People who decide to stop paying into KiwiSaver accounts experience a big drop in confidence over whether they can make their retirement savings goals, according to ANZ's latest Retirement Savings Barometer.
The quarterly survey, which asked 1169 people between February and March whether they were making plans for retirement savings, found that 51% of people in KiwiSaver and making contributions were confident of meeting their goals.
However, this figure fell to just 29% for those no longer contributing to KiwiSaver.
Official figures up to the end of April show there are 2,110,251 KiwiSaver members, this is up 9.25% on the figure at the same time a year ago.
However, the number taking an "active contribution holiday" is now 97,461, which is up some 22.1% on the figure for April 2012.
ANZ Wealth New Zealand managing director John Body said it was encouraging to see that KiwiSaver, which has now been going for nearly six years, was making a difference to people's confidence about achieving their preferred retirement income.
"But it's concerning that such a large confidence gap is emerging between those who are sticking to their savings plans and those who have stopped paying into their KiwiSaver account," he said.
"It shows the importance of having your savings plan and not making KiwiSaver the first thing you sacrifice because it has a real impact further down the road.
"If you are in your twenties or thirties and take a five-year gap from paying into KiwiSaver then the impact on your final lump sum at retirement can run into tens of thousands of dollars. It could mean about 10% less in your nest egg."
At this time of year KiwiSaver members will be opening their annual statements and this is a good moment for people to take stock of their retirement savings plan, Body said.
ANZ calculates that people who have been in the scheme since it started in 2007, earning around NZ$800 per week, could have accumulated about NZ$18,000 by now.
"KiwiSaver continues to be in good heart," Body said
The 1,059 people that stated in the survey they are saving, plan to save, or who expect to have an additional source of income in retirement, were asked how much weekly income they would like in addition to New Zealand Superannuation when they retire, and how confident they were about reaching their savings goal.
Most of the figures are largely unchanged from the ANZ's previous quarterly survey results that were released in February. Of those surveyed 64% were saving for retirement, but 31% were not in a savings scheme. Of those saving - and that's not just in KiwiSaver - a total of 48% (up from 47% in the last survey) were confident of meeting retirement goals.
Asked whether savers should be confident about meeting retirement goals when many don't make big contributions through KiwiSaver, Body said: "That comes down to the heart of the survey.
"If you need for example a NZ$500,000 lump sum and you are only contributing NZ$100 a week you are not going to be very confident.
This is really the area where we go into financial literacy and how we provide advice and good tools for people to say ‘how do I connect all the dots on this’.
"So, I don’t want to assume because I have joined KiwiSaver my retirement savings are fine – and I think some people are doing that.
"There’s actually another step to take, which is to say 'I’m in KiwiSaver now, I’ve worked out roughly how much I think I will need at retirement based on the lifestyle I want, I now can work out how much of a lump sum I need to accumulate in the remaining working life to get there'.
"So the missing piece then becomes how much I need to contribute on a regular basis. I think we as an industry need to help all our KiwiSaver members make that connection."
Asked whether something under 50% of people saving being confident about meeting retirement goals was a high enough figure, Body said: "Clearly we want that confidence to be higher.
"But we need to remember that KiwiSaver is only five, coming up to six years old. For most New Zealanders it is our first experience of saving through a financial instrument.
"There’s now 2.1 million New Zealanders in KiwiSaver. I think it is a bit of a journey, to coin an over-used phrase, I think 50%s not a bad result after six years but the question is how do we get real momentum in taking that 50 to 60 and then into the high 80s and 90s."
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13 Comments
Indeed. KH's approach will benefit some people - notably those who could and should be saving, but aren't because they are disorganised, or short-sighted. And it will disbenefit others - those who are saving, but in a different way, like Ralph, or those who have good reasons for not saving at this point, such as people with debts and young families. How to assess whether the benefits to some justify the costs to others?
I'm in Ralph's boat at the moment, i.e. it's not for me. But on the counterpoints, being a scheme of some use to disorganised, short-sighted, I agree on the merits. However, the real benefactors of course are the fund providers. And future governments who see a growing pot of funds to play with.
