KiwiSaver a retirement "reality check"

Investing

KiwiSaver credited with raising awareness about retirement readiness, but half believe their standard of living will slip after 65 and are bracing to work longer.

21st May 12, 9:20am by Amanda Morrall

By Amanda Morrall

A retirement "reality check" credit to KiwiSaver has New Zealanders revising their plans about how much they will need in old age and when they'll be able to give up work, according to Mercer New Zealand's latest KiwiSaver sentiment study.

Just over half of working New Zealanders who took part in the survey said they expected they would be less comfortable in retirement than they currently were and were realistic about having to work longer to compensate for their savings shortfall.

Martin Lewington, head of Mercer New Zealand, said while it was encouraging that New Zealanders had a heightened awareness and understanding of issues around retirement readiness, planning and concrete action had far to go.

Nearly two in five (39%) claim to have given at least ‘some thought’ and undertaken some preparation for retirement, but nearly half (45%) had made very little (if any) preparations, the survey found.

Of further concern, the survey showed 32% of participants aged 45+ had given ‘very little thought’ to preparing for their retirement, highlighting the need for increased engagement in this critical age range. In addition, the report revealed men are opting to contribute greater amounts from their salary to KiwiSaver, compared to women.

“The 2012 results show Kiwis have gained a more realistic understanding about how much they need to save for retirement. Members continue to demonstrate a desire to retire at 57, but now expect this will be pushed back to 65, or even 70 years to ensure they can live a comfortable lifestyle,'' said Lewington.

The KiwiSaver Sentiment Index Study, a survey of more than 1,000 working New Zealanders, found uptake in the retirement scheme has increased from a participation rate of 44% three years ago to , 61% in 2012, representing an enrolment rate of more than three in five. Among members enrolled satisfaction had increased from 49% of members in 2009 were either ‘satisfied’ or ‘very satisfied’ with their KiwiSaver scheme, to 54% in 2012.

Lewington said the extended working years of New Zealanders represented opportunities for employers willing to engage creatively with an older workforce.

“For employers already struggling with skills shortages, the report findings highlight an important opportunity for retaining much-needed knowledge and experience as staff look to stay in the workforce for longer. Employers must take these results on board and cater to the preferences of their older workforce; offering greater flexibility, fewer hours and improved incentives."

While encouraged by heightened awareness on retirement issues, participation levels and a more realistic expectation about the level of financial support from a constrained National Superannuation scheme, Lewington said there remained a fair number of New Zealanders who were sceptical about KiwiSaver.

The reservations about the national retirement scheme had to do with the impact of global market volatility on their savings and also Government's long-term commitment to the programme.

Lewington said while overall sentiment towards KiwiSaver was positive there was scope for providers and employers to improve New Zealanders’ engagement and retirement readiness.

“Employers and KiwiSaver providers have a responsibility to ensure members and employees are actively preparing for retirement and contributing at greater levels to build their retirement savings."

This year superannuation will cost NZ$9.6 billion, or 4.6 per cent of GDP. Treasury estimates that will balloon to 8% of GDP by 2050.

"Employers, the Government and super providers must educate members about the need to reduce New Zealand’s dependence on the public purse and the serious financial consequences of maintaining the status quo,” Mr Lewington said.

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8 Comments

by Ralph | 21st May 12, 4:49pm 1337575794

He raises the point that some have reservations. He goes so far as to quantify their concerns as follows:

1. The impact of markets on savings (finger pointing at inflation here).

2. Government commitment.

But he doesn't actually address either concern, rather he trots out some platitudes about needing to raise awareness and helping people prepare.

Every western government is trying to create significant inflation, which by definition will erode creditors in favour of debtors - but your retirement fund is a creditor in this context. Therefore governments everywhere are anti superannuation.

And is there any recent government who, in their term, hasn't fiddled with super regulations?

by Kimble | 22nd May 12, 12:14pm 1337645642

They are double counting fees.

