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Commissioner: Rename KiwiSaver holiday

NZ Newswire logoNZ Newswire 9/12/2016 Pattrick Smellie
Image of Piggybank © Corbis Image of Piggybank

The right to suspend payments to KiwiSaver schemes should be reduced from five years to one, says Retirement Commissioner Diane Maxwell in her tri-ennial review of retirement income policies.

She also says the so-called 'contributions holiday' should be renamed a 'savings suspension' to "remove the positive connection with a holiday".

"Stopping contributions for five years has a significant impact and disrupts long-term savings," Maxwell's Commission for Financial Capability concludes among a raft of immediate and longer term changes proposed for the KiwiSaver regime.

"For many people, five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position."

The commission expressed concern that some 127,360 KiwiSaver accounts were on the so-called 'contribution holiday', with 84 per cent of those set at the maximum threshold.

An unlimited number of suspension renewals would still be permitted, but would require annual action.

Among other recommendations is that the "total dollar cost of all fees paid each year" should be disclosed on annual statements from KiwiSaver providers, reflecting concern that administration and management cost, along with underlying performance fees, are disclosed in a variety of ways by different KiwiSaver providers.

Policy work is already under way to regulate this requirement and to require funds to project future balances.

Maxwell also proposes an automated system for increasing contributions by both employers and employees to KiwiSaver from 3 per cent at present to 4 per cent, by a series of 0.25 percentage point increases from 2018 over four years, to take the standard contribution rate for KiwiSaver to 8 per cent of annual income.

To allow even more choice about faster savings, employee contribution rates of 6 per cent and 10 per cent should also be made available.

In a nod to the stalled political debate on whether the age of entitlement for New Zealand Superannuation - the universally paid state pension - should be raised above 65, the commission proposes decoupling the age of entitlement to KiwiSaver funds from the Super entitlement age, as well as allowing people over the age of 65 to join KiwiSaver schemes.

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