Nicola Willis: Finance Minister on the withdrawals from the Super Fund, rising superannuation costs

• Finance Minister Nicola Willis says changes to KiwiSaver will be revealed at next week’s Budget.
• The NZ Super Fund will cover only 20% of future Superannuation costs, with withdrawals starting in 2028.
• The fund will continue growing despite withdrawals, but Superannuation costs are expected to reach $29 billion annually.

There will be changes to KiwiSaver announced at next week’s Budget, with the Super Fund only expected to cover – at best – 20% of the cost of Superannuation in the future, Finance Minister Nicola Willis says.

Willis wouldn’t say what the changes would be, but they would be “positive”, she told Newstalk ZB’s Mike Hosking Breakfast this morning.

The minister has previously not ruled out changes – including means-testing – to the $521 given to KiwiSaver members who contribute at least twice that amount each year.

“[Changes will be positive] because I want to see people’s KiwiSaver balances grow. KiwiSaver has become particularly important for those saving to buy their first home – we had more than 40,000 people use KiwiSaver to do that in the past year," she told Hosking.

“And it’s become an increasingly important supplement for people’s retirement income.”

Willis announced yesterday that the Government was forecast to make its first withdrawal from the NZ Super Fund in 2028, five years earlier than forecast at last year’s Budget.

Superannuation costs are expected to reach $29 billion a year in a few years, Finance Minister Nicola Willis says. Photo / 123rf

The fund was set up in 2001 to subsidise the future cost of Superannuation, easing the burden on taxpayers.

The date of the withdrawal – forecast to total $32m in 2028 – isn’t at the Government’s discretion and is written into the Fund’s governing legislation.

The first withdrawal would be followed by some “bouncing around between withdrawals and contributions”, but from 2031 onwards, withdrawals were expected every year, Willis said yesterday.

Despite withdrawals, the Super Fund won’t shrink in the short-term. It will continue growing for some time as withdrawals will be smaller than the overall growth in the fund, the Herald reported yesterday.

Treasury’s forecasts, which were based on a complicated formula relating to how much is in the fund, GDP, taxpayer numbers and other factors, confirmed help was needed to pay for superannuation, Willis told Hosking this morning.

“We’ve all talked for several years about at a certain point, the cost of superannuation will get very high, and then we’ll need the Super Fund to help. We’re now at that point.”

Asked how much of the cost of superannuation the fund would cover “in its golden moments”, Willis told Hosking: “In its golden moments it’s only going to be about 20% of the total cost”.

“There’s no getting away from the fact that superannuation is very expensive … just in the next few years, it’s going to leap up to $29 billion a year, because there are a lot of people over the age of 65 and superannuation is pegged to the after-tax average wage, so that number keeps going up.

“That’s the commitment that we have as a country, is to fund that entitlement, and we then need to pay for it. And there are fewer taxpayers, of course, in the future to help pay for it.”

-Cherie Howie 

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Episode Transcript

Speaker 1 (00:00):
So is this the coming of age of our super
fund set up to ultimately at least partly fund our
superannuation requirements. It's been announced we'll be making our first
withdrawal in twenty twenty eight. That's five years earlier than thought.
Finance Minister Nikola willis, good.

Speaker 2 (00:12):
Morning, very good morning.

Speaker 1 (00:14):
Still three years out. Are you confident on these numbers
you'll be withdrawing and withdrawing well or not?

Speaker 2 (00:19):
They are forecasts, They're based on a formula that's in law.
It's a very complicated formula to do with how much
is in the fund, what GDP is, how many tax
payers there are, all sorts of things. But that is
Treasury's forecast at this stage and it gives you an
indication of where we are, which is we've all talked
for several years about it. At a certain point, the
cost of superannuation will get very high and then we'll

(00:41):
need the super fund to help. We're now at that point.

Speaker 1 (00:43):
Indeed, does it solve the problem long term? In other words,
it pays for a retirement or not well.

Speaker 2 (00:50):
It helps offset the costs of New Zealand superannuation, So
that is a contribution towards paying super.

Speaker 1 (00:57):
Yeah, but in what in its golden moments, what percentage
will it offset?

Speaker 2 (01:03):
And it's golden moments, it's only going to be about
twenty percent of the total cost jees.

Speaker 1 (01:07):
So we haven't extinguished the debate as to whether we
need to retire older yet.

Speaker 2 (01:13):
Well, there's no getting away from the fact that superannuation
is very expensive. Just in the next few years, it's
going to leap up to twenty nine billion dollars a
year because there are a lot of people over the
age of sixty five and superannuation is pegged to the
after tax average wage, so that number keeps going up.
And that's the commitment that we have as a country

(01:35):
is to fund that entitlement, and we then need to
pay for it. And there are fewer tax payers of
course in the future to help pay for it.

Speaker 1 (01:42):
Other side of the equations, Ken we Save, you're going
to do something in the budget. Yes, I am good
to the positive.

Speaker 2 (01:51):
Yes, because I want to see people's key we saver
balances grow. I think key we Saver has become particularly
important for those saving to buy their first time. You
had more than forty thousand people use key we saving
to do that in the past year. And it's also
become an increasingly important supplement for people's retirement income. And
so we'll be announcing some changes, and I think they're positive.

Speaker 1 (02:14):
Good changes from your side of the equation or out
side of the equation.

Speaker 2 (02:18):
I'll be announcing some changes. And there's only eight slips
to go until everyone can read all about it in
the budget.

Speaker 1 (02:24):
Have you read all of a Heart which is peace
in the herall this morning?

Speaker 2 (02:28):
I have not read that yet.

Speaker 1 (02:29):
Well worth reading too much government in this country, and
research says the bigger the government is, the more inefficient
we are, and we're hopelessly inefficient.

Speaker 2 (02:37):
Fair or not well, we have a goal of getting
the proportion of government spending as part of the economy
down to thirty percent. We're making progress in this budget.
I'm getting that down. I agree with the idea that
you've got to give everyone room to do their own thing.
And if government is taking up more and more of
the resources, creating more and more red tape, getting more
and more in the way and out competing the private sector,

(02:59):
that's problem. Squeezes out innovation, squeezes out good ideas.

Speaker 1 (03:03):
Exactly what we've got to keep it in proportion. You
your target is thirty his number this morning's thirty eight.
When are we down at thirty.

Speaker 2 (03:10):
Well, we've set that as our medium term target. You'll
see at the budget that we're making pretty good progress
of the next few years and getting towards that number.

Speaker 1 (03:18):
All right, appreciate your time. Finance Minister Nikola willis the
piece as well worth reading. As I alluded to her.
She says thirty it's currently thirty eight percent of the economy.
The size of the government of this economy is ridiculous,
he claims, Despite what Nicholas says. At thirty percent, he
claims international optimization is between twenty five and thirty.

Speaker 2 (03:37):
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