KiwiSaver is failing

Investing

Two Treasury researchers find that the KiwiSaver program is not achieving its goal of increasing the net wealth of the country, having no effect in meeting its objective

19th Nov 14, 12:37pm by David Chaston

In a Treasury working paper released earlier this week, authors David Law and Grant Scobie conclude that "KiwiSaver has not been associated with greater accumulation of net wealth by its members and hence improved retirement income outcomes."

Members are building retirement savings in KiwiSaver, this suggests, but only by diverting it away from other retirement savings options.

Such diversion behaviour has been a longstanding criticism of such schemes. In fact, similar macro points have been made about the way the compulsory scheme in Australia operates.

Usually this criticism is bundled with the observation that the funds management industry is the main beneficiary of these types of officially-sanctioned schemes.

KiwiSaver is a voluntary savings scheme aimed at increasing the retirement wealth of a target population. Its introduction in 2007 was prompted by a view that household saving in general appeared to be low and declining, and that there may be some who would reach retirement with an accumulation insufficient to allow them to sustain their pre-retirement standard of living.

In the paper (which is not the official view of Treasury), Law and Scobie have looked at data from Statistics NZ's Survey of Family, Income and Employment (SoFIE), and KiwiSaver data from the IRD.

SoFIE is a longitudinal data set which includes, as well as a wide range of socio-economic variables, details of individual assets and liabilities. Administrative data from IRD provides individual KiwiSaver membership information.

Their study was for an eight year period to 2010 and they used two approaches to the data. The first actually found that the net wealth gains of non-members were $16,000 higher than for members.

When they analysed the same data using the other technique the results were similarly negative, but worse.

And when they looked at work by others assessing how well KiwiSaver is working to address the goal of raising overall savings rates they "found no association between KiwiSaver membership and expected retirement income outcomes (an important element of which must be net wealth at retirement)".

KiwiSaver membership has been a huge political success in that many more people have signed up than was originally anticipated.

Part of the reason may be that the Government has added a powerful incentive through its Kickstart bonus and matching contributions that now total NZ$5.8 bln. However, none of these transfers build our national savings rate.

So far, employees and employers have paid into the schemes NZ$13.3 bln. The total $19.1 bln paid in to all schemes has grown to NZ$22.3 bln over the seven years KiwiSaver has been active.

In an embarrassing comparison for KiwiSaver, over the 12 years the NZ Super Fund has been operating, the Government's NZ$14.9 bln contribution to the Cullen Fund has grown to NZ$25.8 bln by June 2014.

Unless something different happens, this paper suggests that KiwiSaver as it is currently structured will do little improve our poor national saving rate.

You can read the full Working Paper here.

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60 Comments

by raegun | 19th Nov 14, 2:35pm 1416360931

The trouble is most people don't earn anywhere near enough to make any great inroads into providing for themselves after retirement. A mixture of savings and pay as you go will need to be the solution for retirement incomes.

by KH | 19th Nov 14, 2:49pm 1416361764

Illogical "Most people can't pay for themselves after retirement." So with smoke and mirrors we all get the government to give us more money than we give it. Magic solution.

Reality. We just got to knuckle down.

by raegun | 19th Nov 14, 2:59pm 1416362366

Not really, you have no idea in reality a) how long you will live b) how much your money will buy that far out and c) what you will do if you lose it all.

Trouble is you end up with too much money with nowhere to invest it and shonky outifts happy to relieve you of it, or you get something like a rentier class, flat out feathering their own nests while many under them need to remain down in order for them to do it.

