Stop calling KiwiSaver suspension a 'holiday' – retirement commissioner
The right to suspend payments to KiwiSaver schemes should be reduced from five years to one and the so-called "contributions holiday" should be renamed a "savings suspension" to "remove the positive connection with a holiday," Retirement Commissioner Diane Maxwell says in her triennial review of retirement income policies.
"Stopping contributions for five years has a significant impact and disrupts long-term savings," Ms Maxwell's Commission for Financial Capability concludes among a raft of immediate and longer term changes proposed for the KiwiSaver regime.
"For many people, five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position."
The commission expressed concern that some 127,360 KiwiSaver accounts were on the so-called "contribution holiday", with 84% of those set at the maximum threshold. An unlimited number of suspension renewals would still be permitted but would require annual action.
Among other recommendations is that the "total dollar cost of all fees paid each year" should be disclosed on annual statements from KiwiSaver providers, reflecting concern that administration and management cost, along with underlying performance fees, are disclosed in a variety of ways by different KiwiSaver providers.
Policy work is already under way to regulate this requirement and to require funds to project future balances.
Ms Maxwell also proposes an automated system for increasing contributions by both employers and employees to KiwiSaver from 3% to 4%, by a series of 0.25 percentage point increases from 2018 over four years, to take the standard contribution rate for KiwiSaver to 8% of annual income. New options to increase annual contributions by a larger amount, up to a cap, should also be introduced.
To allow even more choice about faster savings, employee contribution rates of 6% and 10% should also be made available.
In a nod to the stalled political debate on whether the age of entitlement for New Zealand Superannuation – the universally paid state pension – should be raised above 65, the commission proposes decoupling the age of entitlement to KiwiSaver funds from the Super entitlement age, as well as allowing people over the age of 65 to join KiwiSaver schemes.
MS Maxwell acknowledges in a video presentation on the commission's website that 65 is too soon to retire for some, and too late for others.
Looking further into the future, the commission recommends improving public information about the availability of $521.50 in annual tax credits attached to making KiwiSaver contributions up to $1,043 a year, which nearly half of the country's 2.3 million KiwiSaver contributors did not fully exploit last year, with 580,000 making no contribution at all.
"While affordability is recognised as a key reason, it is not fully clear why such a large number have made no contribution at all," the recommendations say, suggesting a more descriptive name for the credit might help.
Also on the commission's agenda is the growing practice of writing "total remuneration" employment contracts that negate the incentive for an employee to join KiwiSaver created by requiring employers to make contributions on top of their agreed wage or salary. A review in 2011 recommended against that approach.
While there may be arguments for allowing people to belong to more than one KiwiSaver scheme, the issue is not a priority for the commission, the review says.