21 June 2023

    Budget winners: Women's KiwiSaver balances

    Zoie Regan (CFA)

    Senior Investment Analyst

    Email Zoie
    Zoie Regan (CFA)

    Senior Investment Analyst

    Email Zoie

    Much like dinner time in my household, it’s a tough gig trying to please everyone (anyone!) at Budget time. But news that the Government is providing support on two fronts to tackle KiwiSaver equity among women in New Zealand is a welcome surprise.

    The KiwiSaver gender gap

    Last year Kiwi Wealth (now part of Fisher Funds), commissioned the New Zealand Institute of Economic Research (NZIER) to report on KiwiSaver equity for women. The report found that in New Zealand, the average KiwiSaver balance for women is 20% lower than the average balance for men across all age groups.

    The report identified four key drivers of the KiwiSaver gender gap;

    1. labour force participation gap,

    2. pay equity gap,

    3. career gaps and changes due to motherhood, and

    4. self-reported low confidence and knowledge associated with KiwiSaver.

    As part of the 2023 Budget, the government is extending the 20 hours free early childhood education subsidy to include two-year-olds as well as matching KiwiSaver ‘employer’ contributions to paid parental leave recipients, both which will help address two of the elements contributing to the KiwiSaver gender gap.

    Women left holding the baby

    While the number of men receiving government-funded paid parental leave in New Zealand has tripled over the last five years, of the 57,000 people who received this for the year ending 30 June 2022 just over 2% were men. Women remain the primary caregivers and as such parenting continues to disproportionately impact how women participate in employment and their labour market outcomes.

    The experience in New Zealand is similar to challenges faced by women across the OECD, with the gap in retirement assets emerging from ages 25 to 34 – not surprisingly, broadly when women first enter motherhood.

    Not only is there generally a gender pay gap between women and men, motherhood brings an additional penalty, resulting in a significantly larger pay gap between men and women who have children, than between men and women who don’t.

    These enduring penalties, combined with the loss of returns due to the power of compounding, only exacerbates the gender gap in KiwiSaver balances over time.

    Labour force participation is critical for contributions to KiwiSaver

    Female labour force participation in New Zealand has steadily improved over the last 30+ years. While the participation gap between males and females has reduced over time (from 24.8% in 1986 to 8.8% in 2022) labour force participation still remains lower among women than men. Data by parental status is slightly more dated but based on my own observations and experience as a now 40-year-old mother of primary school aged children, it’s reasonable to assume the employment rate for mothers remains significantly lower than it is for women with no dependent children.

    The additional $1.2b in Early Child Education (ECE) funding announced in the budget will enable greater access to ECE where cost has previously been a barrier. Global evidence from Canada, Sweden, France, the UK and New Zealand all suggest that various government policies and initiatives aimed at improving access to and affordability of ECE can positively impact female workforce participation rates.

    Without sounding like Captain Obvious, KiwiSaver contributions are tied to employment so improving the labour force participation rate among women has a direct positive impact on their KiwiSaver balances.

    Enhancing KiwiSaver with government contributions while on parental leave

    Through a surprise $19.6m funding announcement, the Government will pay a matching KiwiSaver employer contribution to paid parental leave recipients who similarly contributed at least 3% of their paid parental leave payments into their KiwiSaver accounts.

    This funding initiative directly acknowledges the fact that women on average have lower KiwiSaver balances and retirement income than men, with parenting and the associated career breaks impacting the level and continuity of women’s contribution to their retirement savings.

    NZIER estimates that a 30-year-old woman who takes parental leave from full-time work for one year will sacrifice KiwiSaver contributions of $4,905 based on the median income and 3% employee contribution. The impact of taking a break from contributing for one year on a KiwiSaver balance at age 65 was estimated to be $15,100.

    Not to look a gift horse in the mouth, but the government’s $19.6m funding equates to an average $342 contribution per paid parental leave recipient, or at most a $515 contribution (based on the current maximum paid parental leave of $661 per week for up to 26 weeks). To receive this benefit new parents need to continue contributing at least 3% to their KiwiSaver while on paid parental leave, which unfortunately is unrealistic for a large number of recipients and will see them miss out. This will do little to plug the KiwiSaver contribution hole incurred as a result of taking parental leave.

    Budget initiatives welcome news but more action is needed

    At Fisher Funds, we are committed to doing all that we can to help reduce the retirement savings gender gap and ensure that both Kiwi men and women can enjoy financial independence both throughout their working lives and their retirement years. We regularly run webinars as part of our Financial Wellbeing for Women programme with the aim to improve the financial confidence of women in particular.

    Women, we too have a role to play in maximising our KiwiSaver balances in retirement. As a starting point, check you’re in the right fund (women live longer than men, so arguably can take more risk), where possible contribute regularly (this could mean getting your partner to contribute to your KiwiSaver account during your parental leave) and make sure to contribute at least $1,042.86 each year so you receive the full $521.43 government contribution to your KiwiSaver account.

    In keeping with the Budget titled “Support for today, Building for tomorrow”, it’s great to see government supporting improving KiwiSaver equity for women. But further changes are required from all involved to bridge the KiwiSaver gender gap and ensure both men and women build long-term financial wellbeing.

    Talk to us

    If you would like to talk to someone about steps you can take to maximise your KiwiSaver balance in retirement, the team at Fisher Funds are here to help. Please contact us or get in touch with your adviser.