It is fine to have retirement savings but it should never be seen as they only method of dealing with retirement. Peope carrying on working, in a perfect world that has no ageism in its workforce, of course, is another part of the whole story

And in a world that must get its head around growth coming to an end other solutions are needed.

by Halfway To Paradise | 19th Nov 14, 3:17pm 1416363452

Hate this term 'rentier class'. My wife and I have rental properties, we are not after capitol gain (we are not in Auckland or Christchurh) and wouldnt want to be. We both work hard and contribute to pension funds as well as Kiwisaver, but as a means of spreading our risk have rental property. I have seen so many people burned by misuse of pension funds. We are aiming that during our retirement we will not be a burdon on society and the taxpayer. No doubt in our retirement we will still be paying taxes.

by Zombie ponzi | 19th Nov 14, 3:41pm 1416364876

Agree with this sentiment - property investment isn't a bad thing per se - especially if it is based on income (which is of course taxed) rather than capital gains.

I suspect in most areas where yields are better the local populous would be well placed to buy should they choose to.

by meh | 19th Nov 14, 4:09pm 1416366544

The issue I have with using property investment to build up assets for retirement is that it is expecting someone else to pay for it. In most cases the property is negatively geared and most likely will not make a profit for a number of years. The tenant is effectively paying off the debt and the owner (who most likely intends to sell eventually) ends up with the capital. Capitalism at it's finest.

I get that everyone is trying to take care of themselves and this certainly isn't personal towards you Robert Meek. I like to try and look at the bigger picture and look further ahead than my own lifetime in an attempt to see future consequences.

by Ms de Meanour | 19th Nov 14, 4:58pm 1416369483

Not a zero sum game. When a voluntary exchange takes place, both parties are better off than they were before; if this were not the case, the voluntary exchange would not take place.

by raegun | 19th Nov 14, 5:40pm 1416372004

Trouble is we are now at a point where willingness does not enter into the whole thing for far too many people. If we got back to purely that then we might have the right balance.

If you want to be a landlord go buy a block of flats, but hogging the housing is not on, sorry

by Simon | 20th Nov 14, 9:54am 1416430459

Whats wrong with auck council then? And why has not more attention been focused on how it's been done in wellington for decades?

The terrace and any other inner suburb streets are lined with 2 storey houses that contain 4 flats each rented at 300+ a peice, giving $1200+ for a house that once would have only rented for less than half that.

Even suburbs outside 'inner city' have houses stacked side by side with only walking distance between them. It's considered character, no one complains about lack of light during certain hours of the day. Seems the solution to aucks problems is so obvious and in the politicians back yard (literally), it's amazing auck council are still so slow in acting.

by cowboy | 20th Nov 14, 9:14am 1416428051

The only solution is to allow safe low cost alternatives to be built and owned.

when the renters can choose to do a cheaper option, then the energy/heat can drain out of the market.

But. It's an overpopulation problem, because even if there is low cost housing, several of the humans go feral, and the police protect them from social retribution/control. Simply because it easier for them to prey on their neighbours than to have hope in the hamster-wheel society

by Ms de Meanour | 19th Nov 14, 5:51pm 1416372695

If one party is a giver and the other a recipient, that is not an exchange, it is a transfer. In an exchange each party gives something and each party gets something in return. If it is a voluntary exchange, by definition both parties gain something which is worth more to them than they are giving. If they did not think so, they would not agree to the transaction.

by cowboy | 19th Nov 14, 9:33pm 1416385990

NZCoolie is not referring to the strategic advantage. He(?) is referring to the fact that funds aren't magically created from anywhere during the process. You want bigger profts? then prices go up, or costs come down. you want more wages, other purchases and expenses come down or prices go up.

One does enter the trade then find on has more than the purchaser paid...in fact , with GST etc, the seller frequently has less than the purchaser paid.

by cowboy | 20th Nov 14, 7:31am 1416421860

apologies bad day and dyslexia kinking in more than normal.

One does _not_ suddenly find one has more money (out of the transaction between seller and buyer)

by PeakEverything | 20th Nov 14, 10:58am 1416434298

You sound like an 18 year old who has just discovered econ101.

by bob | 20th Nov 14, 12:46pm 1416440813

Property in central Auckland is a good investment because everyone is so busy blaming rising prices on landlords and other minor factors that they they don't address the issue of supply in locations people want to live.

