An expert review has recommended reintroducing a Kickstart payment for KiwiSaver members.
When the KiwiSaver scheme started in 2007, new members were offered a $1,000 Kickstart ‘sweetener’ to encourage them to join. The Kickstart was withdrawn in 2015.
Letting Kiwis invest with multiple KiwiSaver providers, helping contractors get the same KiwiSaver benefits, and adding a lower contribution rate for low-income earners have also been recommended in the Capital Markets 2029 report.
The review was sponsored by NZX and the Financial Markets Authority, and produced by accountancy firm Ernst & Young.
The review found:
• Over 389,000 KiwiSaver members have not made an active choice about their fund or fund provider. These members may be in lower-risk funds by default, despite having long-term investment horizons.
• 1.2 million of the 2.9 million Kiwis enrolled were not making contributions to their KiwiSaver account, as at March 2018.
Some of the recommendations the review made include:
Reintroduce a Kickstart payment
Many KiwiSaver members are not contributing to their accounts, and many are in default funds which may not have the right risk profile for them. The review committee recommend reintroducing the Kickstart payment for people over 18 who join KiwiSaver, provided they made an active choice about their account. The report did not say if the recommended amount was $1,000, as it was previously.
Help contractors get the same benefits
Many contractors do not get the same access to employer KiwiSaver contributions, as those who are employees. The review committee recommends more research in this area, and then making employer contributions compulsory to all employees, regardless of contract and if they have opted out, or gone on a savings suspension.
Make KiwiSaver better for those on low incomes
Starting low-income employees on a 1 per cent contribution rate could help instil a habit of saving and encourage it, the review recommended. It could gradually increase over time. The committee also recommended employers continue 3 per cent contributions for low-wage earners, even if they have elected a lower contribution rate, or have stopped contributing.
Letting members invest with multiple providers
The committee says this will allow for greater product innovation, plus competition among KiwiSaver providers.
Introducing a self-directed KiwiSaver option
This would let members choose their own investments, and registered providers hold the chosen investments in a custodian-type arrangement for each specific member. Under this model, the KiwiSaver member would bear the liquidity risk of their investments, rather than the provider, as is the case under the current model.
This means that if the investor decides to transfer somewhere else, they will have to sell their investment themselves, rather than the provider doing it for them. There’s at least one fund where members can choose their underlying investments from a given list. More options would give members greater choice and control over their investments and creates a more diverse market.
Read the full report.
Published 12 September 2019
Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement here. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser. All content is correct at time of publication date.