New research done for Te Ara Ahunga Ora, the Retirement Commission, shows that the KiwiSaver balances for young Kiwis are in some instances only a third or less of what they might have been - and withdrawals to buy houses appears to be a main contributor to that situation.
The commission hired actuaries Melville Jessup Weaver to collect comprehensive data about KiwiSaver balances across age groups and gender. The MJW report contains data on 2,944,050 members with total balances of $85.44 billion as at 31 December 2021, representing approximately 93% of the total KiwiSaver member base.
As one part of the research, MJW did modelling to develop hypothetical scenarios for people who had invested in KiwiSaver for 14 years (the maximum time possible) without making any withdrawals and compare them to the average balances.
This was the outcome:
For example a male that was 20 in 2007 could potentially have had $66,433 as a balance by the end of last year. In reality the average balance was $22,738. A female that was 20 in 2007 could potentially have had a balance of $58,289 - but in reality the average balance was $19,141.
Te Ara Ahunga Ora Director, Policy, Suzy Morrissey said when comparing current balances to what would have been possible for a median wage earner to have accrued over the 14 years of KiwiSaver, "we see that they are lower, on average, across all age groups".
"Part of this can likely be linked to first home deposit withdrawals and saving suspensions, and people not participating in the scheme for the full 14 years that it has been available."
According to figures compiled by Inland Revenue, withdrawals for buying a first home have been rising every year. In the year to June 2021, almost $1.6 billion was withdrawn from KiwiSaver accounts to buy a first home. Recent monthly data suggests this has slowed more recently, however, and for the latest month available - February - the amount withdrawn for a first home was $73.1 million, down from $106.6 million in February 2021.
According to the MJW report findings the average KiwiSaver balance is $29,022, with the average balance for a male 20% higher than the average balance for a female – males ($32,553) and females ($27,061).
The findings also reveal 40% of KiwiSaver members have a balance of less than $10,000.
Some 21% of those aged 51-65 have less than $10,000 and they may not have saved as much as they would have liked for their retirement.
Among other age groupings:
- 19% of those with less than $10,000 are aged 17 and under
- 24% of those with less than $10,000 are aged 18-25
- 22% of those with less than $10,000 are aged 26-35
Morrissey said access to the data was particularly useful to support the work under way on the three-yearly Review of Retirement Income Policies, in which a wide range of areas relating to retirement are being considered.
The Retirement Commissioner will submit a report to government in December providing analysis on the effect of retirement income policies for New Zealanders and identifying emerging issues for future policy consideration.
46 Comments
KiwiSaver was established as the revival of Roger Douglas's contributory superannuation scheme of the 1970s. Successive crowd-pleasing governments have allowed people to dip into their presumptive retirement savings to find a few pennies for the ever-larger deposit for outrageously priced houses. And that is entirely rational, as these same governments endlessly spruik home ownership as the holy grail of kiwidom.
Combine this with the inevitable unevenness of KiwiSaver: that only those who work continuously over their lives in well-paying jobs can hope to save enough in their KiwiSaver (after paying for their house) to have enough to live on in retirement, and the futility of KiwiSaver becomes ever more apparent. All that distinguishes it from other managed funds is its cute name (for Labour everything is KiwiThis and KiwiThat) ... and, worse, the availability of a state subsidy, now mercifully reduced to $521 per year.
That state subsidy should cease. KiwiSaver should be a contract between employer and employee, enforced by unions, without state involvement.
The only superannuation scheme that governments and state funds should be supporting is the one that is available equally to all people, whether male or female, working or non-working: NZ Superannuation. That needs to rise from 66% to at least the 80% of the average wage as it was established under Robert Muldoon; and to ensure it goes to those who need it, the surtax overthrown by Winston Peters needs to be restored in the form recommended by Susan St John and Claire Dale in their paper New Zealand Superannuation as a Basic Income 2021.
Ah yes, the revival of the contributory super scheme that older generations found so abhorrent that National were voted in to abolish.
New Zealand's version of "Reds under the beds", complete with Hanna-Barbera Dancing Cossacks commercials.
Good news is many of these people are now retirement age having put in jack shit, meanwhile today's tax payers are forking out $13b per year on their behalf but are unable to find <$1b for tertiary education.
The perceived risk/uncertainty of KiwiSaver accounts (in their various manifestations) is relatively high across all age groups.
NZers tend to prefer investment in real/tangible assets - notably real estate.