It's not all bad renting in central Auckland. You can live in a $1,200,000 house for $800 a week. To own that house would probably cost more like $1200 a week in expenses and oppourtunity cost. More if it's got debt against it.

by bob | 19th Nov 14, 3:55pm 1416365755

Also agree it's a stupid term- especially in response to an article about how Kiwisaver isn't working. Deciding to invest ones paltry income in something that will pay for ones retirement rather than Kiwisaver which isn't is nothing to do with 'class' - it's just choosing a better investment.

by bob | 20th Nov 14, 12:33pm 1416440039

I don't any employer actually gives you a bonus 3% on top of your salary if you chose to be in Kiwisaver. I'd rather have a 3% pay increase and put that against the mortgage.

by two otherguys | 19th Nov 14, 4:20pm 1416367233

ooooh - diddums - It's not who you are - it's the group you are identified with

It's has always been the one or two bad apples who spoil the barrel for everyone else

Should you undertake the same activities as those who are spoiling it for the rest then you have to wear or share the label - whether you like it or not

google example - definition of a spiv

A flashy, slick operator who makes a living more from speculation or profiteering than from actual work. The kind of person who wears a shiny medallion, goes bankrupt from a dodgy swampland development scheme, but still lives in a big house in his wife's name.

This real estate boom is a spiv's paradise.

by raegun | 19th Nov 14, 5:45pm 1416372322

Sadly, Robert but rentier is what it is coming to. You think you have a few houses to rent, well, far too many have done that now, so that now what is needed for this new class, which, like it or not, you are in, a whole lot more need to remain in a position where they are unable to buy. It has gone beyond renting being a temporary thing that you do with a bunch of mates before you set out on your own life with a partner and family, or while you set yourself up, now far too many people will have to face a lifetime of having to rent off someone like you.

You do need to look at how this affects down the track, and all of those people below you who cannot buy will be manifold burdens on society as they were not able to even own one HOME and it is a home people are after, something that renting does not quite add up to, not in this country anyway.

by cowboy | 20th Nov 14, 9:00am 1416427214

raegun, for your comments to become true, the rents (rentier is actually a lot more than just building rents, it includes everything which isn't selling labour or manufacturing (ie not trade or labour), running websites, ad campaigns, supervising telephones sale, are actually rentier activities because they don't add value to the product chain.)

... the rents must have a premium costs above the cost of providing the service.

In many places in NZ the rent on a residential house is actually lower than what it would cost to purchase the property. So PI rentiers have to create dead equity in a property, 30-70% of the properties market value, before they actually receive a positive return.

It's paying off the "plant and fixtures" to get the "machinery" of the house that takes long term investment, and why things like negative gearing and purchase of houses which look like a bad deal for years 1- 5 are a part of doing business.

Frequently then the customer gets all the benefit of that investment, but only pays a portion of the whole value (interest, rates, insurance, maintenance, disbursements) plus a small fee on top of that, which is frequently the lowest return on investment (around 2 - 4% p.a). If you buy a product in a retail shop for consumption, you would expect to pay such costs and a far greater sale margin than 2 - 4 %.

the problem is not the rent, it's the cost of the building and land. land because of demands from population, and travel/access expenses. Building because of labour and other costs passed onto the final users.

If you took away the renter, would that same renter be able to pay enough to buy the place they're renting (say at 75% of current market price)? Thats a lot of capital to ask the renter to have sitting around, and because of the way PI _business_ is done, the interest cost will be higher than the rent, and the property expenses would still remain, so the rentier offers a service. But the cost of providing the service, is dependent on the property acquisition, the more desireable the property the higher the price.

by raegun | 20th Nov 14, 9:57am 1416430655

You are never going to rid the world of the need for SOME landlords and SOME tenants, however today that balance is tipping far too far into the wrong direction, so things needs to change. We now have just about every man and his dog with the ability buying up houses as investments. That requires too many not to be able to purchase for it to continue to work. If it were a more risky business like say share markets etc then every man and his dog would not be trying to get into it. The balance does need to shift back and you can play around with numbers all you like but housing is a bit different, really, isn't it? It is a prmary NEED for people not a nice to have so the emphasis and bias should be toward owning your own home. I blame a lot of societies ills on people not having a stake in their own home and further out, their own communities as they tend to be transient. I put it to you that is the rise of this rentier class that has created the underclass and not so much the other way around. That and too much immigration.

