As you may have seen in the media, Finance Minister Nicola Willis is considering raising the amount employees and employers contribute to their KiwiSaver accounts, in response to New Zealand’s ageing population.
At Aurora Capital, we support the Government’s proposed move to raise the KiwiSaver contribution rate for both employers and employees, currently a combined 6%. We believe it’s a smart and positive step towards building stronger financial futures for all New Zealanders. Here’s why we support this change, and what it could mean for you.
Living longer and healthier lives
Great news — New Zealanders are living longer and healthier lives. Between 1990 and 2019, life expectancy rose to 84 years for women (up 6%) and 80 years for men (up 9%), according to Stats NZ.
With New Zealanders living longer, our retirement savings need to stretch further. So, how much do you really need to retire comfortably? It depends on your lifestyle, but having a clear plan and supplementing your income with additional savings and investments – like KiwiSaver – can make a significant difference.
“According to 2024 research from Massey University’s Financial Education and Research Centre, a ‘no-frills’ retirement will cost around $500,000 in savings, while those wanting a more comfortable retirement with travel, dining out, and discretionary spending, may need upwards of $1 million—especially in bigger cities”, Sharon Mackay, Chief Executive Officer at Aurora Capital
Boosting KiwiSaver contributions: Why it matters now
Planning ahead, getting the right advice, and making the most of your KiwiSaver contributions (plus compounding interest) is key to building the retirement nest egg you’ll want for a comfortable retirement and future.
“To build a more financially secure future, New Zealanders need to start saving more and increasing contribution rates is a step in the right direction. A lift in the default KiwiSaver rate to a combined 8% or 10% could make a meaningful difference to your first home deposit or retirement savings, especially when you consider that New Zealanders are living longer and we have an aging population”, Mackay adds.
Mackay says it’s crucial to give people time to adjust and to phase in any increases with advance notice. This will help ensure the change is manageable for both employees and businesses. After all, it’s money out of an employee's pocket, and businesses need time to factor it into wages and wage negotiations.
Don’t overlook the tax implications
We cannot overlook the fact that tax plays an important part in how much you actually save for your first home deposit or retirement. At Aurora Capital, we believe the tax impact actually strengthens the Government’s case for increasing contribution rates and here’s why.
“Employees contribute at least 3% from their after-tax income, while employer contributions are subject to Employer Superannuation Contribution Tax (ESCT). This tax is applied at the source, reducing the actual amount contributed to the employee's KiwiSaver account. For example, an individual contributing 3% and earning $78,000 per year might receive an employer contribution of $45, however, with a 30% ESCT rate, $13.50 is taken out for tax, leaving just $31.50 added to their KiwiSaver account”, Mackay explains.
Recognising the tax impact on employer contributions further highlights the value of raising KiwiSaver contribution rates to ultimately help more New Zealanders maximise their first home deposit or retirement savings over the long term.
Importance of broad political backing
Finally, Mackay emphasises the importance of cross-party support for any increase to the KiwiSaver contribution rates.
“Broad political backing would give individuals and businesses greater confidence, signalling a long-term commitment to improving retirement outcomes for all”, Mackay adds.
How can Aurora help?
Are you on track financially for your ideal retirement lifestyle? Boosting your KiwiSaver contributions, even slightly, could make a big difference to your future retirement savings.
Get in touch for a chat with one of our KiwiSaver specialists for advice on maximising your KiwiSaver money. Visit www.aurora.co.nz/contact-us or call our Client Care Team on 0800 242 023.
DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decision.