Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
Kia ora. Welcome to Shared Lunch. I'm Laura Marwick. KiwiSaver is an issue that's gotten quite a lot of attention in the run-up to this year's general election. And here at Sharesies, we've recently launched our Kids KiwiSaver scheme, including kids' contributions to try and make the most of the effect of compounding returns over decades.
Chapter 2: What is the significance of KiwiSaver in the upcoming election?
Joining us today is Max Rashbrook, a political writer and researcher who has written a lot about the opportunities that we have to build a better KiwiSaver scheme for New Zealand, and our own Matt McPherson, head of Shezzy's KiwiSaver. Before we get started, here's some important information.
Investing involves risk. You might lose the money you start with. We recommend talking to a licensed financial advisor.
Chapter 3: How can kids contribute to a better KiwiSaver system?
We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and hear is current at the time of recording.
Max and Matt, welcome to Shared Lunch.
Great to be here.
First of all, just to set the scene, we know from Shazzy's own research that a lot of New Zealanders aren't quite on track for what's often termed a dignified retirement. Matt, could you just walk us through what is in those Shazzy's findings?
Yeah, we did some research recently where we used actual customer data and a model that is set out in legislation. And what we found is that there's quite a gap. that at the current contribution rates, there'll be around 55-year-old, 45% of people projected to fall below the minimum income and retirement level, if we're just looking at KiwiSaver alone.
Not a cheerful finding there. Maybe the obvious response to this would be to kind of look at the people who are already in the workforce, which is us grownups. But Max, you've argued that actually kids could be the key here. So why start there?
Well, I think this is a point that Shirzi has made as well, that the earlier you start the saving journey, the better, right? That's the magic of compounding interest. The longer you give it to do its thing, the more power it has. And so the proposal that we put out as Idea as a think tank was basically to say, well, why don't we enrol every child in KiwiSaver
at birth with some kind of kickstart contribution from government you know like KiwiSaver had originally for adults and then try to create some kind of structure or incentive that encourages parents to keep saving for their children whether that's matching small amounts that they put in with contributions from government or direct contributions for poorer families
However you do it, roll that forward to 18. You know, plausibly young people are hitting 18 with $10,000 to $20,000 saved for them in these accounts. That rolls over into an adult KiwiSaver account, and then they're off on their savings journey.
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Chapter 4: What are the findings from Sharesies' research on KiwiSaver?
So the earlier you can make an intervention into that and try and put everyone on to a similar level is the more chance you have of addressing inequality, I reckon.
Matt, you've just referred to having really long-term thinking. Max, the proposal that yourself and IDEA have put forward, how could we expect to see the impact for New Zealand of that really long-term over decades?
Well, I think you'd see a couple of things. At the big picture level, obviously, you'd be helping build up national savings. It all depends, obviously, what the amounts are and how much you think parents would contribute, but plausibly, you know, something in the order of adding another $10 to $20 billion to national savings over a couple of decades. And at the individual level...
I think you could start to see things like really restoring that dream of widespread homeownership, which I think is really central to being a New Zealander, which obviously has been diminished in recent decades. With the modelling we did, again, if you assume that young people hit 18 with $10,000 to $20,000 in their accounts,
And if you assume that they then go and do some trades training or university study or whatever, but then they're contributing as adults from, you know, 22, 23, whatever at normal rates, plausibly people, you know, all or virtually all young New Zealanders are hitting age 30 with, you know, 70 to 80,000 or something like that.
If they've got a partner, then that's a home deposit, you know, and that's really, really widespread. Again, in contrast to the current situation, where famously increasingly people are reliant on the bank of mum and dad, that's great for the people who have that, not so good for people who don't.
Yeah. And coming back as well to this idea of trying to address some inequities. We often kind of compare ourselves to the Australian superannuation system, maybe a bit enviously, but that system maybe has its own flaws.
And something that you've argued is that maybe that actually serves to sort of magnify the inequities that already exist where, you know, a minimum wage earner and someone who's on a really decent salary, they're both contributing 12%. of these really different incomes. How can we ensure that we introduce changes in New Zealand so that they lift everyone rather than magnifying that gap again?
