Milford Asset Management’s head of KiwiSaver says KiwiSaver – the country’s voluntary retirement savings scheme which is in its 17th year – is a teenager that’s about to head into adulthood.
“I think it's the right time to have the discussions we were having at the [Financial Services Council] Conference. By and large, providers are pretty well aligned around how we can improve KiwiSaver and make it better for New Zealanders retirements,” Milford's Murray Harris says on a new episode of the Of Interest podcast.
KiwiSaver has become a bigger topic of financial conversation this year and the discussion around potential tweaks and changes to the savings scheme has become more of a ‘when they happen’ and less of an ‘if’ scenario.
At the Financial Services Council conference in early September, KiwiSaver was a hot debate, with KiwiSaver providers discussing how New Zealanders are simply not saving enough for their retirement and the Retirement Commissioner pointing out that Kiwisaver governance lacks clarity.
Harris tells interest.co.nz that KiwiSaver has been “very successful” in attracting members and the savings scheme doesn’t have a participation problem.
The latest KiwiSaver statistics out of Inland Revenue shows over 3.36 million people are now enrolled in KiwiSaver as of July 2024 and Harris says the participation rates are highest amongst those between the age brackets of 25–34 and 35–44.
“The participation's really good, but we have an issue around the contribution rate or the amount that people are contributing,” he says.
“Most people are doing 3%, and ... 90% of employers only do 3%. So together, those contributions are not going to be enough to get people to where they need to be for a really comfortable retirement. And I think that's the key issue. That's the real nub of it being very successful in terms of getting people interested and involved, but we're just not contributing enough.”
The Financial Markets Authority released its 2024 KiwiSaver report on Tuesday which showed total KiwiSaver contributions – this includes employee, employer and government contributions – came to $11.2 billion in the March 2024 year. This is up 6.5% from the prior year.
Harris says the KiwiSaver industry has a job to do in terms of educating its members that the current default contribution rate in KiwiSaver, which is 3%, is a good start – but not enough to get people to where they likely think they're going to be savings wise by retirement.
“Most people think it's 3%, and that's the problem with the settings as they are. You tell people to do 3%, that's what they'll do, and they'll think that's all they need to do. But in reality, it's a lot more,” he says.
The Retirement Commission has called for a higher default contribution rate of at least 4% and says employers should be matching at this level or more.
Harris says there are also things New Zealand can learn from “the lucky country” – Australia – when it comes to saving for retirement.
The minimum contribution rate for Australia’s superannuation scheme – the equivalent to NZ’s KiwiSaver scheme – is currently 11.5% for employees and employers. This is being raised to 12% in 2025.
“They've amassed a lot of assets and they've been able to reinvest those assets into the local economy. So you go to Australia, you cross some wonderful bridges, the motorway systems, the tunnels through central Sydney. Now they've been built with superannuation money and it's been a win-win because the economy moves better, industry can move their goods and services at a better pace and they've provided some great investment returns for investors, for super investors. So that's a win win. I think that's something that we could definitely learn from,” he says.
*You can find all episodes of the Of Interest podcast here.
58 Comments
“Most people are doing 3%, and ... 90% of employers only do 3%. So together, those contributions are not going to be enough to get people to where they need to be for a really comfortable retirement.
Kiwisaver does not equal retirement savings. a small kiwisaver balance does not mean a disaster for retirees!
Not everyone in Australia likes being forced to save huge amounts of money that they may not live to spend.
https://www.crikey.com.au/2024/09/13/the-friday-fight-superannuation-ag…
https://archive.is/zsKDk
Participation is not good. One million of the three million participants are not active and not saving for retirement.
Participation could be improved by requiring all employers to enrol workers in kiwi saver when they start work. This is not done by many employers particularily in casual industries such as horticulture and food processing.
Participation could also be boosted by activating payments for all non active participants over the age of 25 once a year. Participants could opt out after the first payment retaining the voluntary nature of the scheme.
These simple administrative improvements would bring in hundreds of thousands of non active participants and boost savings among the group that most needs it. That is low income and casual workers. This group often rents and faces most hardship in retirement years. It's the lack of savings amongst low income workers that is the most pressing issue not the savings and investment industries desire to have more of other people's money.
