26 Aug 2019

KiwiSaver for over 65s

From Nine To Noon, 9:09 am on 26 August 2019

New research finds the majority of employers of workers who turn 65 stop paying the three percent KiwiSaver contribution - effectively meaning a pay cut for these older workers.

The Commission for Financial Capability research finds that one in four people over 65 are still working, but three quarters of their employers stop contributing to their retirement savings. The Commission wants to hear from New Zealanders on whether this should be changed, and on range of other issues to do with retirement income, in its three-yearly review.

72222257 - older person counting money in her palm

Photo: 123RF

So far, 2.8 million New Zealanders are signed up with KiwiSaver, and there’s $56 billion in savings altogether.

The Commission for Financial Capability's KiwiSaver expert, Tom Hartmann, says when looking at the data more closely they found 44 percent of those aged 65 to 69 still have jobs.

Compared to other countries, the statistics of those working over the age of 65 is relatively higher, he says.

“We have one of the highest rates in the OECD. So if you compare 24 percent of us are still working over the age of 65 … with the UK rate of 10 percent, Australia’s at 12 percent, the [United] States are at 19 percent and then Japan comes up to 20 and only Iceland that we found is at 35 percent.”

While employers are legally allowed to stop paying the contributions for those aged 65 and over, some may have opted to do so to maintain costs, but others have continued to pay to maintain peace in the workplace, Hartmann says.

“We’re finding only 26 percent continue to give that employer match and we’d like to see that open up.

“We’re hearing from some employers that the reason why they keep contributing is the fact that they don’t want that discrepancy between under 65s and over 65s, just because you turn a certain age doesn’t mean you should necessarily mean you get a paycut. But also [because] some grumbling between employees are bound to happen.”

Investment and financial advisor Martin Hawes says it’s an “outrage” and that the policy displays an anachronistic view of retirement.

“If you look at it from the older person’s point of view, on their 65th birthday, they’re not working any less well than they were the day before, but they’re effectively taking a three percent pay cut on that day.

“I think it’s just that politicians’ minds are still in the past and they don’t see retirement for what it is today, which is entirely different than what it was for my parents’ generation.”

As part of the commission’s review, a raft of recommendations on KiwiSaver will also be made, and Hartmann says he expects this issue to be one of those.

On the other hand, Hawes says he’d pushed for change earlier in the last round legislative change, which allowed 65 year olds to join or rejoin KiwiSaver, but that had fallen on deaf ears.

Whether or not employers had any concerns about the potential change is something that’s yet to be discussed, Hartmann says.

“We haven’t engaged enough with employers to offload their concerns … there are good actors out there but we would need to know more about what the impacts would be towards older workers and employers.”

In respect to the change that was brought in last month, that allows over 65s to join or rejoin KiwiSaver with the option to add lump sums and withdraw regular amounts, Hartmann says there was a lot of feedback that hinted the policy was discriminatory.

“Since the beginning I believe anyone could stay in KiwiSaver, they didn’t need to get out of it at age 65. But we would get a lot of feedback from over 65s saying, ‘they’re discriminating against us, we’re not allowed to take advantage of this low-cost managed funds scheme’ and so there didn’t appear to be any good reason why that was done, so that was removed.”

And at a time when bank deposit rates have decreased, Hawes says the inclusion of over 65s is essential for retirement savings.

“We’re already seeing a lot of 65-pluses rejoining KiwiSaver and this is particularly a time when interest rates are low, and most likely to go even lower.

“Somebody who thought they could follow the traditional path of simply putting all their money in the bank and spending the interest and funding retirement that way, that’s not going to work.

“KiwiSaver provides a very closely regulated reasonably priced, readymade diversified portfolio for people, and I think it’s now a really good option for people who have retired, not to save in their retirement because they’re in the deaccumulation phase, but to actually use that for their investment fund to save in retirement for their income.”