Francesca Rudkin: We need to be saving more

So it turns out we suck at saving for retirement.   

We’re really good at ticking the box and signing up for KiwiSaver, go us! The Retirement Commission said yesterday that 90% of people getting paid a wage or salary have signed up to KiwiSaver, and around 80% of self-employed people have. However, when it comes to self-employed people – I wonder how many are just putting in the minimal amount of $521.33 to get the government’s contribution, and that’s it. 

So, we’re pretty good at deciding to jump on board, but we’re not very good at saving what we will need for retirement. 

A recent study called ‘Money and You: The Perception Gap’ found that 56% of New Zealanders, an estimated 2.8 million, aged 18 or over aren’t financially prepared for retirement, increasing to 67% among women. The study also discovered that our understanding of financial concepts isn't as good as we think it is, and we don’t know how much we would need to retire. In other words, I think they are gently telling us that just ticking that box and feeling like we’re being proactive isn’t enough to make sure we can live the retirement we want.   

Yesterday, the Retirement Commission released a comprehensive analysis on how KiwiSaver is working and have made 15 recommendations to improve this scheme. They too acknowledge we all need to be saving more for our retirement but know it is challenging against the current backdrop of high inflation and cost of living crisis.   

There is talk of making the scheme compulsory – but the numbers signed up to the scheme would indicate we’re pretty keen to be involved already.   

However, one of the main changes the Retirement Commission would like to see put in place is a higher default contribution rate of at least 4%, with employers required to match that level or higher. The current default rate is 3% but you can choose to contribute 3, 4, 6, 8, or 10%. Apparently 42% of New Zealanders contribute only the minimum of 3%.   

The default rate hasn’t changed in 17 years since KiwSaver began, and we’re a long way behind Australia and other developed countries when it comes to being prepared for retirement.   

I like it being voluntary – I like that you can make your own decisions depending on what is going on in your life. Are you using extra savings to pay off a mortgage, meet a new higher interest rate, or making investments on your own which you can access when you like? Maybe you just can’t manage any more than 3% at present.   

But for as much as a I like the freedom this system gives us, we’re not likely to pay more unless we have to, so legislating to raise the default setting for both employees and employers isn’t a bad idea, as long as it’s done sensibly.   

Sam Stubbs, founder of KiwiSaver Scheme Simplicity spoke to Mike Hosking about the Retirement Commissioner wanting to increase contribution rates by individuals and employers. 

“Well she wants the contributions to rise 1%, but if you look at Aussie, you know, they’re paying 12%. So the Aussies have got five times our population, but they’ve got 35 times our savings. So we are saving, but we’re not saving nearly enough. But she has to introduce this idea gradually because, you know, everyone’s going through a cost of living crisis right now, right. You know, if she was to say that KiwiSaver contributions were going to go from 3 to 12%, everybody would laugh. But that, that’s possible, it just takes a long time. I think we should do it about half a percent a year and take an awful long time to get there, but we have to go there.” 

So keen to hear your thoughts and as Sam Stubbs said, we have to go there, and I think we have to do it in a really common sense way for both employer

Episode Transcript

Speaker 1 (00:06):
You're listening to the Kerrywood and Morning's podcast from News Talk,
said B.

Speaker 2 (00:11):
So it turns out we kind of suck at saving
for retirement. We're really good at ticking the box and
signing up to key we saver go ass The Retirement
Commission sad yesterday that about ninety percent of people getting
paid away or a salary of signed up to keep saver,
and around eighty percent of self employed people have. Although
when it comes to self employed people, I wonder how

(00:33):
many are just putting in the minimal amount of five
hundred and twenty one dollars and thirty three cents to
get the government's contribution and then that's it. But look,
we're pretty good at deciding to jump on board, but
we're just not very good at saving what we will
need for retirement. So a recent study called Money and
You the Perception Gap, found that fifty six percent of

(00:56):
New Zealand that's New Zealanders, that's about two point eight
million of US aged eighteen or over aren't financially prepared
for retirement, and that increases to sixty seven percent among women.
The study also discovered that our understanding of financial concepts
isn't as good as we think it is, and a
lot of us don't actually know how much we need