Paying off the mortgage before retirement is a good downstream strategy........
TTP
Quite right TTP - so if there is a terrific sharemarket/bond crash as inflation soars based upon the risk as you say, I guess those kiwisaver accounts will take a hammering....and then there will be nowhere near the deposits available for FHB's to invest into real/tangible assets - notably real estate, as you point out.
I guess if one's house deposit in kiwisaver halves in the near few years....and LVR's remain in place, one will have to hope that the house market also falls by the same amount so that purchasing power is retained in these real/tangible assets.
Paying of your mortgage is also a way of saving for your retirement. banks should be far more clever with mortgage lending. In my native The Netherlands you are not paying off your mortgage but saving for it to pay it off at the end of the mortgage period. You can choose how you want to save, more - less risk, with equal less - more return, similar you would choose your KiwiSaver scheme. You do not nescessarely have to go with the investment provider preferred by the bank you have your mortgage with. Your only relationship with the bank is that you pay them the interest. You pay your savings premium to the investment provider. After 20,25 or 30 years your savings should match your mortgage principal and you pay it off in one go. By the way interest payments on your first mortgage are income tax deductable in The Netherlands so the state pays about 15 to 30% of your mortgage interest payments.
Withdrawing from a retirement savings scheme to buy a house is not new - my Dad took out money from his work super scheme back in the 70s for a deposit on a house. The difference is that he was 22 when he did that, so there was still plenty of time to save for retirement. The average age at first home purchase now is close to 35 I think.
Dated 28 November 1975, which was the day before the election that saw Rob Muldoon become Prime Minister, the properties for sale were largely priced in a range between the early $20,000s and the early $50,000s. An average income at the time was about $125 a week.
Properties in the $20,000s price bracket dominated, although there were a couple for less (a one-bedroom house in Hillsborough for $17,000, for example) and a few that were at the premium end of the price range (a Castor Bay mansion with a swimming pool and views for $140,000, for example).
https://www.stuff.co.nz/life-style/homed/real-estate/124420300/snapshot…
The title picture of the jar with 10 cent coins is ridiculous. When I see one I scratch my head to try and remember if it is current legal tender or not. At least put some dollar or 2 dollar coins in or a picture of money under the mattress. Anything but 10 cent coins for a savings article. Sorry to be so anal about this but it shows how out of touch we can be.
Also remember that what one person needs for retirement is totally different to another. Having a house at age 35 is a good use of retirement income in my opinion with benefits accruing on the way to a better retirement.
I've been saying for a long time in the circles I walk in, that kiwisaver should be for retirement only - i.e can't be used as a house fund.
The purpose of it is a retirement savings scheme, not a first home buying scheme.
It's only added fuel onto the fire that is housing in NZ.
& don;t come at me with the classic line that kiwis retirement plan is their house. it's clearly not working for our country doing this.
The odds that I will live past middle age is highly contingent on me not expiring at my desk, working obscene hours trying to clear a hugely inflated mortgage. So yea, probably a lot higher than those who get to sell down investment property now at the age of 65. I'll be lucky if I can retire before cognitive decline gets me, assuming I live that long.
So forgive me for not being enthused about my already stretched disposable income being ringfenced until I reach a threshold that is basically a political football, and that there's money locked away somewhere while I desperately try to make ends meet on a mortgage and feed a growing family in the actual here and now. There's no point in forced savings if it means people can't afford to live today.
I didn't say it should be compulsory.
Just that if you want to use the scheme, it needs to be for retirement, as intended, not for buying a first home.
At some point in the future the pension in its current form is going to be wiped out. It's 100% unaffordable and individuals ultimately will need to look after themselves come retirement age.
Yep. I don't find anything surprising at all about these aggregate numbers.
I was certainly a lot better when it first started with the kick start and the lower tax on employer contribution and the matching of the $1040.
Oh well, its still better than nothing in my view. But I am definitely going to withdraw it all when I'm 65. Because although mine is in a primarily conservative fund, I am still very uneasy about gambling with this money. I do not now consider this to be money that I can do without in the same way that money used in a casino should be.
This is the most obvious thing ever though?
Enabling FHB to use retirement savings to buy their first home is going to snapped up by literally everyone. In the current market how could anyone afford to buy their first home without it?
Also - the more financially savvy FHB will not be contributing maximum to this. They will hold assets outside of their kiwisaver, because why put more in than you have to, since you gain nothing from it once you've hit max employer & govt donation, and lose control over the money + get taxed more than in private market!