It does have to be seen in a different light than what it returns each year. And yes, if alll the speculating and foreign buying were reduced if not eliminated, I suggest to you that a lot of the renters would indeed be able to buy, as they should

by KH | 19th Nov 14, 3:55pm 1416365739

Problem - uncertainty how long you will live. So solution: A. is to do nothing now then starve or shoot yourself at Age 60. or B: Get the government to tax the hell out of poor people so they can support you on the tax 'them' pay 'you' system. People who accordingly to your are already are too poor to generate their own saving

by cowboy | 20th Nov 14, 9:10am 1416427822

a - reduce costs

b - try to get it through other peoples' head the important of facilitating reduced costs (especially Hidden (eg advertising, crime), Fixed (taxes, rates, energy), and Compliance (eg redoing the same learning for new rules, spending a fortune on earthquake prevention renovations) all such costs MUST be recovered from end consumers. This puts prices up and makes saving and low/fixed income survival much mcuh harder.

c - importance of distributed services, especially now that we are starting to beat the "tyranny of distance". Centralisation puts up prices in the high demand central area. Relocating services cores, spreads the wealth, otherwise only center will have any resources to hold up the entire structure. (if one is building in portland cement, one does not build a structure resembling an umbrella - with one central support)

by KH | 20th Nov 14, 10:05am 1416431142

Bang on target Cowboy. New Zealand certainly has a culture where we have high expectations and think all the added costs you outline are 'Must haves'. But we do not want to act in a responsbile way about how to pay for it. Apparently government can afford to give us more than we give it. Tui moment.

Part of our solution has been to give up ownership, and now cash flows overseas in vast amounts, making us poorer still.

by cowboy | 19th Nov 14, 10:00pm 1416387638

You work might allow you to continue on into your old age, but getting the body to keep after after 70...it's just not going to move like a 30yr old. And the mind simply doesn't adapt to new message brokers and revolutions and endless re-adapting to new procedures. Study a a bit of gerontologics to see why, after a while there are simply more memories of things gone by, and less point looking forwards as the days grow ever shorter. while the young mind may dream of a better future (or a sweet retirement), once you've bought the cow then the dream isn't a dream any more, it's a daily task. When you've got more friends gone, than you'll ever have again, the "keep on working" is just a denial tactic. Carry a few old folk past there working days, keep apologising to their customers, you'll see.

thats one problem we're having with some farmers. they can't see the point in doing things any other way than they've done in the past, just because they can't be bothered with the paperwork...and since they're paying less than ever it's hard to justify why they should.

by Ms de Meanour | 19th Nov 14, 4:14pm 1416366893

How exactly would "a mixture of savings and pay as you go" differ from the present approach?

by raegun | 19th Nov 14, 5:48pm 1416372501

Not very much at all

by KH | 19th Nov 14, 2:44pm 1416361458

Kiwsaver is great. But undermined by a number of factors. The major one is that it remains voluntary, and what happens is that those who will save, do save, and those who wont save don't. Pretty much as what the research paper says. Solution. It becomes universal

Net result is as before, the careful will have to look after the drongo's as they drop over the income cliff after age 65.

Next thing is that government has neglected it. We should have had progressive increases by now so that the input rate is about 15% of income.

Also we have that dopey view is low income people can't afford to invest. But the reality is they can't afford not too. But that dopey thinking is pervasive over many things in New Zealand, which is why we send so much profit offshore. Apparently we can afford that.

by raegun | 19th Nov 14, 2:50pm 1416361848

Can you suggest what percentage of zero (often minus zero) left over after the necessaries are paid for from one's income a low income earner should invest - oh, especially important advice for anyone on a zero hours contract

by Ms de Meanour | 19th Nov 14, 4:23pm 1416367436

That depends on what you think the objective of KiwiSaver actually is. If it is to make everybody save more, then certainly a nudged-encouraged-voluntary scheme won't achieve that.

