Have we lost our KiwiSaver benefits?

Many of the benefits offered when the KiwiSaver scheme was launched no longer exist. File photo.
photo: 123 RF

Most of KiwiSaver’s benefits have been gradually eroded over the years, and one fund manager fears it could cost members tens of thousands of dollars.

When the plan was launched, it provided a start-up fund of $1,000. For every $1 paid, the government would contribute $1, up to a maximum of $1,042 per year, and the amount contributed by the employer would be tax-deductible.

Now, 17 years later, all that remains is the membership tax credit, which has been halved to $521.43 for someone who pays $1,042 a year.

KiwiSaver provider Mercer said the Government’s contribution had remained at $521.43 since 2011.

Because it has not yet been adjusted for inflation, its value is now 26% lower than when it was originally set.

Mercer said that at current rates, an 18-year-old who enlisted in 2011 and collected government benefits until retirement would receive $60,147.46 from the benefits alone.

But due to inflation, they will lose $26,790.23.

The calculation is based on Mercer’s balanced fund.

If government contributions were indexed to inflation, their savings at retirement would be $86,937.69, a 45% increase.

Sarah Whitelock, head of consumer wealth at Mercer, said the contribution was valuable, but the extra $27,000 that could come from adjusting for inflation would help people retire with dignity.

“A lot of the functionality of KiwiSaver has been taken away from it. We need to strengthen it by increasing contribution levels, and the key way to do that is to keep government contributions in line with inflation.”

She said it would particularly help women and other disadvantaged groups who tend to reach retirement age with less money to invest.

Rupert Carlyon, founder of KiwiSaver provider Koura, said KiwiSaver incentives had been eroded over the years.

“When Michael Cullen came up with the idea, that should have been the starting point and it should have continued from there… If anything, we’ve watered it down from that starting point.”

“When we contrast this with what’s happening in Australia and other markets around the world, they’re moving in the opposite direction. We seem to be running away from reality and not taking any action.”

He said New Zealand should follow Australia’s plan.

“I’d like to see some real incentives for people to contribute.”

He said people liked KiwiSaver and understood it was an important thing to join.

“It’s become part of our core financial system, but the problem is that people’s expectations of KiwiSaver may not be met because we haven’t got it right yet and we haven’t got it to where we need to be.”