On July 30, Police Commissioner Andrew Coster revealed he hopes to offer constabulary staff more choice about how much they pay into the Police Superannuation Scheme (PSS) so those who need to can effectively give themselves a pay rise.

The scheme is compulsory for constabulary members, who pay 7.5% of their salary into the fund, which is administered by Mercer. Police’s contribution rate of 15.2% of salary (10.184% after tax) is stipulated in the Constabulary Collective Employment Agreement.

“Providing staff with the option to make changes to their rate of the PSS employee contributions, including allowing for a 0% option, without losing the 10.184% employer contribution, would benefit our people,” the commissioner’s message said.

But there’s no mention of how the benefit to “our people” today could drastically and negatively affect those people tomorrow – where it hurts most, in the wallet.

The Police Association says it is open to exploring greater choice over superannuation provider but does not believe reducing contributions should be an option.

Association members from the Taupō-Tokoroa area committee say they endorse that stance.

“PSS already has flexibility to assist with pre-retirement financial challenges and the proposed changes as suggested by the commissioner would result in minimal short term gains at the expense of significant retirement savings… Why do our future selves have to pay for our own pay rise?”

Taupō-Tokoroa wants members to resist any change to PSS without thorough analysis and consultation, pointing out that “historically once we lose good conditions, we never gain them back”.

“PSS already has flexibility to assist with pre-retirement financial challenges and the proposed changes as suggested by the commissioner would result in minimal short term gains at the expense of significant retirement savings… Why do our future selves have to pay for our own pay rise?” - Association members from Taupō-Tokoroa area committee

Greg Fleming, the association’s representative on the PSS board, and experts say that experience shows tampering with superannuation contributions is the beginning of a slippery slope to a no-frills retirement.

“The member’s and commissioner’s contribution rates to superannuation give every police officer the best opportunity to not only provide for retirement but also to provide funds should they want or need to leave Police before they are 65,” Greg says.

“It is vital we preserve the core benefits and long-term sustainability of the PSS scheme. However, we know that the question of greater choice in who a member can invest their funds with remains.”

Most recruits today have an existing KiwiSaver fund and have built a relationship with their provider. However, joining Police requires them to join PSS which comes with a much higher employer contribution than KiwiSaver’s options. However, new officers can continue paying KiwiSaver contributions or opt to take an up-to-ayear “savings suspension”, which needs to be arranged each year with no limit on the number of suspensions.

Greg says the association is aware that talk has swirled for some time about greater provider choice and it recognises that poor PSS returns relative to comparable KiwiSaver providers are also a legitimate concern. He says the PSS directors have made changes recently that are starting to bear fruit and points out that the PSS scheme was designed for longterm retirement savings, not short-term investment returns.

“With all this in mind, the association believes members would be better served with [member and Police] contributions remaining unchanged but with greater flexibility on where all or some of those contributions can be directed,” Greg says.

“For example, a member could elect to continue their [Police] commissioner’s contribution into PSS and redirect member contributions to their KiwiSaver provider, or vice versa.”

“We believe a superannuation environment with contribution levels at the current PSS rates provides members with more flexibility to make big decisions later in their working life, decisions that are underpinned by a greater degree of financial security, minimising the likelihood of working because of financial necessity rather than enjoyment and wellbeing. We don’t want to see officers forced to work longer than necessary at the expense of their own welfare,” Greg says.

Te Ara Ahunga Ora’s retirement commissioner says people working longer than planned is already a reality.

“[With] the rising costs of living, more people are working for longer because they have not managed to save enough, still have mortgages [currently one in five people aged over 65] or are paying rent. This is expected to be 100% more by 2048 compared with 2020.”

"We don’t want to see officers forced to work longer than necessary at the expense of their own welfare." - PSS board association representative Greg Fleming

Retirement Commission personal finance lead Tom Hartmann says PSS members are unlikely to face this scenario if the scheme’s “healthy” contribution rates remain untouched. Unchanged, it “should result in excellent nest eggs”.

“I can understand the appeal of alleviating some of the short-term discomfort. However, having those high contribution rates is a rarity, and you really want to understand how powerful that is before you step away from it,” Tom says.

Naked Finance director Jamie Reynolds, who is a former police officer, did not hold back in agreeing that Andrew Coster’s plan could have detrimental long-term impacts on police officers’ retirement preparedness.

“I think it’s short-sighted that he is saying that if you want a pay rise, you can just reduce your super contributions… There’s no guarantee that the state pension is going to be around so there’s a requirement for all of us to take ownership and actually make sure that we've got provisions for retirement.”

Jamie’s fear is that many officers will opt to take a short payment holiday or savings suspension from PSS that could cripple their retirement savings.

“If it was just a five-year payment holiday, then it doesn’t destroy you. But the problem is that's just not how it works. No-one does that. They don't go back in, that's what happens. The reality is that people struggle to go back to their previous contribution levels.”

"There's a danger in giving individuals that level of autonomy where they can reduce it to zero or keep taking money out, because I fear they'll go through their career in, quite frankly, what is a really tough job, and they'll get out the other end and they won't actually have anything left.” - Former police officer and Naked Finance director Jamie Reynolds

They get accustomed to having the extra money in their take-home pay, Jamie says, and then life events – kids, a house, holidays – add extra expense and extend the “holiday”. Partial withdrawals from PSS can also make for a rougher retirement, he says. “The actions you take now, the more time passes, the greater impact that actually has. That $50,000 boat could have cost you $150,000 at retirement.”

If Jamie had his way, he would make it compulsory that anyone wanting to take a partial withdrawal first needed to be provided with a document showing the impact of the withdrawal on their retirement savings.

“There's a danger in giving individuals that level of autonomy where they can reduce it to zero or keep taking money out, because I fear they'll go through their career in, quite frankly, what is a really tough job, and they'll get out the other end and they won't actually have anything left.”

If someone is facing financial hardship, Jamie advises that it's important to weigh the pros and cons and consider alternative options before simply stopping or reducing their retirement contributions. Naked Finance offers free financial advice to all Police Association members.