But why do you want to make everybody save more? You seem to object to the careful having to look after the drongo's, but making everybody save more won't in itself affect that. New Zealand Superannuation is not paid only to drongo's, it's paid to all (residentially qualified) over-65's at the same rate and is not affected by how much saving anybody has.

If your intention is to change that - that people's NZS entitlements should then be offset against their savings - then that is a very different proposition and one which raises a whole heap of additional problems.

by KH | 19th Nov 14, 9:53pm 1416387227

Simple MdM. Phase out National super. You heard it before but you don 't want to hear it.

by Ms de Meanour | 20th Nov 14, 10:51am 1416433900

I don't mind hearing it at all. I don't agree, but I have no problem with other people proposing it and then having the discussion as to whether it's a good idea.

What I do object to is people saying "make KiwiSaver compulsory" without making it clear that what they actually mean is "phase out NZS". That is misleading and dishonest.

by Ms de Meanour | 20th Nov 14, 1:08pm 1416442084

What do you mean by "cannot afford"? The cost of NZS is projected to peak at about 8% of GDP. Many OECD countries are already paying a lot more than that.

It's certainly true that entitlement to NZS is completely unrelated to the amount of tax you've paid, but why would you want to make it related? Do you really want those who've paid the highest tax - ie, those who've earned the highest income during their working lives - to get the most generous Government handouts in their retirements, and for those who've been on lower incomes to get less? Do you think that will make it less expensive, or fairer, or simpler to administer?

by cowboy | 19th Nov 14, 9:52pm 1416387142

no. the solution is not to make the problem bigger as you propose.

the solution is to solve the problem.

Re...the rest of your post. Seriously, you are wronger than wrong.

Just where is this magical money for them to save going to come from.

they don't do the Latte thing, so can't just "redivert 1 latte a week"

they can't just take 1 less overseas holiday a year, or only go alternative years. for most getting enough for a bus trip to get groceries can be a struggle without outside assistance.

Although yes, we need to stop sending profits/dividends/interest off shore. that's just stupid behaviour, how is sending our profits to overseas (for consumption) going to improve incomes at home.

by KH | 19th Nov 14, 9:58pm 1416387484

So they can't afford to save, but you can tax em to pay for your super. Thats magic Cowboy.

by cowboy | 20th Nov 14, 8:34am 1416425672

Do you think anywhere that I have said that tax should be used to pay their super???

I'm VERY sure I say exactly the opposite (that general taxes shouldn't be used to pay super/pensions). In fact, I'm pretty sure that most people on this site would confirm that I'm very much against anything but the most mininal taxation (third party arbitration, criminal damage, public commons infrastructure, military).

by Ms de Meanour | 20th Nov 14, 10:53am 1416434012

OK, so if it's not to be paid for out of taxes, and people can't afford to save for it themselves - then what is your proposal to fund future pension costs?

by cowboy | 20th Nov 14, 12:09pm 1416438553

see below. although the first step is probably to stop stealling their seed money....

by notaneconomist | 20th Nov 14, 11:36am 1416436589

How much tax do low and middle to low income earners actually pay KH?.....it is my understanding that any contributions that are made via the tax system are reimbursed back to them via the social system.

by cowboy | 20th Nov 14, 12:10pm 1416438612

consider the amount that is lost to corporate tax that could have gone into wages or debt reduction.

by dtcarter | 19th Nov 14, 5:32pm 1416371522

haha, nice spotting Zaney.

by Austin Fisher | 19th Nov 14, 8:37pm 1416382660

I have read the paper but I am none the wiser as to why KiwiSaver apparently doesn't seem to increase retirement savings. There are numerous references to incomplete data and (I'm sure) well-respected models to fill in those gaps. Also, the data this study uses is only to the end of 2010 i.e. when KiwiSaver was 3 years old.

