The Milford report: Too much tinkering with Kiwisaver

So the Milford report now with me is Murray Harris.

Milford's general manager of Kiwi Sava and Investment Funds.

Now Kiwi Sava changes kick in tomorrow.

We're asking how significant that will be for the industry and for funds.

Murray.

Yeah well from tomorrow, big milestone.

The employee and employer contribution rates.

The default rates will move from 3 to 3.5% each.

If you're an employee that will happen automatically at your next pay.

If you're an employer, you need to make sure you've updated your payroll

to reflect 3.5% and the other change tomorrow is 16 and 17-year-olds

will become eligible for employer contributions if they are contributing themselves.

Which is great because our young people need to get onto the savings later early.

They have the most to benefit from compounding returns.

And this comes after they become eligible for the government contribution

from one July last year.

So it's good news for them.

Has it required much at an industry level?

So that Milford and other fund providers to sort of adjust this or to anticipate that extra gain?

No, well the changes happen at the IRD and in payroll systems, but for providers we

just process the payments as they come through.

So pretty simple for providers to manage.

Just more funds to put into the market basically.

Yeah.

Well look, the good news is that we're on the pathway to increasing our contribution

rates.

And these were the changes that were signaled in the May budget last year.

One April 28 will move to 4 plus 4, when and which gets us on the path to better contribution

rates.

Which is really what we need to do.

If we're serious about our superannuation savings, we need to be saving even more than 8%

and that's why it was encouraging to see national announced in November last year that they

have a pathway to 12%, 6 plus 6, up to 2032 because if we look at the most successful

systems in the world, the likes of Canada, Ireland, the Netherlands and Australia, they're

all contributing 10 to 12% of their incomes and that's really where we need to get to.

Because people will think, gosh, some of them, I think, got to put 5 or whatever as having

conversations and businesses with their employees about what this means to their take home pay,

a difficult conversation sometimes.

But realistically, 3.5% or even 4% what sort of a retirement does that get you?

Well look, it compounds over time.

So it's significant for those that are earlier in their journey.

For those closer to retirement, the half a percent increase isn't significant.

So if you take a 30-year-old who's earning the median salary at the moment of 73,000,

the average balance for a 30-year-old is $20,000, if they're contributing 4 plus 4 into a

growth fund, they don't have $82,000 more saved at age 65.

That's $70 a week more to spend between the age of 65 and 90.

So look, it all helps and if we get to 8 or 12% then it compounds even further from there

and that's really where we need to get to.

That's where we get the kind of depth that those more developed economies really have.

They've got more insulation, I guess, from all kinds of shocks, really haven't had that.

Well, you look at the average Australian balance at 65, it's $400,000.

The average Kiwis ever balance at age 65 is $70,000, I'm sure we're a few years behind

them, but just that the compound in effect.

And the flow in effect is also to New Zealand ink, our capital markets, much more vibrant,

and bigger pool to invest like we see in Australia and the New Zealand economy in general.

So we think there's a case there, there's a bit of a bit of conversation going on with

in business circles about the need to look at other measures, rather than just sort

of a tinkering approach that we've sort of seen with adding this group or that group,

you know, extending it to farm properties and so on, that there's a notion that maybe

we need to look at compulsory super from birth almost and create a pathway.

What do you thoughts there?

Yeah, look, we do need to stop the tinkering.

Kiwis savers 20 years old and we're nearly 20, it's had more than 20 changes.

The public need trust and confidence in the system and these little

changes.

And they do, I mean, they do, it's been very successful, yeah, 3.4 million people in it.

It's been, as a voluntary scheme, it's been incredibly successful, but we need to stop

the tinkering and stop the changes, we need the politicians to come out with a long-term

strategic plan for Kiwis saver, so then Kiwis can just set and forget and let it work,

it's magic and reach its full potential.

The things like compulsions is certainly something we should talk about, the contribution

rates, it's good to see we're on the pathway there, and they're the two biggest things

that we could do.