2023 Wellbeing Budget: Retirement Commissioner Response

The Government released the 2023 Wellbeing Budget on 18 May, Retirement Commissioner Jane Wrightson breaks down which parts will help current and future retirees and where she’d like more done.

It’s no great surprise to see the Budget focus largely on children and young families given the rising cost-of-living. Many of the initiatives, such as being able to access more subsidised childcare, will provide some relief to Kiwis grappling with their everyday lives.

It was also positive to see consideration given to retirement savings which, when times are tough, are challenging for people to prioritise. The Government will pay a matching KiwiSaver employer contribution to paid parental leave recipients for those employees who still contribute while on leave. This will go some way to addressing the gender retirement gap, given it is generally women who take more time off to care for children.

While a step in the right direction, it’s a bit stingy. It will likely only benefit households with higher incomes that can afford to keep paying their own contributions of 3%. The allocation of $19.6 million shows that less than a third of those on parental leave are expected to be eligible for the government matching contribution.

Both the 2022 and 2019 Reviews of Retirement Income Policies, issued by my office, called for better support for those who take time out of paid work to care. This new allocation goes some way to address this but needs to go further.

I’d like to see four more policy moves:

  1. Pay a Government KiwiSaver contribution of 3% during parental leave to all who contributed the minimum in the tax year before going on parental leave
  2. Fully review KiwiSaver settings – it’s been a while!
  3. Incentivise higher contributions and get rid of total remuneration
  4. Increase the accommodation supplement

Our own research has shown that men’s overall KiwiSaver balances are on average 20% higher than women. However, all balances are lagging behind where we’d expect them to be.

KiwiSaver is a critical part of New Zealand’s retirement income system, and while not perfect when using a gender lens, is still an excellent scheme to help New Zealanders head into retirement in a better financial position. We know how tough it is for over 65s to survive on NZ Super alone, so the more people we can get actively contributing to KiwiSaver the better they will be.

It’s time to take a decent look at the KiwiSaver settings and make sure that 15 years or so on, its working as hard as it can to set people up for a better retirement.

We recently highlighted the prevalence of employers including KiwiSaver as part of their employee’s total remuneration. Namely employers include their ‘matching’ KiwiSaver contribution within an employee’s salary package, rather than paying it on top of earnings. 45% of employers in the research we undertook were paying some or all of their employees in this way which, while not illegal, is not how KiwiSaver is intended to operate.

Total remuneration is one aspect of KiwiSaver that could be considered as part of a review of settings, along with the default contribution rate. 62% of people who contribute to KiwiSaver do so at the default rate of 3%. This may not be sufficient to fund the retirement lifestyle people imagine.

The 2022 Review of Retirement Income Policies took a comprehensive look at New Zealand’s retirement income policies to gain greater insights into what retirement looks like for Kiwis, now and in the future. Sixteen pieces of research and analysis were undertaken and resulted in a set of evidence-based recommendations for the Government, private sector, researchers, employers, and our own organisation to action.

A key recommendation was to update the eligibility rules for the Accommodation Supplement.  Currently, you cannot have more than $8100 ‘cash assets’ per person to be eligible. This includes cash and savings – but also KiwiSaver.

For those people over 65 their KiwiSaver is counted as part of their cash assets. This means that older people who face high housing costs on low incomes are not able to receive additional support until they have used up most of their savings. If they are considering how to fund at least two decades after stopping work this is a major barrier.

I have recommended to the Government to increase the cash asset threshold to at least $42,700, which is the limit applied to those in social housing.

Such a change would provide relief to older people from housing costs that previous generations of retirees simply did not have to face.