The minimum payment could also be lifted to five percent for both workers and employers, perhaps gradually eg half a percent per year to boost total savings. The need for this is less compelling due to the universal nature of superannuation.
Participation could be improved by requiring all employers to enrol workers in kiwi saver when they start work...
Look at how successful the retirement saving industry is in Australia. Guess what? Its compulsory.
Copy and paste New Zealand. No need to over think this one.
I think it could be argued that if it applies to everyone then there will also be less money chasing scarce resources so prices could come down.
In saying that, I only put in the minimum required to get the Government top up. Without incentives many people will only put in the minimum required and invest excess funds elsewhere. Overall I think Kiwisaver is a good idea for the country as a whole though because it enables many people to have at least something saved in retirement rather than nothing.
all in the name of locking it away for decades because someone tells them it's for their own good
You should know that money isn't turned into gold bricks and locked away in some vault. A growing pool of KS funds (e.g., Simplicity hit $7b recently) is being invested into the local economy, which will benefit the broader economic spectrum and lift Kiwi wages.
Another thing we can learn from the Aussies.
super funds’ total investment in infrastructure assets had reached $165 billion (8% of total assets) by 2022, up from $30 billion (or 3% of assets) in 2010
compulsory makes sense for people who has no habit of savings or planning. plus the retirement saving schemes usually have tax advantages or incentives, hence a good way to save for retirement.
but for kiwisaver, there is hardly any incentives at all, it's not tax free, but just lock one's retirement wealth to 65 years of age. It's not good for people need flexibility, only good for the Financial industries. Presumably that's why they keep pushing for higher savings, as it means more money in their hands to play.
It's not good for people need flexibility, only good for the Financial industries.
It's very good for the finance industry. It's an integral part of the game of mates. People don't really understand the extent of how lucrative it is for those clipping the ticket and for those who enable it.
I hold a neutral position on the fees charged for the PIE funds, as they do have expenses and fees imposed to them. If people put money into, say investment properties, there would be other types of fees and expenses charged to investors.
However I feel the PIE fund charges and the fees are too high comparing other countries, and many of them don't even deliver good returns.
I am also very skeptical on the 'returns' indicated by many of the PIE funds. as those 'returns' may not be realized, just a number. some funds like Simplicity, they package some of their 'home loan' products, then package those into their own kiwisaver schemes. Too me, this type of operation is very dodgy.
Not everyone in Australia likes being forced to save huge amounts of money that they may not live to spend.
https://www.crikey.com.au/2024/09/13/the-friday-fight-superannuation-ag…
https://archive.is/zsKDk
"It's a disturbing statistic: half of all people renting in retirement are living in poverty."
https://www.abc.net.au/news/2024-03-16/generation-of-renters-risk-pover…
Australia has had compulsory super contributions since 1992 yet here they are....the only certainty of such a scheme here is increased revenue for the members of the FSC and ongoing underwriting of the markets.
Why would you invest anything more than your employer matches into Kiwisaver? There is no financial incentive to do so. You might as well stick the rest into another managed fund (that doesn't have the Kiwisaver restrictions on withdrawal), or into another investment property...
I prefer less compulsion. It looks good for fund managers to have more funds. But it makes no sense for someone with a credit card bill to be funnelling more of their pay into KiwiSaver. That is, individuals are the best decision-makers about their own affairs, including their savings rates. You can argue perhaps that people systematically under-estimate their retirement needs, and that may be true, but perhaps that is the price of additional freedom of choice, which is valuable too.
But it makes no sense for someone with a credit card bill to be funnelling more of their pay into KiwiSaver.
If they are regularly carrying a month to month credit card balance it shows they are exactly the sort of person that benefits from compulsory kiwisaver. Otherwise they will most likely arrive at retirement with nothing.
Unless you want to introduce and option where they can put themselves on some sort of consumer credit ban list in exchange for a one-off clearing of their consumer debt from kiwisaver funds, that I could support.
