Retirement scheme KiwiSaver turned seven this week with
politicians and lobby groups making or proposing changes to
the way the scheme operates. Business editor Dene Mackenzie
reports on what usually becomes a major election issue -
Happy Birthday to KiwiSaver, the press releases said this
week as the Labour Party-introduced retirement savings scheme
But as expected, there were some changes announced and
suggested in the way the scheme is operated.
Saving for retirement is a political football, stretching
back further than just former prime minister Dame Jenny
Shipley campaigning hard to defeat a suggestion from New
Zealand First leader Winston Peters for compulsory
Commerce Minister Craig Foss announced on the anniversary of
KiwiSaver, nine KiwiSaver default providers started their
seven-year appointment from July 1, offering lower fees for
The default providers - AMP, ANZ, ASB, BNZ, Grosvenor, Kiwi
Wealth, Mercer, Fisher Funds and Westpac - were appointed in
March after a competitive tender process and assessment by an
According to Mr Foss, a default fund aimed to provide stable
returns and build confidence while members considered what
type of investment best suited their individual
circumstances. Mr Foss also announced the default funds would
offer lower fees for investors. As an example, he used
average annual fees falling from $69 to $56, immediately
benefiting about 450,000 New Zealanders.
Those figures caught Dunedin financial adviser Peter Smith by
''Some providers must be charging plenty as I have not seen a
fee over $36 a year from the companies I deal with,'' Mr
He also took issue with the claims from Mr Foss default funds
provided stable returns and built confidence.
''This suggests he thinks KiwiSavers will actually do
something with their funds once in a default fund. Past
experience suggests that will never happen,'' Mr Smith said.
At March 31, according to Morningstar's quarterly report, 27%
of all KiwiSaver funds were in default funds, Mr Smith said.
If you went back to the 2012 Morningstar report, 23% of total
KiwiSaver funds were in default funds. As the total funds in
KiwiSaver had increased, the amount going to default funds
had increased in tandem with them.
The message had not got through, he said.
''With the addition of four more default providers to the
scheme, my opinion is it will just increase the amount held
in default funds. It all depends on how proactive the nine
default providers will be.''
The prime problem with default funds was 80% of them were of
conservative nature. On average, a default fund had 18%
invested in New Zealand, 42% invested internationally and 20%
in fixed interest and cash.
A person aged under 35 had at least 35 years to retirement.
Their money should be invested in a growth fund of about 80%
in equities, and 20% in cash and fixed interest because
long-term records showed equities, over time, provide
superior returns to cash and fixed interest, Mr Smith said.
Financial Services Council chief executive Peter Neilson said
KiwiSaver had been New Zealand's most successful savings
innovation in the past 100 years and there were several
reasons why it had outperformed what even its most
enthusiastic supporters expected.
The reasons included KiwiSaver making it easy for those
finding it hard to save to both enrol and put the money
safely away before it could be spent.
The kick-start incentives and matching employer contributions
made it a ''no brainer'' for most New Zealanders.
More than 15,000 New Zealanders had benefited from using
KiwiSaver to purchase a first home and many more planned to
do so, Mr Neilson said.
There were more than 2.3 million New Zealanders in KiwiSaver,
more than three times the Treasury's 700,000 initial
estimate. But it could be even more successful.
Most people were currently saving at the 6% rate - 3% from
themselves and 3% from their employer. To fund a comfortable
retirement on about twice the New Zealand Superannuation
current pension rate of $282 after tax for each person in a
couple, the contribution rate would need to go to 9% or
higher, he said.
If KiwiSavers defaulted into a balanced or growth fund,
rather than a conservative one, and the overtaxation of
KiwiSaver funds was addressed, the contribution rates
required to fund a comfortable retirement could drop to 7.6%,
or even 6.1% allowing for someone on a modest income.
Only 7.9% of New Zealanders believed they could live
comfortably on New Zealand superannuation alone.
It was up to politicians to decide how to increase the
coverage and contributions into KiwiSaver.
''As KiwiSavers see their balances steadily grow, New
Zealanders are understanding the benefits of saving a little
each week for a long time to build a retirement next egg and
increasing their financial literacy while it happens,'' Mr
Mr Smith said it would be interesting to see how well Mr
Foss' claims of default providers having to offer investor
education worked out.
Comments provided by Grosvenor appeared as if it would
provide personal one-on-one service to people who ended up in
its default funds.
Having recently acquired Fidelity's KiwiSaver business, it
now worked in close partnership with one of the largest
adviser distribution forces in New Zealand.
However, larger institutions such as ANZ did not have the
resources to provide individual services when it was dealing
with 26% of the total KiwiSaver market.
ANZ planned to support the increased focus on member
education and the need to offer investor education to
encourage members to make an active choice, Mr Smith said.
''I hope, should KiwiSaver investors seek advice, they will
be directed to an authorised financial adviser. After all,
under the Financial Advisers Act, it is a Category 1 product.
Many of us in the financial services industry provide a
KiwiSaver service at no cost because we are looking at the
long-term big picture of when the saver reached retirement,''
Labour Party finance spokesman David Parker said KiwiSaver
was a Labour policy National vociferously opposed at the time
but now supported through gritted teeth.
''On the day when there's something to celebrate, it's sad
National has to resort to myth-making and scare tactics
regarding Labour's capital gains tax and KiwiSaver.''
Labour's proposed capital gains tax would not increase the
level of taxation on incomes derived from KiwiSaver or other
retirement savings schemes, he said. Labour would build on
the past successes by incrementally increasing employer and
employee contributions to a total of 9%.