronger local investment can improve conditions for businesses and make the economy less reliant on overseas events.
Key Takeaways
- National has proposed making KiwiSaver contributions compulsory.
- Every newborn would receive a $1,500 KiwiSaver contribution.
- The Government would contribute to KiwiSaver during parental leave.
- Employers would continue KiwiSaver contributions for employees over 65.
- Contribution rates would gradually increase to 6% from employees and employers.
- James believes stronger retirement savings are needed as New Zealand’s population ages.
- Mike says compulsory contributions are a step towards improving retirement outcomes.
- Both believe business owners should receive more attention under the proposal.
- James and Mike question whether KiwiSaver should continue to be available for first home withdrawals.
Next Steps
If you’d like to understand how KiwiSaver changes could affect your retirement plans, Lighthouse Financial’s KiwiSaver advisers can help you review your options and build a strategy that suits your goals.
If you’d like to watch more, check out these other episodes below.
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