I think our KS providers don't invest much in NZ companies in general due to poor returns, no highways or ferries being built by KSs
From Milford's active growth fund
Effective Cash # 7.92% 6%
New Zealand Fixed Interest 2.33% 2%
International Fixed Interest 22.62% 14.0%
New Zealand Equities 10.75% 12%
Australian Equities 13.07% 18%
International Equities 42.87% 48%
Other 0.44% 0.0%
You could always switch to a provider that puts some money into the NZ economy.. but nah, can't be bothered, aye?!
Kiwis are rather stupid with money and the markets are well-aware of it. If enough KS contributors move their accounts to the likes of Simplicity, the other market players will be forced to make their funds work harder too instead of clipping the ticket with passive investing.
Common Sense 101 that doesn't require advanced degrees in finance or mathematics.
Australia has $4 Trillion in super funds, and by the 2040's its estimated the majority of people will be self funded in retirement (currently its 35%). That will free up a lot of money from social welfare spending that can then be spent on other things, along with the continued investment of super funds. I'll bet that "the lucky country" will keep on getting "luckier" while NZ will struggle to afford any First World things.
Not going to happen. Wages here are too low resulting in no money left over as it is. No point worrying about your retirement if you are already struggling day to day. The amount being pulled in early withdrawals shows you its not working as it is. Kiwisaver is a dog anyway, I opted out from day 1.
Yes, its a complete dog. Paying exorbitant fees for mediocre returns, and no tax advantages, so what's the point? Compare Australia - where the fees are low (particularly in industry funds), the returns are better, its concessionary taxed in accumulation phase and tax free in pension phase, and if you think you can do better than a retail fund you can set up your own self managed super fund.
The point is, for every $3 I chuck into my kiwisaver my employer chucks in another $2 or so, and the government chucks in 30-40c for good measure. Hard to beat those returns. Annual fee is 0.25%.
Investing more than 3% with current incentives makes absolutely no sense for me - anything extra gets invested elsewhere.
You need the spare money to start with and there is no guarantee you will see any of it when you turn 65. You could do better just putting it in some compounding interest rate account or do what I did and used it to pay the mortgage off 2 years earlier, that was a guaranteed return.
Part of my savings over the 3% does go to paying down the mortgage, it will be gone well ahead of schedule. No way I'd give up the ~70-80% return I get pretty much instantly from putting that 3% into kiwisaver though - much bigger up front return, followed by a return likely similar to or higher than my mortgage payments (tax complicates this a little, but not enough to swing the decision)
I am very confident that this money will be available to me at 65. I expect to retire before that and use investments made outside kiwisaver to bridge the gap.
Delayed gratification is obviously a requirement for any retirement scheme - I appreciate life can be tough on a low income but retirement saving was always a non-negotiable for me and my spending needs only considered the remaining income.
"Pay the mortgage off 2 years earlier" - sure you did, it's already been established that you were given a deposit to buy a house and were also given money to pay it off, you're full of it. Kiwisaver is a good scheme, it's interesting that you take taxpayer money via the rates rebate to pay your rates but you didn't take the government contribution for Kiwisaver, at least you were working and paying tax to earn that.
Yep. Agreed. Unless it is a proper scheme with proper incentives, and without all these fees. No one invests. That’s what we have. We have very low KS balances and the reason is the incentives and the fees. End of. There is no way I would ever invest in KS where the likely outcome is you have say 1-2 million bucks in there with some unnamed nobody clipping you for 10-20k a year in fees they did nothing for. No chance.
My quick excel calc suggests you'd need a rate of return about 2% higher to come off better outside kiwisaver (e.g. 9% return vs 7%), assuming regular investment from 20-65 and inflation of 2%. Doesn't sounds like a lot but that would be a very impressive margin to maintain over 45 years.
If you "only" manage a 1% outperformance - still very impressive over that time frame - you end up with about 2/3 of what you would have saved through KS.
My ego is large enough that I self-invest my shares outside KS despite the vast array of studies showing that virtually everyone underperforms a cheap index fund, but I don't fancy my changes against a cheap index fund + 2%.
