Long-term benefits in KiwiSaver lift

Changes being brought in today to KiwiSaver and the repayment of student loans will have positive effects for young people, Forsyth Barr superannuation specialist Damian Foster says.

From today, minimum contributions to KiwiSaver rise to 3% for both employers and employees from 2%, and student loans are repaid at 12% of earnings above the threshold, instead of 10%.

Employees could opt to pay either 3%, 4% or 8% into their accounts but the minimum for employers remained 3%, he said.

''This means you are saving more in the long run but in the short-term it will cost you an extra 1% deducted from your wages.''

It would take about $10 a week from a pay packet, Mr Foster estimated.

For someone aged 30, earning $50,000 annually and with 35 years to go to the current retirement age, the extra 1% contribution from both the employer and employee would mean an extra $70,000 at retirement.

''That's a reasonable amount.''

Those paying back a student loan, once they earned more than the threshold of $19,084 a year, would pay their loan back faster, he said.

The 2% increase in the repayments meant that, in the short-term, people would have less money in their pay. However, they would be better off in the long-term, as the debt would reduce faster.

''With paying off your student loan faster and putting more into your savings account, these changes are saving, rather than spending, focused,'' Mr Foster said.

The Financial Services Council last week issued a report which showed only 9% of New Zealanders believed New Zealand Superannuation was sufficient to live on.

Another 65% disagreed it was sufficient; 10% were unsure and 15% were neutral. New Zealand super currently provides a maximum of $349 a week for an individual and $537 a week for a couple.

The Horizon Research survey was undertaken in December last year with a sample size of 2219 people and a margin of error of 2.1%.

Financial Services Council chief executive Peter Neilson said that, as a nation, New Zealanders were not planning sufficiently for their retirement.

Those people who made up the 9% were more likely to be already living on a low personal income that was close to the level of New Zealand super of less than $30,000 a year, he said.

''In other words, they are not a group that is representative of the majority of retired New Zealanders.''

New Zealanders had a well-founded lack of optimism about their financial position at retirement. But even those who believed they were prepared needed to look closely at their savings plan, Mr Neilson said.

Mr Foster said more than two million New Zealanders were enrolled in KiwiSaver and around 15,000 people were enrolling a month.

January and February were busy enrolment months, as people started or changed jobs.

He expected enrolments to flatten off at some stage, as more New Zealanders were enrolled.

''We have a massive amount of people enrolled but there is still a way to go in providing them with adequate retirement income. In Australia, they have 9% employer contributions. This latest move to 3% is a step in the right direction,'' he said.

Mr Neilson said that even once the minimum contribution level rose to 3%, there would still be a savings gap that would leave future retired New Zealanders vulnerable to an ''impoverished existence'' in their later years.

He estimated only 10% of KiwiSaver members were now saving at a rate sufficient to fund a comfortable retirement.


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