Retirement policy: Call to start over

New Zealand is spending billions of dollars on KiwiSaver with no clear indication that it is leaving anyone better off, two retirement policy commentators say.

Michael Chamberlain, an Auckland actuary and investment adviser, and Michael Littlewood, co-founder of the University of Auckland’s Retirement policy and Research Centre, have released a new report, outlining “133 questions New Zealand needs answered” about retirement policy.

It follows their 2016 report, which criticised the Retirement Commmissioner's review, calling it an "evidence-free zone".

Chamberlain said little had changed, and New Zealand still lacked basic evidence to inform retirement policy.

He and Littlewood argued that greater economic growth needed to be kept central to discussion of every aspect of public policy, including retirement income.

There needed to be a longitudinal study of households, they said, to find out what they were doing with their financial lives.

Chamberlain and Littlewood said KiwiSaver was the answer to a problem New Zealand did not have.

“New Zealand has spent over $10 billion on KiwiSaver in subsidies and we don’t know if it’s good, bad or indifferent,” Chamberlain said.

He said the indications were that KiwiSaver had not improved New Zealand’s overall savings level.

“We know in Australia compulsory super hasn’t increased the overall level so there shouldn’t be surprise about that outcome in New Zealand.

"Given the predictable reduction of occupational superannuation schemes at KiwiSaver’s hands, some may even be saving less in total than previously, but we don’t know."

He said there were a number of financial advisers who argued KiwiSaver should be made compulsory but there was no evidence anywhere in the world that it worked.

A decision should be made as a country on the future of KiwiSaver, he said. Chamberlain said he was in favour of removing the lock-in aspect of the scheme and the incentives involved from Government.

More than 20 per cent of member balances could be attributed to taxpayer subsidies, Chamberlain and Littlewood said.

"Where is the evidence that these large sums have actually changed New Zealanders’ overall financial behaviour?Citing the number of members or the amount now invested in KiwiSaver doesn’t answer that question. Encouraging those numbers to grow won’t answer it either. Asking New Zealanders whether they think KiwiSaver is a good idea or whether they think they should be saving more is even less helpful."

Chamberlain said governments also had to stop making ad hoc decisions about superannuation and the age it was offered, without evidence about what the outcome of the decision would be.

“We shouldn’t simply change the age because someone thinks we should to make it more affordable. If we change the age, are we more likely to achieve its purpose?”

The pair also said moves to improve disclosure and communication with investors had not been a success.

"Knowing what financial service providers are actually doing and how financial products might suit consumers should be at the heart of regulatory supervision. New Zealand has tried to fix this, but we need to return to the beginning."

They said the new, shorter PDS documents required under the Financial Markets Conduct Act were still not being read.

"Even if read, it is highly unlikely that an investor can gain a complete picture of the investment on offer and the true risks they will be exposed to. One goal of the new regime was to make it easier to compare products and, to an extent, it achieves that. It is easier to compare fees and some features, such as contributions, withdrawal provisions etc. However, it does not make it easy to understand investment strategy and philosophy, except at a high level and in some cases, not even at a high level."

They also said the "risk indicator" measure was unhelpful – a view shared by some fund managers.

"It uses investment returns, to calculate the risk indicator, that are different from those advised to savers in their fund updates," Chamberlain and Littlewood said.

"Finally, it is based solely on recent historical volatility and is unrelated to the actual returns earned by the fund. The risk indicator tries to simplify the issue but ends up as a simplistic label."

You can see the review here.