Even the conservative funds have about 20% in growth assets, so underperforming savings accounts isnt unexpected.

Also, not sure how they justify comparing diversified Kiwisaver portfolios to individual commodities like gold.

by Ms de Meanour | 22nd May 12, 1:49pm 1337651365

KiwiSaver does not restrict your investment choices. It adds to them. You don't have to join it at all (unlike in Australia) if you don't want to.

by Ms de Meanour | 22nd May 12, 4:02pm 1337659372

Who says "there are talks already underway"? Who is holding such talks? On what basis?

As for your second question, the answer seems to be because Minister Cullen wanted to find a way of spending a fiscal surplus in a way that wouldn't be inflationary; and now it is too difficult politically for any Government to withdraw the goodies. It is anyway an improvement on most countries' (including Australia) practice of providing tax breaks on retirement saving, which not only means subsidies from tax payers to retirement savers (as KiwiSaver subsidies do) but also benefits rich people more

by Kimble | 22nd May 12, 3:26pm 1337657165

I could name several dozen individual stocks that outperform all KS funds AND gold. But individual stocks arent an alternative to KS, neither is a single commodity.

Australia has a strong and growing self-managed super fund system. That offers more individual control, and I would expect a provision for SMSFs would accompany compulsion if it was introduced in NZ.

by Craig Simpson | 22nd May 12, 2:47pm 1337654859

ben 1,

Thanks for your comment. The website you have referred to I believe has double counted the fees.

The Morningstar returns which this wesite has used displays returns on a pre tax and after fees basis.

The average total fees of 0.69% is already taken care of as part of the overall return. The only fee not included is the annual member fee which Morningstar do not take into account.

The conclusion arrived at in the link is not an accurate one.

If you had your Kwisaver account with one of the stronger performing managers you will have comfortably beaten the return from a TD over the past 12 months (to December 2011). For example if one has their money with the top performing fund in the sector according to the Morningstar report they will have returned 6.3% before tax (approx 4.5% after deducting 28% and taking out 0.3% as an estimate for the annual member fee)

If you use the average 1 year term deposit rate of 4.3%, take tax out at the top PIR rate of 28% and you have a net return of approximately 3.3%

I know what return I would rather have. I also hasten to add that judging managers solely on performance alone is extremely dangerous.

by Kimble | 22nd May 12, 3:36pm 1337657817

1. You cant seriously talk about the risk-return trade-off and then focus on a single years performance. Risk is borne out over multiple time periods. No inferences can be drawn from looking at the outcome of a single period.

2. Over the year stocks dropped aroound 5 percent, so if the conservative funds are 20% stocks (as they seem to be) then their return is 1% lower due to their stock exposure. Adjusting for this, the rest of the portfolio easily outperformed bank deposits. Is your problem actually with investing in a diversified portfolio of stocks? Is that what you are arguing against?

3. If you want to argue that the subsidies were a bad idea, thats fine but it is unrelated to the question of whether KiwiSaver is a good scheme for investors.

by Kimble | 22nd May 12, 10:19pm 1337681953

1. Like was said above, you have choice. Be in and choose a fund, or out and do something else. What you are complaining about is not getting the KiwiSaver incentives if you choose to invest elsewhere. Which is ironic because...

2. + 3. are all about how the KiwiSaver incentives are bad.

4. KiwiSaver funds are expected to perform like other funds. Some do well, some do not. The range doesnt go from average (think about the term average) to bad. Think about this. The time period you can look at for KiwiSaver covers the GFC. Many funds still out-performed cash and the overwhelming majority of investors made money. Do you expect a GFC every 4 years?

5. Thats an inconvenience for non-investors. It doesnt affect the experience of investors.

6. Fees arent obscenely high. 0.5-1.0% is actually low compared to elsewhere in the world. Subtract the member fees for 20 years from the kick start $1k, and they both disappear completely. Would you work for a company that only paid you if the Warriors win?