But my main question is why this work was done? Why the existential angst? Does the Treasury commission people to produce reports just because they think they might be interesting...? And anyway, aren't the regular KiwiSaver evaluations covering this ground?

With the right academic chops, and using the same authoritative-sounding language, I think a similar paper can be produced to prove that trousers should be worn on the head.

by cowboy | 19th Nov 14, 9:40pm 1416386428

How many years experience do I need, and mega dollars do I get paid to realise after several years, that Kiwisaver that;

(1) takes money out of peoples' wallets and locks it away, and

(2) stops them spending it into the economy where it can pay wages, and

(3) actually costs fees and overheads...

isn't going to magically create new money and new wealth into the system

AND

FFS, it's a _retirement_ system, you not going to see any advantages until retirees are into their spending patterns at least 5 - 10 years after drawing on the locked up wealth.

As for the "drawing away from other retirement funds"... (1) those of us paying into kiwisaver for OUR retirement, are still paying the previous generations pensions in taxes... and (2) remember apparently NZer's weren't paying anything into retirement funds that's why they had to make it universal and tried to make it compulsory.

Yes, I know. It hasn't instantly created wealth.... so why does doing even more of it going to fix the bad decisions made from the original faulty premises. That is after all what we're talking about, that fund managers and interest parties think that if we just pay even more, and make it compulsory, then all the laws of mathematics are going to reverse for them.

by jamesy | 20th Nov 14, 10:05am 1416431135

(1) KiwiSaver is voluntary, feel free to not contribute.

(2) So if they just spend and save nothing, as you propose, who's going to pay to look after them, in their later years? Since you're against the taxpayer doing it. If you propose that they should save as a matter of "personal responsibility", what alternative vehicle do you suggest where an *employer* contribution will be made as well? Again, not anything the government is contributing from its coffers apart from the pretty paltry $521/year.

(3) True, some providers' fees are relatively high. But their returns are comparatively high as well. If that changes, one is free to change provider.

Roughly 95% of my KiwiSaver balance is due to been personal contribution, employer contribution, and return. The government has done nothing for me except put in place the basic infrastructure.

It's actually a sound investment to contribute the minimum 3%, given employer contributions and returns. And for most people, they barely feel that 3%. I know I don't. I did when I enrolled, but it's now part of the budget.

What kind of free lunch is it you want? You don't want taxation, but somehow somebody to pay for retirees. But you don't want people to save any money, because they just don't have any to spare, and if they save the 3% pittance, that 3% not going into the economy, compared to the rest of the income which *is* going into the economy, is going to break the economy. Uhh, ok?

What a bunge of whingeing. And I thought my generation, the Millenials, were supposed to be the whiners.

by cowboy | 20th Nov 14, 11:06am 1416434802

(2) Who says anyone is going to pay to look after them in their later years?

"employer contribution" is just wool over the eyes of the financially unsavvy, it is just part of your wages, taxed just like your wages, only the employee doesn't get a choice to see it. What government contribution - government doesn't have money, that's just money redirected from the tax the employee paid...which again, could just have been reduced taxrate and given to the employee.

(3) I make between 20 and 300% p.a. on my investments (post fees, pre tax). How much you say these guys are making?

Roughly 95% of your Kiwisaver balance is personal contribution, personal contributions via employer, personal contribution due tax redirection. and a compounding return from those investments. It's the compounding that makes it look large, but when you take into account the compounding devaluation you are also accruing things don't look so good.

I just offer employees there 3% equivalence in cash if they don't want Kiwisaver. I can't do much about an equivalent tax rebate.

(1) It is _currently_ voluntary. It was _proposed_ as compulsory, and many self-deluded parties continuously try to make it so.

