It has released a new report, in which it says that Kiwis will have to save for their retirements if they want to maintain their lifestyles,  but the lack of knowledge about retirement saving and planning is a problem.

Mercer’s surveys have shown that only one in five New Zealanders rate their knowledge of retirement savings highly but 55% would like to increase their understanding.

The Government move to require default schemes to offer investor education was a step in the right direction, it said, to ensure that people did not miss out on returns over the life of their investments.

But more engagement was needed. About 75% of the members who were eligible for the Government tax credit each year, which provides $521 a year to people who contribute more $1042 or more, received it.

Auto-enrolment for all employees could not happen fast enough, Mercer said. “Our modelling shows a 40-year-old joining KiwiSaver today could expect a retirement savings balance at 65 up to 20% higher than if entry were delayed for three years.”

And contributions should be increased, both to improve New Zealanders’ retirement outcome sand to reduce the pressure on future generations. The increase would need to be phased in to avoid putting people off, especially low-income earners. “Mercer believes a contribution rate of 8% to 10% shared between employees and employers would allow a KiwiSaver member to enjoy a comfortable retirement and make New Zealand’s superannuation system competitive with those in other countries.”

It suggested the increase could be applied to the employer’s contribution to reduce the impression that KiwiSaver was costing members more.

“One way to introduce policy change would be to allow an employee contribution rate of 6%, filling the largejump between the current 4% and 8% rates. Whilst this would remain optional, and so perhaps fairly limited in its outcome, the introduction of an intermediate rate, together with a concerted education exercise, could encourage higher savings rates.”

Once people got to retirement, there should be more flexibility around the age at which savings could be accessed, Mercer said. “The pace at which funds are removed should be controlled to protect against longevity risk.”

It suggested this could be done with limited access to a lump sum benefit, a relatively flexible income product in the first period of retirement, such as an annuity, and a pooled insurance type product to provide longevity protection. “This overall design would also enable members to seek good investment returns in the earlier years of retirement, to have access to some capital and have some protection from risks.”