My spreadsheet of my self managed retirement fund (or hobby if you like), containing the weekly fund value changes since I started keeping it in 2017 shows the following returns:
2024 YTD 18.11%
2023 2.08%
2022 (-4.95%)
2021 27.81%
2020 23.43%
2019 18.64%
2018 29.97%
2017 17.90%
I have actually never done checked the increase in value (as a percentage) before, thanks for making me do that. These percentage returns are quite good. That's an average of 18.88% over the last 8 years, after tax too. So, I would say this beats the KS providers quite nicely.
My retirement savings are with low-fee, fully diversified index-funds: basically a Toyota Corolla strategy, where it isn't glamorous, but it'll be almost certain to get you there.
Given such things are statistically based, the funds should perform in the middle of the investment-fund pack. What I've found is that they usually perform better than 80% or more of the managed funds; better again if the lower fees are taken in to account.
Ever get the feeling that the managed superannuation fund business is a very poor value proposition, and we need better financial education?
Not sure the Aussie stats are correct in the article.
The employer contributes 11.5% in addition to your base salary.
Employees can contribute additionally to this as well. Not required to match the 11.5% as the article implies.
Thats why Aussie jobs are advertised as base rate salary + super.
Most NZ jobs are total package from which the employer contribution is deducted as well as any employee contribution.
There are two types of employment contracts in Australia - one is salary + super. The other is a "total salary package" which is inclusive of super. Under the former contract the employer pays the super contribution, under the latter the employee pays the super contribution. Under the former the increase from 9% to 12% in mandatory contributions will be paid by the employer, under the latter it will be paid by the employee and they will get less cash in hand.
Salary packaging is usually for professionals, and its up to the employee how they want to structure their package. They pay their super contribution, plus can salary package other benefits like car leases, extra holiday leave, child care costs, meals, living expenses, or additional personal super contributions. I've never been on a salary + super contract, always a "total salary package".
New Zealanders take on a lot of household debt for mortgages, goods like vehicles, education and the like.
To get people to save more for their retirement would need enough income to have the money - and the incentive to do it. Things that might help -
- Improvements in productivity to underpin pay rises that could be captured as savings rather than consumption. Productivity improvement would also control cost escalation, but our productivity is going backwards.
- Changing our culture of easy debt that's underpinned by the idea that property price growth will be endless and speculation will remain tax-free: we've got to stop real estate trading being our main economic activity and shift the money in to investing in productive endeavours to give wage growth.
- Give incentives to save: shift to the tax-free model to accelerate savings growth and tax them on exit.
How about we back the truck up and actually have kids coming out of school understanding what a budget is, what HP means, what afterpay mean, how mortgages work, what a simple cashflow looks like. Lets get the basics right first and then people can make informed decisions.
You're right, but people in NZ don't talk openly about money, and good financial education would require an attitude change: where to know about money is not seen as somehow slightly distasteful in education.
It would also mean getting educators who both know what they are talking about and weren't shilling for the financial services industry.
Recommendations from the financial services conference. In my simplistic view that's advice from those with a vested interest in gathering greater funds to ticket clip to boost their own revenue growth.
You can't get blood out of a stone. I'm reading commentary of households earning getting on for $200k per year living pay cheque to pay cheque - where is that additional 1%+ additional Kiwisaver deposit coming from?
And then there is the mutually exclusive conflict between the perspectives on how to get the economy growing again. On one hand people are being exhorted to save, and on the other exhorted to spend.
At least, from my perspective, credit cards are harder to get now (may be ageism). I applied for a $5k basic credit card from my bank. I'm debt free, own my home, have nearly $200k in TD investments with that bank, and still saving. I was declined. I hope their criterion are universally applied, to reduce reliance on credit card debt to get by.
I've not opened a Kiwisaver account, preferring to paddle my on canoe. Theoretically that's cost me $8500 government contribution. I reckon I've done okay without it and had use of all my income over that period with no 3rd party clipping the ticket along the way.
I believe the fact below is incorrect, employees in Australia do not have to contribute to their super it is voluntary for them.
"The minimum contribution rate for Australia’s superannuation scheme – the equivalent to NZ’s KiwiSaver scheme – is currently 11.5% for employees and employers. This is being raised to 12% in 2025."
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