Dr Claire Matthews.
A Massey University KiwiSaver expert says proposed changes to the scheme being considered by government are a step in the right direction, but could go further.
Dr Claire Matthews, who will appear before the Finance and Expenditure Select Committee at 10.10am today, says an omnibus bill amending a number of tax Acts could be improved. Despite that, she is supportive of a proposed change that would require KiwiSaver members to confirm contribution suspensions every 12 months.
“Being able to suspend your savings for five years at a time, which is the current situation, is just too long,” she says. “Having to think about it every 12 months is a good thing because it is easy to get out of the savings habit. Calling it a savings suspension, rather than contribution holiday, is also a good idea – a contribution holiday sounds way too appealing.”
Greater flexibility needed
Dr Matthews also agrees with the government’s plan to offer more options when it comes to savings levels, but disagrees with their approach. Currently KiwiSaver members can opt to contribute three, four or 8 per cent of their salary and it’s proposed to add options for 6 and 10 per cent.
“A better option would be a minimum contribution level and then any increment of 0.5 per cent above that,” she says. “A lot of people are only getting inflation-adjusted pay rises of one to 1.5 per cent these days. Being able to increase your KiwiSaver contribution by 0.5 per cent means you are still leaving a small amount of that increase in your pay packet, splitting the pay rise between your current and future selves.”
Equity for those still working over 65
The government has also proposed allowing those over the age of 65 to join the scheme, but Dr Matthews believes there is a much better way to help older workers.
“Currently the legislation says, irrespective of the age you joined, your employer does not have to pay their contribution to your KiwiSaver account once you turn 65. To me, that’s unfair because a 65-year-old employee effectively gets paid less than their 64-year-old colleague.”
Education and compulsion
Dr Matthews will also put two further suggestions to the select committee: requiring KiwiSaver providers to provide members with financial education, and making it compulsory to join KiwiSaver when you start your first job.
“I think that is a reasonable way of easing us towards compulsion – a young person receiving their first pay packet will not miss a 3 per cent contribution to KiwiSaver, but it could have a significant impact on their ability to purchase a house or live in comfort in retirement,” she says.