A cluster of ‘modest’ accounts: what KiwiSaver balances really look like

In what’s believed to be an industry first, the NZ Society of Actuaries has produced a report that analyses account-level data for a large segment of the KiwiSaver market.

Until now, nothing been published about the actual balances of KiwiSaver’s 3.09 million members, with most statistics focusing on averages. For example, the FMA’s annual KiwiSaver report for 2021 says the average balance across all funds is $26,410. Previous surveys of KiwiSaver accounts have been limited to average balances, total fund size and total contributions.

But averages don’t tell the whole story, says Ian Perera, the convenor of RIIG (the Retirement Income Interest Group, a subgroup of the NZ Society of Actuaries) and are “not particularly helpful” when it comes to KiwiSaver.

They tend to be higher than the median, which produces a more realistic picture as a few large balances can skew the average. “You learn a lot more by understanding the differences than by just taking the average,” he says.

RIIG’s survey and analysis focused on how individual account balances are distributed, revealing a cluster of low KiwiSaver balances at the bottom of the scale and a “tail” of large balances, including a few outliers of more than $1 million, at the other end.

So, for most members the balances are “modest”, meaning that for those near retirement, NZ Superannuation will still be a key part of their income, Perera says. The median balances in RIIG’s study for those aged between 60 and 64 were $38,000 for men and $31,400 for women. In the 64-84 age group, 17% of men and 13% of women have balances of more than $100,000.

RIIG’s information was gleaned from six KiwiSaver providers which supplied anonymised data about the accounts they manage for members aged 45+. The providers included bank-owned funds and specific fund managers. All are among the top 20 providers as of 31 March 2021 and three are among the top five. Information was supplied on each member’s date of birth, balance and fund type.

The first finding was no surprise. Men are more likely to have larger balances than women and are significantly more likely to have the largest balances: 13% of men in the 45-64 group have more than $100,000 in their accounts compared with only 6% of women. And at the other end, women are more likely to have balances of less than $50,000: 74% compared with 64% of men.

When it comes to fund choice, however, gender does not appear to be an indicator of tolerance for risk – at least, not until members hit 65. “The data does not support the idea that women between 45 and 64 are more conservative investors than men,” Perera says.

Across the board, the study found that most investors aged 45-64 choose conservative funds, with only 35% of women and 39% of men invested in funds holding at least 60% of growth assets.

The rule of thumb appears to be the lower the balance, the lower the risk tolerance. For those with account balances between $10,000 and $20,000, 45% of accounts held by men and 47% held by women are in funds with only 30% of growth assets. Only 21% of men and 18% of women are in more aggressive funds (75%-100% in growth assets).

When the government contribution of $521.43 a year is added, men clearly contribute more to KiwiSaver, with 46% of men and 33% of women putting in more than $4000. At the other end of the scale – annual contributions of less than $3000 – women make up 52% of the group compared with 43% of men. Perera describes these results as “not unexpected” as men in the 45+ population usually earn more than women, and KiwiSaver contributions are primarily made as a percentage of salary.

When it comes to drawing down KiwiSaver in retirement, Perera says low balances in the 55-64 age group mean that for most people, individual financial advice is not cost-effective. Most will need to rely on generalised guidance. But managing drawdowns is “one of the hardest problems in finance”, he says.

The way up is almost straightforward: save more, ensure you’re in a diversified fund and get your risk settings right. “But when it comes to ‘how much can I spend?’ there are so many different factors to consider. You don’t know how long you’re going to live, and inflation could be more significant. It’s a harder problem in some respects than saving.”

Perera says he hopes the FMA and Retirement Commissioner can use these survey results to develop a larger dataset that can be analysed to form a whole-of-sector view.

Now that it has data for the 45+ age group, RIIG’s next project will be to figure out what current KiwiSaver balances might look like when these members reach retirement.

Financial Services Council defends KiwiSaver after criticism

The finance industry says it is improving the KiwiSaver system but it is a work in progress.

A report by  Consumer NZ found New Zealanders preferred non-bank providers such as Simplicity and Milford ahead of the schemes offered by most New Zealand banks.

The report suggested people’s attitudes were soured by a market-led subsidence of KiwiSaver values. 

But there were other concerns, separate from market fluctuations, such as a lack of transparency about fund performance and the fees people pay.

“Three out of four KiwiSavers didn’t know what they paid in fees while 60% didn’t know how well their fund was doing compared with others on the market,” Consumer NZ wrote.
The chief executive of the Financial Services Council (FSC) Richard Klipin welcomed surveys and reports on KiwiSaver for “shining a light” on the industry.

But he defended his members against criticism.

“KiwiSaver companies are working really hard to serve their clients in really tough times …. and the Consumer NZ report provides an insight into some of the opportunities available to continually lift the bar.”

Klipin said both consumers and product providers were on an evolutionary journey and that would continue.