Depends on how you view redistribution. Your compulsory KS would redistribute from people earlier in their lives (regardless of whether they can afford it), to the same people later in their lives (regardless of whether they need it). Since most of us get richer as we get older, that's a regressive redistribution. The current system redistributes from net taxpayers, ie (relatively) rich people (who can afford it) to old people (again regardless of whether they need it, though as a flat rate it's worth more to poor old people than it is to rich ones). That's more progressive. It's a personal judgement as to how far you value progressivity
Thanks MdM. Transfer from your youth to old age. Makes sense to me as the problem to solve is lack of income in old age and in your youth you earn. I also attracted by the oft made statement. "Pay yourself first." You will be aware of that approach.
Yep. All of us. We spend and consume less now. Yes it's hard.
One view I don't get (you didn't express it) is the one that goes "you won't be able to save enough. So why do it." Seems a ridiculous view to me. So what is the plan these people have then?
A perfectly sound and rational case can be made for compulsory pre-funding of one's own pension. You're making it. But that is not the same as saying such an idea is likely to succeed politically. A very similar proposal was rejected by a margin of about 90 - 10% when put to New Zealanders by Winston Peters in a referendum. Now that was obviously partly because people saw it as a referendum on Winston, but there are also aspects which might give people concern even if the proposal was made by Richie McCaw.
One: when it is fully established, your approach (KHiwiSaver?) will cost rich people less, and poor people more, than the present approach does. That's likely to strike many as unfair.
Two: while it is being established, it will cost everybody more than the present approach does - taxpayers will have to fund their own pension on top of continuing to pay the pensions of those who are already, or very close to, receiving them. Eventually the benefits will be felt in terms of lower taxes (or more Government spending for the same taxes), but the transition is likely to take a few decades so some of the people who meet the cost won't see the benefit.
Finally, and in case Ralph is still reading: Your approach means the Government and taxpayers now have a direct interest in how much each individual accumulates. (At the moment they don't - each pensioner costs the Government the same, whether they have millions or nothing in private savings, so the Government is indifferent to how much they have). If people such Ralph are allowed to manage their own savings and investments under your self-funded pension approach, some of them might be tempted to put the lot into a project to re-create and farm giant moas - and lose it all. Then the Government would have to step in and rescue them. A Government with a duty to protect taxpayers from such risks would have to constrain people's ability to take on irresponsible levels of risk with their personal savings, such that you'd end up with people being required to save in Government-approved accounts. It's pretty clear how well that would go down with Ralph and others on this site!
One thing I don't like about massive regulatory "solutions" is they tend towards the idea of risk removal. To me this kind of thinking has two flaws;
First, life is not a thing that can be made risk free.
Second risk is a two sided coin, the other side being opportunity and in removing the coin both are lost.
Another big thing I don't like about "government" super is the government controls it - not you. The government makes the rules, which will change every time the government changes over your working lifetime - just like they do in Australia where super is compulsory.
First you can get it at 60, now it's moving to 65 then it will be 70.
First it isn't taxed, now just a bit and then same as regular income.
First you can take it as a lump sum, now only some and then not allowed at all.
First you can run your own funds, now only with rules and then not at all.
First you can take it when you emigrate, then you can't at all, now you can with rules.
Can you imagine the million page set of rules and charges that will exist by the time a worker aged 25 today gets to retirement?
Once it is compulsory fund performance doesn't matter anymore. It's not like you can up and leave, it's against the law.
In Australia the large fund managers are currently arguing the government should persue a policy of consolidation. That's where the energy is going (forget fund performance). By the time that 25 yer old retires we can expect the same system as the banks have, four or five large identical funds with high fees, below average performance and subject to constant meddling by governments trying to get re-elected.
Official figures up to the end of April show there are 2,110,251 KiwiSaver members, this is up 9.25% on the figure at the same time a year ago.
However, the number taking an "active contribution holiday" is now 97,461, which is up some 22.1% on the figure for April 2012.
"But it's concerning that such a large confidence gap is emerging between those who are sticking to their savings plans and those who have stopped paying into their KiwiSaver account," he said.
Concern that the fees are not being collected from the disaffected or that ANZ realises along with the literate that interest rates are charging towards the zero bound barrier and that any number of spending sacrifices will not transform into a capital lump sum large enough to purchase an annuity capable of supporting expenditure demands during retirement?
Or is it just a function of the same poverty that forced the government to suspend NZ Superannuation Fund contributions visiting a cohort of citizens?
Little solace is evident in either option - a radical overhaul of retirement funding choices is called for.
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