Yeah, it's a great question, and it's one that I think we're all grappling with. Well, for one thing, I think something like Kids KiwiSaver would ensure that at least everyone was starting that savings journey on a relatively even foot. The Australian model, there's a lot of discussion about it. And look, it's got some real strengths.
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Chapter 5: Why is compounding interest important for children's savings?
Because if you're compelling people to save when they're already having affordability problems.
Yeah, look, the idea on compulsion that we find the best balance is a rising floor of compulsion. And that being at the time I get my first job, whether that's when I'm 15 or I'm 25, I'm enrolled into KiwiSaver at that point and I can no longer opt out. I think the argument typically has been, You know, you've got a 55-year-old, maybe a mother returning to work.
Why does she have to give up when she's actually already made decisions earlier on in life about how she's going to fund her retirement? I think that's really sound. But I think this rising floor is a way of achieving compulsion over time in a way that isn't forcing people's decision later on in life who've already made plans.
And with that issue of participation, the people who are opting out, so your view is that overwhelmingly that's a matter of just like sheer affordability. These people are under too much financial strain. They aren't able to sort of spare the funds to plan for something that seems like it's so abstract and far into the future.
I guess there's a question of like, are there other things that we could be doing to try and increase that motivation and get those participation levels up? Is it a matter of not doing enough education to kind of... instil some trust around KiwiSaver as a scheme? Could we make the incentives more tempting?
Look, that 40% isn't wholly people who have opted out for affordability. There's a whole range of reasons that people have opted out, including total rent packages. which almost half of employers in New Zealand offer today and I think are risking actually the integrity of KiwiSaver and also risking short-changing their employees, especially as contributions are going up, mandated contributions.
But yeah, a whole range in there. I think affordability is one that we should target because those people are making a decision that is having twice the impact with the employer losing the employer. But other people may be making decisions because they may not be working or they may be retired.
There's all sorts of reasons, but particularly those people that are opting out because of affordability, I think they're being punished twice.
Mm-hmm. One interesting finding from Shizi's own membership data is that not only are we seeing people coming onto the Shizi KiwiSaver scheme, switching from other providers, but it's also people who are actually enrolling for the very first time in a KiwiSaver scheme. How are we changing their minds?
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Chapter 6: How does Sharesies support children's KiwiSaver accounts?
Yeah, I couldn't agree with that more. I think there's a lot of areas in life where you want good, steady, long-term policy, but superannuation more than anything, right? Because people have to have that trust in the system, the trust that it's going to operate the way they think from now on for 20, 30 years ahead, right? And you're absolutely right.
Every time we chop and change, it diminishes that trust.
Yeah. Last question. It's a big one. A lot of what we've talked about today is fundamentally about how we can actually make changes to KiwiSaver to reduce inequity rather than actually inadvertently expanding it.
Do you think that that is something that KiwiSaver is really capable of doing or is that an intervention that needs to happen on a larger scale to tackle New Zealand's growing wealth gap?
I'll just come back to what I said earlier. I think using something like KiwiSaver at the earliest age possible, I think that gives you the most sort of chance. I'm sure there are other tools outside of the area that I work in, but for me, the earlier you start, the more chance you have of trying to address that inequality.
Yeah.
Yeah, look, fundamentally people are saving wealth out of their incomes. So if those incomes are very different, there's only so much that the savings policies can do. And you do have to think about those bigger disparities and why are some people struggling so much? You know, you look at the children who are in poverty.
Half of them have got parents in full-time work, you know, so real issues around low-paid work, for instance, in New Zealand. But, yeah, I still think there are things that the savings vehicles can do.
And, you know, I mean, at the risk of plugging the same idea again, with the Kids KiwiSaver scheme, you can design it so there's more support for the poorest parents, you know, so that government's putting in money on their behalf. You can design it so that actually poorer children could plausibly hit 18 with more money. in their KiwiSaver account than other kids do.
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