The Great Debate: Should KiwiSaver Be Made Compulsory?

In this episode, Debbie Roberts from Property Apprentice discusses the hot topic of whether KiwiSaver should be made compulsory or remain voluntary. With recent media attention and political proposals suggesting a shift toward a mandatory model similar to Australia’s, it is a conversation that every New Zealander should be following.

Debbie breaks down the potential impact of these changes on your take-home pay, your ability to secure a first-home deposit, and your long-term retirement goals.

Key Topics Discussed:

• The Case for Compulsion: How mandatory savings could close the "savings gap" for New Zealanders and strengthen the national economy.
• The Impact on Your Wallet: The potential downsides of reduced take-home pay during a cost-of-living crisis and the increased costs for businesses.
• The First-Home Gateway: Why KiwiSaver remains the primary tool for many to enter the property market and how compulsory savings could lead to larger deposits and better bank lending terms.
• Financial Discipline: Why the habit of living on slightly less than you earn is a crucial trait for any successful property investor.
• Taking Control: Why you shouldn't wait for government legislation to secure your financial future.

Take Action for Your Future

Whether the rules change or not, your focus should remain on a long-term strategy. If you aren't already a client of Property Apprentice, we invite you to take control of your financial journey today.

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Transcript

 Hi, I am Debbie from Property Apprentice, and today's podcast is about should KiwiSaver be made compulsory or leave things as they are. You might've heard the recent chatter in the media about potential changes to KiwiSaver with proposals floating around, most notably from New Zealand First suggesting that KiwiSaver could become compulsory.

It's a topic that has. It should have every Kiwi ear pricked up. Currently, KiwiSaver is voluntary. You can opt out if you start a new job, and you can take a savings suspension if money gets tight. But the new conversation is about whether or not we should follow Australia's lead and make saving for retirement mandatory for every worker.

At Property Apprentice, we believe in looking at the numbers without the hype. So let's break down what a compulsory scheme would mean for your wallet, your property-related

 goals, and your retirement years. So the case for compulsion compulsory KiwiSaver. In other words, let's look at the pros. So supporters of a compulsory scheme argue that we are just not saving enough.

Closing the savings gap research suggests that a significant portion of New Zealanders are heading towards a retirement where New Zealand super alone won't be enough to live comfortably. Compulsory contributions would ensure everyone builds a nest egg. And you know, with our aging population, I think this is something that's really worth considering.

Free money. If you aren't in KiwiSaver, you're potentially missing out on 3% employer contributions as well as the government tax credits. Compulsion ensures every employee gets this, essentially a pay rise into their future fund. National economic strength, a larger pool of domestic savings. Currently over a hundred billion dollars can invest back into New Zealand businesses and infrastructure, potentially strengthening the economy

we all rely on. So let's have a look at the case against compulsory KiwiSaver, or call it the cons. However, making it mandatory. Look, it's just not a silver bullet. There are some valid concerns. First of all, reduced take home pay in a cost of living crisis, losing three to 4% or more as the compulsory, well as the minimum contribution increases over time.

Losing that amount per week could be painful. And especially for low income earners, that cash could be needed for groceries right now, not for retirement later. Business costs, employers would face higher wage bills if they're forced to contribute for every single staff member without exception. This could flow through to higher prices for goods and services.

At the moment, businesses have got the option of taking your employee KiwiSaver contribution out of your salary. My personal opinion is that's a bit stink. So, you know, I think employers should absolutely look at putting that KiwiSaver contribution from them as an added bonus to someone's salary, which is meant for their retirement, or helping them build a house deposit.

But there are some employers who include it as part of the salary package. So just make sure you check that out. Otherwise, your actual contribution to KiwiSaver from the 1st of April this year is gonna increase to 3.5% for employees and another 3.5% for employers. So if your salary package includes the employer contribution, your KiwiSaver, and, and you know, your KiwiSaver contributions are basically gonna increase to 7%.

As of the 1st of April this year. Lack of flexibility. Look, one of the current benefits of KiwiSaver is the ability to pause your contributions if you find yourself in situations of financial hardship, a strictly compulsory system might remove the safety valve, although I, I doubt that they would do that, but yeah, they might.

It's potentially possible locking money away when people feel that they really need it the most. So let's have a look at the hidden benefit for aspiring property investors. You might be thinking, look, I wanna invest in property, so why should I care about my KiwiSaver balance? The reality is that for most Kiwis, Kiwi Saver is the gateway to getting on the property ladder.

And it's essentially compulsory savings, which diversifies away from property as well. Buying your first home is often the first step towards building a rental property portfolio. Your KiwiSaver balance, including the returns and the employer contributions can be withdrawn for everything except for a thousand dollars.

You've gotta leave a thousand dollars in your KiwiSaver fund, and as long as you've been contributing for over three years, you can withdraw everything except for that thousand dollars to form a good chunk of your first home deposit. There are a few other rules around it, so you know things like you can't already own any other property.

And you, you can't have ever used your first time withdrawal before, but you know, the rules are pretty easy to find. If you just Google first time withdrawal for KiwiSaver, it'll tell you all the steps about it on the Kainga Ora website. If KiwiSaver was compulsory, first time buyers would likely reach the market with bigger deposits because they've basically been forced to save methodically from day one.

Better lending terms. You know, a larger deposit means a lower loan to value ratio or LVR, so that often unlocks better interest rates and potential cash cashback offers from banks as well. So with, uh, a majority of lending for. First time buyers at the moment? Well, not the majority potentially, but certainly a good chunk of it is getting done to first time buyers at 90% lending.

But anything above 80% does tend to be a little bit more expensive. 'cause banks can add lenders, mortgage insurance, or low equity margins and things like that onto it as well. Uh, the exception to that would be uh, first home buyers who are buying new builds, those are excluded from, from the deposit restrictions.

So they might not find that they've got the same restrictions for that, but certainly above 90% can get more expensive. The discipline of regular KiwiSaver contributions helps build momentum and it trains you to live on slightly less than you earn. And that can be a crucial habit for any successful investor managing mortgage, top-ups in particular.

So, you know, my thoughts on this are whether KiwiSaver becomes compulsory or not. The principles of financial success remain the same. You can't rely solely on the government, whether that's New Zealand super or a compulsory savings scheme to secure your financial freedom. While KiwiSaver is a fantastic tool

for diversification and that first crucial house deposit, it should be just one part of a wider plan. If you are waiting for legislation to force you to save, you are already on the back foot. The most successful investors that we work with take control of their cash flow voluntarily long before any government tells them that they have to.

So what should you do? Whether the rules change or not, your focus should remain on your long-term strategy. If you are already a member of KiwiSaver, check your contribution rate and your fund type. Are they aligned with your timeframe for buying a home or retiring? If you're looking to buy your first home or expand into investment properties, understanding how to leverage your existing assets, including KiwiSaver, is key to that.

But look, don't wait for the rules to change to sort out your future.   📍  📍 Come along to one of our free events. If you're not already a client of Property Apprentice, you can register for one of our free events on our website, which is www.propertyapprentice.co.nz, and I'll teach you a bit more about investing in property and the world of finance around that as well.

So feel free to register for one of those free events. Go to www.propertyapprentice.co.nz and I'll look forward to seeing you soon.  Thanks. 

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