Political parties given outline of KiwiSaver 2.0

The plan sets out changes that he thinks would make the scheme more robust into the future.

Whineray says contribution rates are low by international standards, access is tied to the age of eligibility for NZ Super, which makes it open to political change, and youth participation has dropped sharply since the $1000 kickstart was removed.

On top of that, contribution rates are insufficient, and people taking parental leave end up with less in their retirement savings. The distribution of Government incentives, now worth about $500 million a year, is also uneven, he says.

“They disproportionately benefit those already well engaged with KiwiSaver and are absent from early childhood, where time and compounding could do the most work.”

He wants $5000 to be given in a growth fund to each child at birth, and for families to contribute $100 a year matched by Government. He estimates that would give 18-year-olds about $25,000 in their accounts.

“There's a social side to that, but if we're just talking pure economics and technicals,  time in the market and compounding is absolutely the game, and I just think that half a billion dollars we currently spend today is regressive and it should be put to a much better and fairer use.”

Contribution levels would also be increased over 20 years, starting with a 2 percent compulsory employer contribution, increasing by 0.5 percent a year until it reaches 12 percent in 2047.

Employee contributions would be voluntary

“Any increase in compulsory employer contributions raises a legitimate question: what does it mean for wages? The honest answer is that over the long run, the cost of higher employer contributions tends to be reflected in the labour market, through modestly lower wage growth than would otherwise have occurred, higher prices, reduced profits, or some combination of all three. The mix depends on the sector, the economic cycle, and the bargaining power of employees at any given time. Pretending otherwise would undermine the credibility of this proposal,” Whineray said.

He said for changes to KiwiSaver to last, they had to be durable.  That was why he modelled a 20-year contribution rate transition, he said. “That has to be done incredibly slowly otherwise ethe impact on wages, the economy, or inflation –  a whole range of things – will be too much of a shock.”

A gentle transition would stop people being left behind.

He said the Government should also take over employer contributions from people taking parental leave, to ensure that people who took time out of the workforce were not left behind.

He would also set the KiwiSaver withdrawal age at 65, and add a decumulation framework to help people access their money.