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.”

Financial advisers need to remember that value-for-money is an ongoing expectation in KiwiSaver, one financial advice technology specialist says, not something that can be dealt with once and ticked off.

Rajat Vats, founder of Nuvano, noted there was a wide range of fees being charged by KiwiSaver providers, from under 30 basis points at Simplicity and Kernel through to more than 1.3 percent at NZ Funds and AE KiwiSaver.

He said the average excess return compared to benchmark across funds with 10 years of data to report was -1.42 percent.

But on an absolute return basis, eight of the to 10 performers over 10 years were active managers, including OneAnswer,  QuayStreet and SuperLife funds.

“Most of the funds are actually not really even beating their benchmarks. But you have to then look at the further nuance … some fund managers would use indexes as their benchmark. Some fund managers would create their own composite benchmarks. And some don't really have benchmarks.

“Benchmarks don’t really take into perspective  tax and fees. So benchmarks are getting a head start in advance. it's really hard to beat the benchmark.’

He said the absolute return data showed that some active products had earned their fee over a full market cycle.

“The benchmark-relative data shows that most have not matched the public index on a gross-of-fees basis. A member in an active fund that both sits in the absolute-return top 10 and comes close to matching its benchmark net of its fee has a defensible placement. A member in a 1.20 percent fund that trails its benchmark by more than its fee does not.”

He said advisers should be encouraging clients to take a long-term view.  “People should be looking at that perspective instead of, oh, one year, the fund goes down… it was disclosed in advance that this is a longer duration fund, and there can be volatility, and don't panic.

“That’s the job of financial advisers to convey to the market, don't panic.”
He said wraps adder another layer of complexity.

“The wraps that deserve scrutiny are the ones that repackage a manager the member could already access directly, at a higher fee than the direct version.

“The question for an adviser is simple: is the wrap layer delivering something the member could not get by placing with the underlying manager directly? If the answer is ‘better reporting’ or ‘platform access,’ the 20-to-40 basis-point premium might be earned. If the answer is ‘none of the above,’ a direct placement is usually the cleaner choice.”

Adviser should think about the fee competitiveness of the funds they placed clients in, he said. They should also check what the impact of a wrap was.

“If an adviser is recommending Milford to one person directly the fee is going to be minimal… 1.05 percent if you go direct, if you go through the same fund though a wrap platform you’ll pay 1.25 percent. If you go to another fund, you’ll be paying 1.49 percent.
“A 1 percent fee difference can make up to $100,000 difference over 30 years…. The illusion that’s being sold there… is we diversify your KiwiSaver into multiple funds.

“But funds in themselves are diversified vehicles… in general they are very diversified. The narrative of wrap platforms is we will diversify your KiwiSaver across multiple managers…[but] then you are paying extra fees, you are double charging, double dipping, as well as you're paying wrap platform fees, which is more harmful than a perceived risk of single manager, these managers are government vetted and FMA regulated.

“Wrap detection is the fastest-growing blind spot. If you are placing a client in a wrapped version of a manager you could access directly, the wrap premium should be visible in the rationale. “

Structural changes in the market should also be part of annual reviews,  he said. “A workable annual review anchors on five questions for every placement: Is the fee still competitive within the category? Has the benchmark-relative excess return – accounting for the fee – held up? Has the underlying manager or structure changed? Does the asset allocation still match the client’s documented risk profile? And if the placement sits inside a wrap, does the wrap still earn its premium? If any answer is ‘no’ or ‘I do not know,’ that is where the adviser’s work for the year is.”

He said advisers would focus on their suitability analysis but the scoping of their advice would also be important.

“Sometimes a person just wants what fund I should go to, right?  And everything is going fine in my life.

“I just saw a 25-year-old… they may not need the whole holistic advice, they just want to know which fund is right.

“And based on risk assessment, and timeline, normally, it typically would be assisted growth. Because the KiwiSaver is not a brokerage account, it’s a retirement vehicle or for a first home.

“The scoping should match what sort of advice and your scope of disclosure statements of scope of engagement should define that as well.

“Advisers sometimes default to holistic advice, because it feels safer. So the default is, they're just going to be like six step advice process, because that feels safer. But it’s not really necessary all the time.”

KiwiSaver managers are likely to expand their allocation to private assets in the coming years, the Financial Markets Authority says, but one investment adviser says there should be more demand for it than there is.

The FMA has released a report on private equity in managed funds.

It said while New Zealand managed investment scheme and KiwiSaver funds had relatively low exposure compared to their counterparts in other countries, that was likely to grow.

The regulator surveyed managers who are also managers of KiwiSaver schemes mid last year, asking about their private asset invsetments. Sixteen responded and seven said they had some level of private asset investment.

Five had been investing in private assets for at least five years. Six said they planned to expand their private assets investments in the next three years.
Managers held private assets both directly and indirectly.

Private equity, private debt and real estate equity were the most common directly held private asset investments. Real estate equity was the largest in terms of value.

The need to regularly value private assets for the liquid KiwiSaver market has been cited in the past as a hurdle for many managers.

Of the five managers who held direct investments, there were 15 individual investments covering most asset classes. Of these, eight were valued by an in-house valuation team, five by an independent valuer and two using other approaches.

The FMA said it was encouraging to see most managers had provision for valuations outside a regular cycle, but it was concerning that some managers did not have the capability.

“KiwiSaver funds need to provide daily unit pricing for transfer and withdrawal purposes. In periods of high volatility or in response to market events, the value of the private asset may change significantly. Fund managers need appropriate arrangements in place to implement mid-cycle adjustments to reflect the value of the fund’s assets, for example where the asset’s value materially changes between scheduled valuations.

“Managers without provision for valuations to occur outside of the regular valuation cycle risk a disconnect between the private asset’s actual value and the value reflected in the unit price of the fund. Investors may be buying or selling units of the fund at a price that does not reflect a reasonable value of the fund’s assets.”

The FMA said all survey respondents highlighted that there was a conflict of interest risk when key personnel of an investee fund or company were also directors or serving as consultants.

“It is reassuring that all respondents had some policies in place to help manage this risk, either maintaining a conflict register for continuous disclosure, or excluding these personnel from valuation decision making altogether.

“Conflicts of interest can also arise when management fees or staff performance incentives are tied to asset valuations rather than to the committed capital. This is a key risk for private asset investment, especially when asset valuation is done in house or by a related party. “

Edward Glennie, an investment adviser with Genesis Advice, said he thought there should be more demand for private asset investment from investors.
He said the FMA seemed too focused on valuation issues and the conflict of interest concerns.

“In my old job at Hobson Wealth, I constantly tried to encourage more demand because the asset class is so misunderstood. High net worth investors understand it and if they use the right manager have had some phenomenal returns.”

John Horner (pictured), the FMA’s director of markets, investors and reporting, said there were encouraging signs of maturity in how risks were managed in what was likely to be a growing area.

“Private asset investments can offer diversification and long-term value for New Zealand investors. Our goal is to ensure investor outcomes are carefully considered as the extent of exposure to specific risks grows. We want to see KiwiSaver providers exploring private asset investment opportunities while ensuring that risks are carefully managed, particularly around valuation, frequency of investment review, and conflicts of interest.

“As investment in private assets increases, professional approach to valuation practices together with good governance will be critical for maintaining investor confidence. We encourage providers to consider out-of-cycle valuation triggers, strengthen oversight of third party valuations, and communicate more clearly with investors.”

Horner said when it came to conflicts of interest, it was a case of managers knowing what to look for and where to look for it and to ensure the conflicts were carefully managed to prevent harm to consumers.

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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