12 percent KiwiSaver contribution rate could be too much, actuaries say

KiwiSaver contribution rates of 6 percent plus 6 percent could mean people have more money to spend in their retirement years than they did when they were working, actuaries say.

The NZ Society of Actuaries Retirement Income Interest Group has released a report that says a 5 percent plus 5 percent contribution rate is probably the optimum default rate for KiwiSaver.

That assumes NZ Super remains available in the same way.

Group convenor Ian Perera said it was particularly the case that people on lower and median incomes might not need a 12 percent savings rate.

"Six plus six could end up with them having almost more income, or consumption power, after retirement than before retirement.

"Often before retirement you've got expenses like childcare or whatever that you're looking after, so you really want to try and smooth things out over your lifetime. That's why we thought 5 percent plus 5 percent made sense as a default."

Individual circumstances would play a part, he said.

Higher earners might not get to a replacement income level even with the contribution rate at 6 percent plus 6 percent.

"If you're on a higher income you should be better able to get financial advice, take care of it yourself."

He said people would also be affected by when they withdrew money for a first home. Someone who withdrew any time from their 40s onwards would need to save more money to start building their reserves again.

He said the group was also concerned that default rates that were too high could prompt more people to suspend their savings entirely.

Simplicity chief economist Shamubeel Eaqub said the assumption that NZ Super would not change was doing a lot of work in these calculations.

He said 12 percent seemed about right.

"Australia's at 12, we're going to get to 12. It feels about right. Is it right for everybody? Of course not. No public policy is right for everybody in a country of five-and-a-half million people. Is it good enough? Yes."

Eaqub said people should be open to considering that changes might be made to NZ Super in the future.

"Regardless of what happens, we should be contemplating a future in which NZ Super is means-tested. That would be the fairest, most likely way it can remain available for those who need it.

"I would strongly support keeping some form of NZ Super because what we don't want is people in old age to live without dignity."

Eaqub said compulsion would be the first step towards that. "Regardless of what denials you have out there, the reality is we can all see the political choices that are in front of us."

Koura founder Rupert Carlyon said politicians should be honest about why they were pushing for compulsion. "Is this actually the first stage of means testing? I mean that is the answer, we all know that's the answer ... If NZ Super is not disappearing we potentially don't need to do this. That's the glaring hole in the whole argument."

A spokesperson for National said its policy of a combined rate of 12 percent by 2032 would bring the country in line with Australia and Canada.

"The right amount of retirement savings differs for individuals based on their circumstances, but our policy sets a minimum standard for the amount that every working New Zealander will be required to save that ensures Kiwis will have a more financially secure retirement."

Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.