KiwiSaver

New Zealanders may be underestimating how much they need to save for retirement – and calculators that tell different stories aren’t helping, one consultant says.

Peter Urbani, from KnowRisk Consulting, has been looking at the retirement projection calculators offered by KiwiSaver providers and other institutions, and said they differed significantly.

“If you put the same inputs into 13 different KiwiSaver calculators ranging from Sorted to the banks and asset managers you get 14 different results.”

Using the example of a 35-year-old earning $75,000 a year with a current balance of $15,000 and contributions of 3.5%, calculators said they were on track to receive anything from just under $250,000 via the Financial Markets Authority through to $276,651 by Sorted’s calculation.

“The tools I build for people to use, they don’t give advice but I do try and get them right,” Urbani said.

“I was just having a look and I did notice there was a big disparity… obviously there’s a critical need because New Zealand started so much later than Australia, there’s a funding gap that’s quite far behind so it really comes down to what contribution rate is necessary and what, if anything, the government does to make it more urgent.”

He said a few calculators had not updated their NZ Super tables from 2025 to 2026 values. Some were using different PIRs and a couple were using non-standard fund return expectations, he said.

But people needed a clear picture to be able to plan how much more they would have to contribute to get to their desired outcomes.

“With current balances at around $10,000 median …and current average age 40, contribution rates are going to have to rise to around 18% for everyone to be able to retire comfortably and not outlive their money.”

He said the “straight line” method used by the calculators to show an investor’s likely experience was inadequate.

“To keep it simple they show the one line where you have accumulation and decumulation.

“That’s fine from a simplicity point of view but the problem is that the input assumptions, which they don't even show on the calculators …they've got specific fund return expectations and also implicitly volatility and things like that, all of which change dynamically per fund and per year.

“So that straight line is going to be a wriggly line and because it wriggles, some people are going to get the top line and some people are going to get the bottom line, depending on when they enter.

“And the range between those two is what really matters, because if you want to be very sure you're not going to outlive your money, you want to look at one of those lower confidence bands … let's say it gets you to $500,000, which is probably a generous number for New Zealand, there's some people who are going to be getting less than half of that and some people are going to be getting not quite twice, but sort of $700,000-odd. So, if a lot of people are getting less than half of that, obviously, they're going to outlive their money.”

He said the Government should take some policy decisions to encourage more people to save, whether that was tax breaks or credits, or other measures.

“It's got to come from somewhere. Otherwise, people have to start cutting back on the retirement age, which I think is going to happen anyway… The real thing is to get total contribution rates up.

“If you start saving immediately in your first job and you put away 10 percent from age 20, 25, you really don't have to worry about it.

But the reality is nobody has that discipline and life gets in the way… everybody starts later than they should. And the effect of starting later is the slope of the line to where you want to get to gets steeper.

“So it's really about getting those balances right. The sad reality is 90 percent of people are not going to be able to retire comfortably because of the skewness of income distribution in the country. And that's a universal thing.

“So basically if you think about it, ‘I want X amount’ and you're probably going to miss it, but let's say that's your target. If you're at 80% of that target, you're generally in pretty good shape. But once you're unfunded, it becomes harder and harder to make up that gap.

“You either have to cut your cloth for your circumstances… or you increase your contributions while you still have time.”

Prime Minister Christopher Luxon told the recent FSC Outlook come to us with your five best ideas and let's see what we can do. So Good Returns asked some fund managers for their top five KiwiSaver change ideas.

KiwiSaver providers are united in their view that KiwiSaver should not be subject to political cycles.

John Berry, founder of Pathfinder, said a cross-party, long-term plan for retirement savings was top of his KiwiSaver wishlist.

“We’re lifting the savings rate from 3% plus 3% to 3.5% plus 3.5% to 4% plus 4%.  If we want to get to where Australia are, which is 12% from the employer, that could be six plus six in New Zealand, but how are we going to do that?

“That should be something that's got cross-party support… a 10-year plan that is supported by everyone as a good idea for increasing savings over the long term.”

Pie Funds chief executive Ana-Marie Lockyer agreed. She said a long-term cross-party strategy was important. “KiwiSaver has enormous potential — both for improving retirement outcomes and for supporting productive long-term investment — but we need consistent policy settings to unlock that fully.”

Fisher Funds general manager of KiwiSaver David Boyle said there should be a planned runway of contribution increases that was clearly signalled to members well ahead of time.

