Proposed changes to KiwiSaver in a bill introduced to Parliament will open the scheme to people over 65 for the first time, and enhance it for thousands of others, says Retirement Commissioner Diane Maxwell.
Maxwell said she was pleased to see recommendations made in her 2016 Review of Retirement Income Policy had been enacted in the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill.
Among the changes the bill would introduce would be to allow people over 65 to join the scheme, giving them access to KiwiSaver as a provider of low-cost managed funds through retirement. It would also remove the lock-in period that required people over 60 to remain in the scheme for five years before withdrawing their money. These two changes would be effective from July 1, 2019.
At present, people over 65 cannot join KiwiSaver or move to a new scheme, although they can continue to contribute to their accounts if they are already a member. If they joined after the age of 60, they still have to wait five years before withdrawing their money, a rule which is inappropriate for this age group.
“Following our 2016 Review of Retirement Income Policy we recommended that allowing entry to KiwiSaver to people over 65 would remove a policy inequity, provide another investment option for this age group, and allow employers to voluntarily make contributions for all employees over 65,” says Maxwell. “There is no apparent reason for those over 65 not being able to join KiwiSaver.”
Other key changes the bill would make effective from April 1, 2019, are new contribution rates of 6% and 10%, reducing the maximum contributions holiday that people can take from the scheme to one year, and renaming the holiday a "savings suspension".
“Adding more contribution rates gives members more flexibility and control over their saving,” says Maxwell. “We’ve had many New Zealanders tell us that the gap between 4% and 8% is too large for those able to contribute more, so they feel stuck on the lower rates. Others want the ability to save even more for their retirement.”
Inland Revenue figures showed that 24% of members contribute at the 4% rate, but only 9% of members contribute at the 8% rate, indicating more might take up a 6% option if it were offered.
The CFFC recommended in the 2016 Review that a name change from “contributions holiday” to “savings suspension” would remove the positive connection with a “holiday” and better reflect what occurred. It also recommended that the default suspension period be reduced from five years to one year, when a member could consider whether to extend their suspension for another year.
In the year ended June 31, 2017, 131,710 members were on a contributions holiday. Almost 85% intended to suspend saving for the current default period of five years.
“Stopping contributions for five years has a significant impact and disrupts long-term savings,” says Maxwell. “Not only do members’ accounts not grow by their contributions, but they also miss out on their employers’ contributions and the government contribution of up to $521 a year. For many people five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position and assess whether they can restart saving.”
Maxwell was optimistic the bill would be passed so that an enhanced KiwiSaver scheme would benefit more New Zealanders.
On April 1 this year another recommendation from the 2016 Review became law, making it compulsory for KiwiSaver providers to disclose the total dollar cost of all fees on annual statements.