Actuaries think KiwiSaver statements should display the adequacy of savings rates and balances in providing income in retirement and that this may require regulating.
There are various different methods of estimating likely retirement income but the New Zealand Society of Actuaries (NZSA) says basing the information on an individual KiwiSaver’s actual net income after KiwiSaver contributions would provide the best indication to individuals.
This method could also be applied consistently to all KiwiSaver accounts, the NZSA says.
Modelling by NZSA’s Retirement Income Interest Group (RIIG) finds that a savings rate of 5% of net income after KiwiSaver contributions, matched by an equal employer contribution, would be sufficient to provide a retirement income of between 80% and 100% of the KiwiSaver’s pre-retirement income and with that income lasting to at least age 90.
“On balance, RIIG suggests that the default level of KiwiSaver contributions should be set so the median earner is likely to achieve our definition of adequacy with a modest buffer against adverse changes in the savings phase,” NZSA says.
The current default KiwiSaver contribution rate is 3% for both employees and employers and will rise to 3.5% from April 1, 2026 and to 4% from April 1, 2028.
KiwiSaver statements are currently required to show both the individual’s actual savings and a projection or illustration of what that balance could grow to by age 65 and what income could be drawn down from that until age 90.
The Ministry of Business, Innovation and Employment regulates the key assumptions KiwiSaver providers must use in making such calculations so that providers cannot create confusion by, for example, using unlikely investment returns to boost the projected savings balance, and so that savers see a similar communication every year from their provider.
NZSA says “it would help savers if these advantages were extended to ensure that targets for retirement income adequacy on annual statements are consistent across the market.”
It prefers using the saver’s own current income to estimate likely retirement income over other common methods of assessing the adequacy of savings rates, which include using the actual spending of current retirees and a hypothetical spend based on a shopping basket of what items retirees spend on.
NZSA says the results of the other two methods are difficult to interpret for tomorrow’s retirees and that the outcome of all three of these methods can be confusing.
For example, the Retirement Expenditure Guidelines currently suggest target retirement savings balances for a single household range from $48,000 to $271,000 across two spending levels and regions of NZ.
But a replacement income approach on a median income suggests $605,000 if spending is assumed to increase with inflation or $375,000 if not.
“This wide range of answers makes it likely that people will be confused about how much they should save, and that commentary will be misleadingly headlined without context,” NZSA says.
The modelling provides for gaps in contributions, such as for first-home withdrawals or early retirement, acknowledging such gaps are likely to occur in many people’s lives.
In Australia, the current default contribution rate, which doesn’t include any employer contribution but is paid by employers on behalf of their employees, is 12% of the employee’s ordinary time earnings.