- -

however the point remains, sucking wealth OUT of the loop , does not and cannot create wealth.

providing those funds back in externally - at an additional cost - will _reduce_ economic progress (wealth) not improve it, because it's the same money that was there initially, just it now cost more to put back into the loop. This is also why it's is _mathematically_ impossible to tax a system into prosperity. The additional costs -must- be bourne by end users eventually

Delaying the use of the funds, reduces the velocity of money on those funds. It looks impressive on paper because of compounding effects, and that it's large numbers drawn together. But it's still removed from the system, and costing money, and it will continue to reduce the wealth until the funds are returned to the end consumers...at which point the system will likely have seriously devalued in the same time DUE to the loss of wealth caused by pulling it out in the first place.

- -

The only time that kind of (kiwisaver funding) activity makes senses is when the pooling of resources leads to local benefits for large projects. Things like power stations, schools, universites, large factory corporations, public service organisations - all places where the customer is being charged for their usage and that usage is being provided by people who receive their ROI from customers usage.

by Ms de Meanour | 20th Nov 14, 11:18am 1416435519

Still don't understand how you do think retirement should be funded.

by cowboy | 20th Nov 14, 12:07pm 1416438436

The main thing is to bring down the cost. That is the responsibility of the government and society cost.

I would consider government support for modest needs past 85. That means the individual (and their family, past and future) have the responsibility for that fixed 20 year period in between. That gives firm knowledge that people have to cover _20 years_, no more. Those that age past that 20 years post "standard retirement age" are much fewer, and frequently require hostel or tight apartment living anyway, thus they have little burder on the taxpayer...and if they get to that point then good on them.... very very few make it past the next 20year band...

Which gives people a fixed time to cover. I would recommend insurance for the last 10 years of it.

Which leaves 10 years to cover. And if people have been responsible and after all they have a duty of care to themselves, personally and by the State . The State insists intermittently that they should have such duty. then they should be aware of the approaching time and needs .... which strangely enough resemble exactly the same needs as most start out people - decent, cheap but not flash shelter, clothing, food, companionship, entertainment. If we have a community, does it not fall to the community, and it's representative, the State, to ensure such needs (ie _low_costs_) are met? There is always a risk that someone is ripped off, or loses substantiatally due to accident or third party through no fault of their own...in such case...provided the State has done it's duty to keep costs low...it is little difficulty to cover their essentials and a little.

- -

Otherwise you're going to have to explain why everyone else in the country can expect the country to look after them, but I don't get the same. (and at 65 - 70 I'm not going to have the energy to go toe-to-toe with government and WINZ for months again just to get my legally assigned rights)

by Ms de Meanour | 20th Nov 14, 12:14pm 1416438886

You are all over the place. "The government" is to support "modest needs" past the age of 85; "the community and its representative the State" is to "ensure that low cost needs are met" between the ages of 65 and 75 - both of which sound exactly like NZ Super - and then "insurance" is to cover the period between 75 and 85. How any of this is to interact with people's "duty of care to themselves, personally and by the State" is entirely unclear. And anyway, which is it? A "duty of care to themselves personally" is the diametric opposite to a "duty of care to themselves by the State".

by Mike B | 20th Nov 14, 12:41pm 1416440496

Can U compare

Kiwisaver has been going 7 years. That takes us back to 2007. About the time the GFC started to kick in.

NZ Super Fund has been going 12 years. That takes us back to 2002 when we were haveing a boom.

NZ Super Fund has increased from 14.9 billion to 25.8 billion in 12 years. That is an average of 5% per annum (including inflation).

The plain fact is that both Kiwi Saver and NZ Super Fund MUST be fantastic things because the government started them.