(01:17):
to retire. So in other words, I think the study
was gently telling us that, yeah, ticking the box and
feeling like we're being proactive because we've ticked the box
isn't enough to make sure that we can live the
retirement we want. Yesterday, the Retirement Commission released a comprehensive
analysis on how Key We Save It is working, and

(01:39):
they've made fifteen recommendations to improve the scheme. They too
acknowledge we all need to be saving more for our retirement,
but know that it is a challenge, and it's challenging
against this particular backdrop that we have at the moment
of high inflation and the cost of living crisis. So
there is talk of making the scheme compulsory, but if

(02:03):
you take a look at the numbers signed up to
the scheme, that would indicate that we're sort of pretty
keen to be involved. Anyway, I don't really know if
that's necessary. One of the main changes the Retirement Commission
would like to see put in place is a higher
default contribution rate of at least four percent, with employers
required to match that level. Or higher. So the current

(02:25):
default rate, as you know, three percent, you can choose
to contribute three, four, six, or eight or ten. Apparently
around forty two percent of New Zealanders will only contribute
the minimum of three percent, so that default rate hasn't
changed since Care we saveor began seventeen years ago or so,
and we are a long way behind Australia and other

(02:46):
developed countries when it comes to being prepared for retirement.
So we kind of need to do something about this.
I like it being voluntary. I like that you can
make your own decisions depending on what is going on
in your life. Are you using any extra saving that
you managed to have to pay off a mortgage or

(03:07):
maybe meet a new high interest rate that has struck
you recently, or maybe you're making investments on your own
because you like the fact that you'll be able to
access that whenever you like. Maybe you just can't actually
manage any more than three percent at the moment. I
like the fact that we've got some freedom. But as
much as I like the freedom that this system gives us,

(03:31):
I don't think that we're likely to pay more unless
we're kind of made to. So legislation to raise the
default setting for both employees and employers isn't a bad
idea as long as it's done sensibly. You don't want
to throw it at people and go, okay, we've been
sitting on three for ages. We're just going we're going

(03:51):
straight to sex. Now, that's not going to work as it.
Sam Stubbs, founder of Key, we say the scheme simplicity.
He spoke to my Costing Breakfast this morning about the
Retirement Commissioner wanting to increase contribution rates by individuals and employers.

Speaker 1 (04:06):
Well, she wants contributions to rise one percent, but if
you look at Ozzie, you know they're paying twelve percent.
So the Aussies have got five times our population, but
they've got thirty five times our savings. So we are savings,
but we're not saving nearly enough. But she has to
introduce this idea gradually because you know, everyone's gone through
across a living crisis right now. You know she was
to say that ke we seven contributions were going she

(04:27):
go from three to twelve percent. Everybody would laugh. But
that's possible, but it just takes a long time. I
think we should do it about half a percent a
year and take an awful long time to get there,
but we have.

Speaker 2 (04:36):
To go there, so keen to hear your thoughts. As
Sam Stubb said, we have to go there, and I
think we have to do it in a really common
sense way for both employers and employees. Half a percent,
maybe you do that year on year until it rises
to four or six. Sounds like the way to go.

(05:02):
So we're not saving enough. Not so sure we need
to make it compulsory. I'm wondering. I feel like an
increase in a default rate is a good approach as
long as it's done sensibly. I like the idea of
half a percent increase, But as an employee, is that

(05:26):
doable for you at the moment with what may be
going on in your life? Because we're all dealing with
different things, aren't we? Do you kind of admit to
yourself that actually, unless somebody raises that rate, you're probably
not going to think about it. You're just thinking, right,
I've I've got my three percent contribution going and I'm
doing the right thing. Yeah, tick the box. I'm not
going to think about it again. So, actually, is it

(05:48):
what you need to motivate you to increase? If you
are an employer. Is it doable? Could you manage half
a percentage increase a year. I'm sure that there are
probably some small or medium sized businesses out there who
are just wincing at the idea right now as we
deal with these difficult economic times. So can't hear from you,

(06:09):
We've got to save more. We're way behind everybody else.
I don't necessarily think that making it compulsory is going
to make a huge difference, but I do think raising
that default rate at a sensible, common sense amount each
year for the next few years might just do the
track oh eight hundred to eighty ten eighty. You can

(06:31):
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