So, if like myself you are a FHB, you'll if possible empty the kiwisaver while holding on to the rest of your share portfolio and buying the house.
Yes, I actually dislike that my employer matches up to 6% contributions. I'd prefer it if they just gave me 3% more income and let me invest it or spend it as I see fit. Or better, a 0% match and let people and employers decide what to do without any interference...
It’s the Kiwisaver members money. Why should the Government be able to dictate what they do with it?
If people have heart-felt concern over this issue, they should be actively campaigning to prevent unrealised equity being used to fund further property purchases. Then Kiwisaver members wouldn’t need to be draining their retirement accounts to such a degree.
Stop people from getting into their first home using actual real money, while allowing investors to fill their boots using unrealised equity. Genius.
This research seems inadequate. While on the surface, early withdrawals wreck the compounding effect, surely there is much more to it under the hood. There is no mention of colonialism, LGBTQA+, or other systemic biasses. Much more, and better funded, inquiry is needed to tease out these and other nuances.
Whats the issue. All the financial advisors say that owning a free hold property should be part of our retirement plan, taking money out of one part of your retirement plan to go into another is ok. Or is it that the kiwisaver fund managers are missing out of more commission.
Here's food for thought:
Quarter ending September 2021 saw 360m withdrawn for FHB. Around the same time, the median house price* in New Zealand was pushing towards $720,000**.
36,753** sales for the quarter, while 26.4% of all sales in the same period were FHB.
Sales x median* = 26.5t x 0.264 = 6.98b***
360m (kiwisaver deposit) / 6.98b = ~5% equity.
How long before 1.6b worth of 2021 FHB kiwisaver deposit is wiped out by a falling market? Homes and RE.co.nz specu-estimates suggest it's taken 2 months to knock 5% off in Wellington... and I'd go as far as to say these estimates are high in the current market given listings have not been selling. And as for the bank of Mum and Dad who supported those unearthly purchases... are they losing twice as fast now? Once on paper with their own home, and once in the real world as a guarantor.
Somebody please tell me where these numbers are wrong, surely this is a miscalculation. In the meantime I'm gonna go buy an avo for $1 and have some late afternoon tea...
*note median, not average... we should use average here but a quick google is my source, average would only skew these numbers even higher.
** based on October REINZ report, total sales figure - is this right?
*** note also, FHB would be buying at the lower end of this market so this portion of the transaction is very high.
I am one of the 3 little pigs, myself and my 2 brothers dipped into our superannuation money some 30 years ago. We now own multiple properties because we prudently used that money (to build brick houses).
The moral of the (tail) is those people who are currently using their Kiwisaver to buy a house will prevent the wolf from blowing down their long term security.
Updating for the latest numbers and using this as a starting point
https://www.canstar.co.nz/kiwisaver/real-estate-vs-shares-which-is-the-better-investment/
HPI 2000-2022 469%
NZ50 2000-2022 571%
So if you have a fund that performs at a market index level you should be ahead. Isn’t it the ability to leverage equity and make gains on the banks money that really gives it the edge?
COMPOUNDING TAX
Why is no one talking about the fact that any profit on our kiwisaver is taxed every year!
If they left this in there and taxed us at withdrawl, all of those gains would compound over the lifetime of savings and the balance would be significantly higher.
So they force us to save, these savings grow, then they tax the shit out of it and limit our savings growth. What a load of shit.
Commenters here seem to forget that without this vote buying ponzi scheme a lot of Kiwi's would have no retirement savings (making this a much shorter article), and also no property.
Pointing to a facility that allows people to access money they've set aside as the cause of the property crisis is like blaming the powder in the bullet for the murder, I'm fairly sure there are more significant issues at play here. And before you say "what bowt the 3% employer contribution and Govt dollah's", considering how low wage inflation and salaries are this is hardly a major contributor to excessive savings/investment bubbles.
If the Government were to have done anything back in the day to help the property market it would be 1.) stop people treating their homes as cash printing machines (debt creation equaling printing), 2.) incentivize people to invest in other asset classes (maybe through tax reform), 3.) have an immigration policy tied to housing development.
4.) A population that's financially literate, the fact the RBNZ can go on the telly and say "I'm going to cause you to have less money for the next few years coz I printed money now inflation" in economic-speak and people not riot is ludicrous.
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