And we all know "governments never get it wrong"

by iconoclast | 20th Nov 14, 1:23pm 1416443015

Austin Fisher - 19 November 2014 - good questions - to provide you with complete answers would take too long

Sufficient to say that many of the answers you seek can be located elsewhere

The research by Treasury was a surprise - in that it must have been an insular exercise conducted in a vacuum without reference to any material elsewhere

The following articles by Michael West touch on what (only) some of the problems are and why its in the mathematics. Sure he is writing about the Australian Compulsory Superannuation system which has been running for 24 years, but because the dominant operators are the banks and wealth managers, they are the benchmark trendsetters (how it's done) and are 80% of the wealth management industry and happen to be the same players so the names won't be a distraction to you

Study them carefully - you will notice he has been silent for nearly a year

15 Nov 2014 - Fat Cat Fees

http://www.theage.com.au/business/fat-cats-rake-in-supersized-fees-2014…

20 December 3013 - Banks are eating our superannuation

http://www.theage.com.au/business/superannuation-banks-eating-into-savi…

18 December 2013 - they're eating us

http://www.theage.com.au/business/banking-and-finance/cold-hard-unyield…

29 November 2013 - Management Fees take 45%

http://www.theage.com.au/business/management-fees-take-45-of-our-saving…

by Austin Fisher | 21st Nov 14, 7:59am 1416509986

Thanks iconoclast. The sorted fee calculator gives some chilling stats over the effect of cumulative fees. There are KS schemes out there, right now, which will take an estimated 25% of your fund in fees assuming you are 30 today and have 35 years to go.

by David Chaston | 21st Nov 14, 8:33am 1416511998

Fees are only worth worrying about if you read before-fees returns. If you follow "after-tax, after-fees" returns as we do, fee levels are less relevant.

Certainly US and Aussie research shows that fee levels have a major effect on returns, but the industry tends to talk about before-tax, before-fees, so that research is designed to expose the flaw in that type of return promotion.

In New Zealand, Sorted has picked up on that approach, and suggests Fee levels are an important indicator and depressor of returns.

But our 'regular savings' analysis is done "after-tax, after-all-fees" (including member fees), so a fund with a good track record on that basis is good for the investor no matter what the fees are.

by Stephen Hulme | 21st Nov 14, 9:00am 1416513623

Pension Fund managers fully expect to retire well before the population of fund contributors.

by Mike B | 21st Nov 14, 11:05am 1416521127

David, if you are talking about "Real returns" then what you say may be correct. However when you are talking abour "Paper returns" which could be wiped out tomorrow then Fees are worth worrying about.

So which are you refering to Real or Paper?

by cowboy | 21st Nov 14, 11:26am 1416522370

"Fees are only worth worrying about if you read before-fees returns."

and such thoughts are only an option for those living high on the pig.

the hoi polloi have to watch the efficiency of their systems

by Austin Fisher | 21st Nov 14, 1:21pm 1416529279

I like the way interest.co.nz reports returns - it's the only meaningful way to compare the past performance of KS funds.

However, I am referring more the compounding snowball effect of higher fees on future returns. In the early years of KiwiSaver the $ difference is not much...but as the years go by - yikes! The sorted fee calculator saves you from having to work it out yourself.

by Alter Ego | 21st Nov 14, 8:26am 1416511606

I hate to add the fact that it is all out of your control and in the hands of those leeches who will live comfortably on your generous donations until "they" retire.

And the inflated benefits will probably buy a deck chair, on the USSR/USA/EU/UK/ plus Middle East Titanic.

Depending on which one survives the monetary wars.

by Craig Simpson | 21st Nov 14, 3:50pm 1416538212

Does anyone look at the Management Expense Ratio or Total Expense Ratio which the KiwiSaver managers have to disclose in Annual Disclosure Statements?

These ratios give you the best picture of what the KiwiSaver managers are charging and the true cost of administering your retirement savings - it includes those little nasties which can only be quantified and surface when the annual accounts are produced - performance fees and brokerage or trading costs are only truly revealed at the end of the financial year.

Hopefully through administrative efficiencies and economies of scale the MER/TER will come down over time.

by Austin Fisher | 27th Nov 14, 7:33am 1417026781

The problem with MERs is that they look backwards. If the provider is about to whack your scheme for a hefty performance fee, you will not know about that until the deed has been done.

by skudiv | 17th Jan 15, 6:36pm 1421472985

What do you expect when you tell people to become investors, without first teaching them about investing? #Fail