“It’s not a surprise, they get comfort in advance… how we can see ongoing contributions increasing not just to 2028 but how do we get the further in a way that would allow both employers and employees to be able to plan ahead and take into account other business expenses. Having that really well signalled gives a lot of comfort for New Zealanders.”

Koura founder Rupert Carlyon said there should be more clarity on the purpose of KiwiSaver at government level, too.

“It feels as though KiwiSaver is all of a sudden seen as a free pot of money for everything and the government is happy to open up withdrawals as it is an easy and free win for them.

“It’s not a tool to build infrastructure, housing or buy farms. It’s a tool to fund people’s retirements.”

Morne Redgard, SBS Wealth chief executive, said the only way the country could make its superannuation system sustainable was by changing the KiwiSaver settings and putting individuals in a better financial position.

“That's not an easy, quick fix, but I think contributory rates is certainly part of that.

“And National have committed that if they come back into governance over the next six years or so, you know, they'll lift it to 6%, which again, I think would be a great thing. But it would be really good to see that timeline put in writing that people can work towards.”

Splitting contributions

Berry said he would also like to see members able to split their contributions.

He said the majority of Pathfinder members were women and the gap between male and female balances was significant.

That could be closed by allowing a couple to direct KiwiSaver as appropriate, he said. “If someone was off work to mind the children, their partner could direct their KiwiSaver contribution to both KiwiSavers, or just to their partner, if they wanted to.”

Total remuneration

Total remuneration packages have been a topic of discussion this year and many providers, as well as the Retirement Commissioner, have called for a ban.

Lockyer said this was something that needed to be attended to so that employer contributions were “truly additional”.

Chris Wilson, co-chief executive at Harbour Asset Management agreed that this was a problem. “Employers should not be able to include KiwiSaver contributions into total remuneration packages. Employer contributions should be on top of wages or salary, not lumped in so the employee ends up paying all of it.”

Redgard was also supportive of a change to the rules. “Contributions need to be over and above your income…some people aren't benefiting as much as some others. So it all depends what industry you're working in and what your employer is like."

"That just needs to be standardised, so the number that you get paid is the number that you get paid, and then your KiwiSaver contributions should be over and above that."

“I think that's more just about standardising the actual (language so that people can understand that. And it's just a standard across the industry.”

Compulsion

Lockyer said there should be a serious conversation about compulsion to lift participation and outcomes.

Boyle said it could work to make it compulsory for those who were turning 18 now, to get them into the habit early.
“It’s automatically enrolled, it’s compulsory and that’s your experience going forward. It might be a great way for the next generation to get used to it… for someone leaving school that’s the norm.

“A bigger conversation is do we take that any further but that could be a first step.”

Wilson said he wanted to see more New Zealanders in KiwiSaver.

“This would involve making it compulsory but also designing targeted measures to help the self-employed to fully participate and benefit.

“We see a lot of merit in the idea of kickstarting a KiwiSaver account from birth. Time is the ultimate builder of wealth, so a dollar saved from birth will deliver more for a member than one squirreled away at 18.

“Work needs to be done to look at whether the current government contributions approach remains fit for purpose or whether these might best be redirected to provide a head start to newborns. This would encourage greater financial capability for all New Zealanders as kids would be able to watch their balance grow over time with some real skin in the game.”

Redgard said the opt-out model was not delivering the best outcomes for some people, who might not realise the impact of decisions made earlier in their working lives.

“I think as people are coming into the workforce, liquidity is probably the tightest thing on a monthly basis. So if there is an opt-out, a lot of people just jump on that, because every dollar counts.

“Every dollar always counts but especially in the beginning phases, it’s probably an easy decision to make for some.

“I think we should take that option off. And because retirement, although most people, probably 90-odd percent of people don't think about that when they're 20 years old.

"And there's a lot of water to go under the bridge at that stage. So, you know, we should start looking after people at an earlier base.”

Incentives

Carlyon said there needed to be incentives to give people more of a reason to invest in KiwiSaver.

Most of the initial KiwiSaver incentives have disappeared, such as the member tax credit and $1000 kickstart payment. Carlyon said there was little on offer for investors to encourage them to tie up their money, compared to other countries that offered things such as tax breaks for retirement savings.

Carlyon said if any moves to compulsion were made without new incentives, people would just see it as a tax. “It can’t be done without incentives.”

Redgard said if KiwiSaver was to be made compulsory or contribution rates increased, people would need to see the benefit.

“Making the contributions tax free into the scheme will certainly take the sting out of making it compulsory and increasing those contributory rates. So I think that's something we certainly would like to see the government considering.

