If KiwiSaver members were given the option to have their contributions increase automatically over time, it would help them save more money, a KiwiSaver advice provider says.
A study conducted by Victoria University in conjunction with a Commission for Financial Capability (CFFC) barometer survey shows just over one quarter (29 percent) of 759 respondents would choose this option, having selected it on a KiwiSaver deduction form.
It comes as the gap between NZ Super and costs at retirement is growing. According to Massey University's Retirement Expenditure Guidelines report for the year to June 2021, the smallest lump sum shortfall is $75,000. The average KiwiSaver balance is $27,858, a Financial Services Council KiwiSaver September quarterly snapshot shows.
Clive Fernandes, head of KiwiSaver advice service National Capital, said given the growing retirement savings gap, and survey results showing an auto-increase option would be supported, he's proposing it be considered by the Government.
"The projection for people currently between the ages of 18-34 years old is that they’ll be living with a $205 per week gap between their income and what they need to survive on during retirement," Fenandes said.
Having analysed the profiles of two people earning and contributing the same initial contribution rate, the study showed a person in the auto-increase scheme would have "upwards of $90,000 more at retirement".
Although results differ from person-to-person, it also shows the potential for "a lot more money", he said.
"Any scheme that increases savings among younger Kiwis can only positively contribute to their retirement," Fernandes added.
There are currently five KiwiSaver contribution rates: 3 percent, 4 percent, 6 percent, 8 percent or 10 percent. Those who don't choose a contribution rate are set to the default of 3 percent.
If KiwiSaver members want to change their contribution rate, they're required to complete a KS2 form - a process that could be a barrier to contributing more.
While people might be hesitant to save more today, results of the study suggest many would be happy to save more in a year's time.
"If doing it is too difficult and it means moving away from the status quo, [people] don't seem to do that….anything they can set now and forget, it's easier," Fernandes added.
Under a proposed auto-increase option, which Kiwis would opt into when signing up to KiwiSaver, they could choose a 0.5 percent, 1 percent, 1.5 percent or 2 percent increase yearly or bi-yearly. They could also set a maximum contribution rate.
Tom Hartmann, Personal finance lead at Commission for Financial Capability (CFFC), told Newshub automating contribution increases could help people save more.
But as KiwiSaver funds can only be withdrawn in set circumstances (buying a first home, financial hardship or from age 65), members run the risk of not being able to access their funds when needed.
People would need to understand the trade-offs before opting in.
"We think it will help [people] to save more long-term, but it will influence their ability to have those funds available, as they'll be locked away," Hartmann said.
Over the last couple of years, there's been various proposals for improvements to KiwiSaver, an MBIE spokesperson said.
A Government response to the 2019 Review of Retirement Income Policies, including the recommendation for an auto-increase option for contributions, is expected by the end of the year.