If we were the government, this is how we would change KiwiSaver. This assumes that the payment of the MTC member tax credits will continue to apply in their current form. The following are suggested improvements to the current framework.
Early retirement
1. Let members who are over age 60 and have been in KiwiSaver for five years and who genuinely retire before age 65, withdraw up to 20% of their KiwiSaver Account balance each year. Of course if they withdraw more than they save, they will not get the member tax credit for that year. The members would need to demonstrate that they have retired and provide a statutory declaration to the provider.
Flexible savings
2. Rename member tax credits as “Government KiwiSaver Contribution” and let unused amounts in one year to be carried forward for up to two years. This would be fairer to those who lose their jobs or who cannot afford to save short-term.
3. Let members save extra, into a voluntary KiwiSaver account, and be allowed to take out such extra savings before retirement. Such savings wouldn’t qualify for the member tax credits but would make it easier to save extra. Most extra savings would end up being saved for the member’s long-term future (akin to retirement savings).
Vehicle and security
4. Remove default provider status1. Default status reduces the competitiveness of those providers and favours the big overseas banks and insurance companies. There is no evidence that this has reduced costs (they are not the cheapest), increased flexibility (they offer fewer choices), or improved security. It has created an unfair windfall gain to a favoured few, (now 9) at a cost to the taxpayer and affected members. Alternatively, relax the default provider status to other providers to qualify, who meet objective requirements, based on their KiwiSaver service to date. It is only required because of auto enrolment (see 8).
5. Require better and simplified disclosure of fees, investment strategies and actual net returns after tax and fees, based on the amounts actually credited to a specified sample member’s account (that the auditor certifies).
6. Establish a user friendly central independent database of information on fees, financial statements and performance. A database where the providers are required to provide monthly financial data and a formal monthly verification that the fee data and financial statements are correct. These would be subject to end of year audit sign-off. As part of this, publish in the press, on a regular basis, comparative fee and after-tax performance data and encourage quality analysis and reporting in the media through a formal peer review process. Not all people are internet savvy.
Other
7. Reduce the age contributions are required to start from age 18 to 16. This should apply to both employee and employer contributions and the government MTC member tax credits. This reduces complexity and encourages employees to save through payroll deduction from first starting work.
8. Remove auto enrolment. It complicates the recruitment and induction process at, mostly, the employers’ and providers’ expense. Given the large numbers that have already joined, auto-enrolment is no longer cost effective or needed. Placing greater emphasis on education, simple communication and increased flexibility would achieve a better outcome.
9. Require a provider who is receiving an existing member from another provider, to provide a statutory specified template, comparing the key differences of the two providers’ schemes.
1SuperLife's KiwiSaver scheme may benefit from this as it is not a default provider.
