Nearly half of private investors have now joined KiwiSaver with a further 22% intending to join in the next quarter, a survey from ING says.
Well over half of private New Zealand investors will be KiwiSavers by June, according to results from the recent ING Investor Dashboard Sentiment survey. As of March, 49% of high net worth New Zealand investors had joined, and a further 22% said they intended to join.
This figure is up from 15% who indicated they intended to join last quarter. This popularity of KiwiSaver is consistent with a FundSource report released yesterday, showing that KiwiSaver net funds under management, which reached $2.27 billion in March 2009, now represent about 15% of the total FundSource reported retail net funds under management, currently standing at $15.31 billion.
ING head of KiwiSaver distribution, David Boyle says, “The changes to the scheme introduced by the government this month will potentially encourage more people to join, even during the economic downturn. Since people are now feeling less willing to spend and more willing to start saving. Lowering the minimum contribution rate to 2% may well regenerate interest from those who previously saw the 4% contribution level as a barrier�.
However, FundSource also reported that the majority of people enrolled in KiwiSaver have their contributions allocated to conservative funds, purely because most people are in default schemes which automatically select conservative funds.
The ING KiwiSaver (default scheme) numbers are consistent with this, with 96% of investors in the conservative fund.
“Conservative funds may well be the best option for the older KiwiSaver and for the naturally cautious investor, especially during times of market turmoil. However, over the average duration of lifetime savings of 20 years, conservative funds have not historically delivered the best returns available. Ultimately, conservative funds may not provide the level of savings people would require to live well in retirement,� Boyle says.
“In the case of KiwiSaver, the investment remains locked in until members reach superannuation age of 65, so for those people at the beginning or in the middle of their working life there is a long way to go before they reach retirement. Unfortunately, if an investor selects a growth fund early and does not change this later, then if there is a large downward price movement and the investor is closer to retirement, the losses have a greater impact. This is exactly why ING includes the Lifetimes option for KiwiSavers so that as you move closer to retirement your contributions are allocated into more conservative and cash preservation funds.�
The Lifetimes Option places investors in a fund according to their age, and then moves investors as they reach milestone birthdays. This choice is designed to deliver the appropriate level of growth for an investor’s savings according to his or her age, thereby protecting and building investors’ savings over the average 20 year investment term.
Although the popularity of the scheme continues to exceed expectations, with more than one million New Zealanders now enrolled, there still remains a good number of New Zealanders yet to enrol with KiwiSaver. Only 27% of people under 65 who are eligible have joined the scheme.
“This is a good time to join KiwiSaver since the current benefits of the scheme – the government $1,000 kick-start, the members’ tax credit and 2% employer contributions – all add significantly to your own salary contributions. For those who are already enrolled now is also a good time to talk to an adviser about the composition of your fund,� adds Boyle. “The first million member mark was reached well ahead of schedule.
“I’m very pleased that New Zealanders are readily adopting a savings habit for retirement. KiwiSaver is transforming the nation’s attitude to savings and the investor landscape. While the scheme has proved far more popular than anticipated, there is still a long way to go before everyone who is eligible to take advantage of the scheme has actually enrolled.