“I haven't done the numbers on that, and how is that going to impact the overall fiscal situation, because obviously, taxes feed superannuation. But I think those are some of the things we should certainly be looking at.”

 

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Director and investor Fraser Whineray has delivered his plan for “KiwiSaver 2.0” to political parties this week.

The plan sets out changes that he thinks would make the scheme more robust into the future.

Whineray says contribution rates are low by international standards, access is tied to the age of eligibility for NZ Super, which makes it open to political change, and youth participation has dropped sharply since the $1000 kickstart was removed.

On top of that, contribution rates are insufficient, and people taking parental leave end up with less in their retirement savings. The distribution of Government incentives, now worth about $500 million a year, is also uneven, he says.

“They disproportionately benefit those already well engaged with KiwiSaver and are absent from early childhood, where time and compounding could do the most work.”

He wants $5000 to be given in a growth fund to each child at birth, and for families to contribute $100 a year matched by Government. He estimates that would give 18-year-olds about $25,000 in their accounts.

“There's a social side to that, but if we're just talking pure economics and technicals,  time in the market and compounding is absolutely the game, and I just think that half a billion dollars we currently spend today is regressive and it should be put to a much better and fairer use.”

Contribution levels would also be increased over 20 years, starting with a 2 percent compulsory employer contribution, increasing by 0.5 percent a year until it reaches 12 percent in 2047.

Employee contributions would be voluntary

“Any increase in compulsory employer contributions raises a legitimate question: what does it mean for wages? The honest answer is that over the long run, the cost of higher employer contributions tends to be reflected in the labour market, through modestly lower wage growth than would otherwise have occurred, higher prices, reduced profits, or some combination of all three. The mix depends on the sector, the economic cycle, and the bargaining power of employees at any given time. Pretending otherwise would undermine the credibility of this proposal,” Whineray said.

He said for changes to KiwiSaver to last, they had to be durable.  That was why he modelled a 20-year contribution rate transition, he said. “That has to be done incredibly slowly otherwise ethe impact on wages, the economy, or inflation –  a whole range of things – will be too much of a shock.”

A gentle transition would stop people being left behind.

He said the Government should also take over employer contributions from people taking parental leave, to ensure that people who took time out of the workforce were not left behind.

He would also set the KiwiSaver withdrawal age at 65, and add a decumulation framework to help people access their money.

Generate says providing advice on KiwiSaver can help create “a moat” around an adviser’s business.

“The more problems you solve, the more like they are to stay with you,” Generate’s head of distribution, Kristian James, told advisers, adding that advising clients on other managed funds is also an opportunity for advisers.

Speaking to a mix of investment, mortgage and insurance advisers in Wellington as part of Generate’s current roadshow around the country, James noted that research has shown that those with advisers are 4% better off each year and have 50% more in their KiwiSaver accounts.

Advisers should play a part in increasing KiwiSaver’s value and, with the average KiwiSaver balance now at about $36,000, “the KiwiSaver story has become more and more important to people.”

With a $1.6 trillion inter-generational wealth transfer happening over the next 30 years, property investment and term deposits are no longer as appealing as they used to be.

Generate has grown to 185,000 members with $8.7 billion in funds under management and more than 90% of its business coming from advisers said.

James said more needs to be done with KiwiSaver to drive the need for Kiwis to save more especially as New Zealand Superannuation comes under increasing pressure.

Quoting a Massey study, Generate’s head of distribution, James said that by 2065 it is estimated that there will be only two workers paying each retiree’s NZ Super.

“The numbers aren’t quite working out,” James said. “The retirement gap is real and it needs to be solved.”

He noted that the current government has recognised the gap between the amount people are saving and the amounts they will need to live on in retirement by pledging to lift contributions to 12% by 2032 with individuals and their employers each contributing 6% of that individual’s income into KiwiSaver.

While more than $123 billion is currently invested in KiwiSaver, that pales into insignificance alongside Australia’s $5.12 trillion invested in its superannuation schemes, which already require 12% contributions and which is compulsory whereas KiwiSaver remains a voluntary scheme.

While NZ has about a fifth the population of Australia, KiwiSaver’s value is just 0.2% the size of Australia’s superannuation scheme, James said.

He said Generate is ready to assist advisers in educating and empowering Kiwis, offering training, technology and administration so that advisers can offer their clients Generate’s products seamlessly – the company launched six new funds last year, three of which were KiwiSaver funds.