ASB says KiwiSaver changes won’t put investors off

The government’s changes to the KiwiSaver scheme aren’t likely to put investors off it, says Ian Park, chief executive of retail banking at ASB Bank, the second largest KiwiSaver provider.

“The scheme is such a good scheme, I think it will continue to see growth and new people joining,” Park says.

He doesn’t expect the changes will prompt many KiwiSavers to take a contributions holiday.

“As more and more people are exposed to it and start to see the benefits and, I guess, see their balances rise, it gives them a lot of confidence.”

However, “generally speaking, people that are saving like to have a stable, consistent approach.”

The increase in required employee contributions from 2% to 3% of earnings won’t affect all ASB’s KiwiSaver customers.

“There’s a significant chunk of people contributing more than 2% anyway.

From that perspective, some of our customers won’t be impacted by the increase.”

KiwiSaver remains best saving option for most, says ISI

Despite the changes to KiwiSaver announced in the last Budget the scheme remains the best long term savings vehicle for most New Zealanders, according to the Investment Savings & Insurance Association (ISI).

As expected the changes signalled by the Government include halving the Government-paid Member Tax Credit from July 1, making employer contributions subject to Employer Superannuation Contribution Tax (ESCT) from April 1, 2012, and increasing minimum contribution levels from 2% to 3% for both employees and employers from April 1, 2013.

The ISI said some changes to the scheme were inevitable given the problems the country faces in the wake of the Christchurch earthquakes, but that “it remains the best long term savings vehicle for most New Zealanders.”

Analysis carried out by the ISI shows that for a 25 year old earning the median income of $48,000, the overall impact of the changes would see their pot of savings at retirement increase by $35,000 (in current dollar terms) if invested in a typical default fund. The combined effect of the reduction of the Members Tax Credit and ESCT would take $40,000 out of their final account but the increase in the contribution level to 3% by both themselves and their employer adds back another $75,000.

In this scenario, the impact of raising the employee contribution from 2% to 3% would see the employee’s contributions raised by $9.20 a week.

ISI chief executive Peter Neilson says that increasing minimum employer and employee contributions from 2% to 3% will create a more sustainable savings platform, and increase the level of capital required to invest in raising national productivity while reducing dependence on foreign capital over time.

He said he was pleased the Government signalled its long term commitment to KiwiSaver by announcing its intention to carryout further work on several of the Savings Working Group recommendations, particularly around automatic enrolment (with voluntary opt-out) and changes to the tax treatment of savings.

However, he said the ISI believes the Government needs to commit to raising the level of savings over time so that eventually contribution rates are at similar levels to Australia.

“The Government could do this by introducing a defined series of small but predictable annual increases over an extended period. This would allow employers and employees to plan for these changes with confidence and allow New Zealanders to increase their level of savings as the economy improves and real incomes increase.”

Neilson also said just as the superannuation industry plays a vital role in supporting the Australian economy, KiwiSaver will also become increasingly important to the national economy over time.

“The Government are predicting that KiwiSaver will grow into a $60 billion industry over the next ten years, making it a major contributor to the future success of our country. By creating a significant pool of funds for investment in business and infrastructure projects, the country will become less dependent on foreign capital.”

He stressed though given the importance of KiwiSaver’s future role, it was vital the scheme remained predictable and sustainable.

“This will require all political parties to come together to agree on the future structure and direction of KiwiSaver. Over the next year it is important that we have that debate.”

Ahead of changes, KiwiSaver popularity rises

KiwiSaver is the third most popular investment class in the country, with 12% of New Zealanders believing it offers the best rate of return, according to the latest ASB Investor Confidence Survey.

KiwiSaver came in at joint third with bank savings accounts, behind term deposits in first place with 19% and rental property at 15%.

“Over the past year KiwiSaver has climbed from last place to third equal in return perceptions, the highest level yet,” said ASB head of Private Banking and Wealth Management Jonathan Beale. <

“Those expecting KiwiSaver to be their main source of retirement funding also reached a new high of 62% (up from 61% in Q4 2010), while respondents currently using KiwiSaver climbed 5% to 43% – another high.”

“After almost four years of contribution from individuals, employers and the Government, investors are starting to sit up and take notice of KiwiSaver. Fund balances are growing, and the KiwiSaver scheme has proven to be a successful way of turning around the poor savings habit of many New Zealanders.”

Beale said he believed there will be a change in investors perception of KiwiSaver in the wake of changes to be announced in this week’s Budget – which the Government has confirmed will include reductions to Member Tax Credits.

“However, we believe KiwiSaver is still likely to remain the most popular retirement savings vehicle for respondents in our survey,” he said.

OnePath, two milestones

OnePath has announced it has achieved two KiwiSaver milestones with over 400,000 members enrolled in its four KiwiSaver schemes and $2 billion in funds under management.

With nationwide KiwiSaver membership at 1.7 million, ANZ fund manager OnePath now leads the industry with almost one in four KiwiSaver enrolled in its schemes.

“We’re proud to have passed these significant milestones as the current membership far exceeds the original expectations when the initiative was launched nearly four years ago,” said ANZ Wealth managing director John Body.

OnePath also revealed IRD figures have shown continuing enrolment at more than 20,000 per month for the year to date.

“The continuous growth in enrolment reinforces KiwiSaver’s success in encouraging New Zealanders to start saving for their retirement. We have always advocated a consistent approach to KiwiSaver as the best way of improving New Zealand’s previously poor record of long-term retirement savings.”

Body said despite the recently announced changes to KiwiSaver the fundamental design of the scheme remains intact.

“What is most important is that we hear certainty from policy makers that KiwiSaver is here to stay, so New Zealanders can have confidence in their decision to join and save for their retirement.”

“ANZ New Zealand’s submission to the Savings Working Group recommended targeting Member Tax Credits for those on low to middle incomes and the self employed, to encourage these members to continue contributing throughout their working career. We’ll wait to see further details on the changes to Member Tax Credits in the Budget next week,” he said.

“We are at a turning point as a nation with a new era emerging focused on savings and productive investment. As a leading provider we understand there is now an opportunity to consolidate the success of KiwiSaver for the benefit of all New Zealanders and ensure the growing savings pool is put to work in building and strengthening the nation’s future economic prospects.”