Kiwi’s level the score against Aussies on retirement savings systems, but can they win the match?
KiwiSaver versus Australia’s superannuation system – Mercer comparison
Monday 12 January 2009
While Australia may have had its superannuation system a lot longer than New Zealand has had KiwiSaver, the Aussie’s can
still learn a thing or two from the Kiwi’s when it comes to retirement savings and aged pensions systems, says Mercer in
a paper released today.
Mercer’s discussion paper – Comparisons between KiwiSaver and Australia’s superannuation system: lessons for policy makers and employers - draws comparisons between the age pension and retirement schemes in both countries on eleven different features,
revealing that New Zealand’s KiwiSaver system has some clear advantages when pitted against Australia’s superannuation
system, but could still benefit from some enhancements.
Paul Newfield, head of Mercer’s retirement, risk and finance business commented that the retirement savings systems in
Australia and New Zealand are not often compared but the ongoing exodus of Kiwis to Australia had put the issue well and
truly in the spotlight.
“Employers, in both New Zealand and Australia, with employees on both sides of the Tasman should be aware of the
differences between the two systems and what it all means for them and their workers.
“New Zealand recorded its highest net outflow of people moving to Australia in 2008 – there are a number of issues that
employers have to consider when competing in a global market for talent, but one question that should be asked is, What
can employers, and the government, do to make it more financially viable to accumulate retirement savings and eventually
retire in New Zealand?,” he said.
Employer contributions and tax on investment earnings
In an era when governments are concerned about the fiscal impact of an ageing population, the Australian system scores
valuable points for encouraging a self-funded retirement, according to Mercer’s paper.
Mercer’s comparison shows that the Australian system requires a higher level of employer contributions to be paid into
the fund, meaning at face value Australians are contributing more to superannuation and lower levels of contributions
tax create a huge incentive to save into superannuation.
“But the major area of difference is tax on investment earnings, which is lower in Australia than New Zealand and will
result in better savings outcomes. The Australian investment tax system is also much simpler for members to understand,”
said Mr Newfield.
“In light of this Mercer has continued to argue that the tax rate on investment earnings should be a single,
preferential rate. We believe this will encourage people to transfer savings from non-superannuation assets and
traditional superannuation into KiwiSaver, as well as making it easier for fund managers to report investment returns
and easier for consumers to understand,” he said.
Single accounts = Multiple benefits
The KiwiSaver framework, which allows New Zealanders to have only one account also has a number of benefits, including:
it avoids lost accounts, consolidates retirement savings, is simpler for employees to manager and understand; and saves
employees money by avoiding multiple administration fees.
“There is no doubt that New Zealand’s single account framework where each KiwiSaver member has one account, delivers
multiple benefits,” Mr Newfield said.
Universal pension offers safety net
Another key difference between the two nations is that there is no income or assets test to access New Zealand’s tax
funded universal pension - New Zealand Superannuation. By comparison, Australian’s must meet a range of criteria
relating to age, income and assets to qualify for their age pension.
Mr Newfield commented, “When looking at factors such as eligibility and the actual pension value New Zealand wins hands
down. Not only is our system far simpler to understand and easier for the Government to administer, but the basic
pension is higher in dollar terms.
“Additionally, New Zealand’s system acts as a universal safety net and provides a minimum income for life thus
protecting New Zealanders from longevity risk and the possibility of running out of capital to fund basic living costs
later in retirement,” he said.
Mercer says the differences ring true when breaking down what it will all means for the average worker when they reach
retirement age.
A comparison of two individuals both aged 25 – one in Australia (Joe Ozzie who is in the Superannuation guarantee
system) and one in New Zealand (Jane Kiwi who signs up to KiwiSaver), each of whom earn $50,000 in their respective
currencies and each remain in those arrangements to age 65 and invest their contributions in a growth fund shows that
the Australian will be better off in terms of retirement savings and the money available over their lifetime.
Mr Newfield said this type of debate and comparison is important if New Zealand is to continue to improve the
efficiencies of its saving system and remain competitive globally.
“New Zealand has many benefits to offer and it is important that we recognise and communicate this, but by the same
token we can and should look to the experience of more established superannuation systems such as Australia’s,” he
concluded.
-ENDS-
About Mercer:
Mercer is a leading global provider of consulting, outsourcing and investment services, serving over 25,000 clients
worldwide. Mercer consultants help clients maximise the effectiveness of their employee health, welfare and retirement
programs, and optimise workforce performance while managing costs. The firm provides customised administration,
technology and total benefit outsourcing solutions. Mercer’s investment services include global leadership in investment
consulting, retirement plan design and governance, and multi-manager investment management. Mercer’s global network of
18,000 employees, based in more than 40 countries, ensures integrated, worldwide solutions for clients who wish to
establish global policies and procedures while allowing for the flexibility to accommodate local cultural, legal and
regulatory requirements. Our locally based professionals are also available to serve mid-size companies and to address
country specific issues and opportunities.