“I do think there is an underlying issue with financial capability in New Zealand, that we all have a responsibility to address, and that is to help New Zealanders be better with money.”

So, did the Consumer NZ report suggest the industry not done well enough up til now?

“I think it is a work in progress.”

Voluntary savings continue in KiwiSaver – ASB

A significant minority of people are making voluntary contributions to their KiwiSaver schemes to take advantage of volatile market conditions, according to research by ASB.

While most people do not pay extra, a total of 29% are paying more than they have to, said ASB senior economist Chris Tennent-Brown.

The news of people paying extra gives a boost to the standing of KiwiSaver, since it follows other research that finds overall balances are lower than they could be because other people are taking contribution holidays during difficult times.

The research could be good news for mortgage advisers whose first-time customers often use their KiwiSaver account for a deposit on a house.

Tennent-Brown said many people were sticking with existing KiwiSaver strategies, which could give them the chance to maximise long-term gains.

“Over the last few volatile months, the number of people switching has remained at normal levels,” Tennant-Brown said.

“This is really pleasing to see and it contrasts with the spike in switching that we saw in the early days of the pandemic in 2020.

“One of the questions I get asked is when markets are volatile, should people stop making contributions and the answer to that is generally no.

“People should continue their regular savings if they can. Furthermore, when markets are down, making lump sum contributions and buying when investment values are low will benefit overall savings when markets recover.”

Tennant-Brown said 29% of people had made additional voluntary contributions to their KiwiSaver, and more than a quarter of those were motivated by a desire to use their scheme to get better returns from the market.

“Whatever the reason, it is good to see people maximising some of the key benefits of KiwiSaver. It is going to help them reach their savings goals and it’s a smart financial thing to do, which is great.”

[GRTV] Rob Everett on value for money; the great KiwiSaver land grab and fees

What's value for money with KiwiSaver? Former Financial Markets Authority chief executive Rob Everett provides answers in this Good Returns TV interview.  [Including Podcast]

Rob Everett admits working out what is value for money “is a difficult topic.”

“What we were trying to do with value for money is acknowledge that it's not all about fees.”

He says, despite claims from the industry, that the FMA isn’t trying to drive every KiwiSaver provider to a low cost, passive index hugging model.

That would be a poor result for the industry and members.

See Podcast below

“We were also trying to acknowledge that for a lot of people, the difference between 50 basis points and 60 basis points or 75 basis points, it's not registering in their decision making.

“A whole bunch of other things are registering in their decision making, and sometimes it's been a challenge to work out what.”

Everett says increasingly, it's about what funds are invested in, what disclosures they provide members, the data the schemes give members and transparency.

“Value for money is partly about fees and returns. But…not all investors by any stretch of the imagination.”

He says at the moment the driving force is climate change and ESG factors, so now the FMA is worrying about greenwashing.

“Value for money was an attempt to say, we're frustrated about fees, and so we are going to push hard on fees, but it's not only about fees. And your value for money may be different from mine.”

While the FMA can’t regulate KiwiSaver fees, Everett would be wary going down that path.

“I'd be wary because I don't know we'd be any better at setting fees than anybody else. And actually setting fees, I think, is a slightly dangerous place to be.

The FMA has not pushed to get powers to regulate fees.

“What we've done instead is make a lot of noise. We're not quite sure what level the fees should be, but we're pretty sure they should be lower than where they are.

“And actually, the government took the same approach during the default provider review, so there was some commonality of view there.

“It's frustrating sometimes to push at something where you actually don't have the ability to say exactly what you think good looks like, but we have seen fees start to move. So I think the noise has had some impact at least.”

Everett says since the FMA started making noises some schemes had abandoning administration fee or lowered management fees.

“We have seen movements down by some of the bigger players. So, I think we've had an impact, but so have the low cost providers.”

Everett: says the FMA’s view is that every fund does not have to have the same fee, “or that even every fund has to have a low fee.”

Where a fund is charging a higher fee it needs to explain why.

“Some of the better performing funds after fees, have been reasonably expensive. So, we're not saying you can't charge high fees, but what we're saying is, if you've got a passive low cost that's got an index hugging approach, and you're not delivering spectacular returns, why are your fees at the top end of the range? And maybe there's a good reason.

Everett questions whether banks should have been able to get away with th big KiwiSaver land grab in the early days of the scheme’s launch.

He says” I don't know at the time that it was right, but one of the impacts of leaving it there for so long was that you built up these enormous balances of funds under management and collections of customers in the big organisations that didn't seem sufficiently incentivised to be creative and innovative.”

“I do think when the government did its default provider review, they seemed to have been looking for a better balance between small and more innovative players and the bigger players that have the resource.

“I suspect at the time, I may be wrong, there was a sense these players have the experience and the resource and the technology to get this thing off the ground.

“I think it's a shame given the markets we've been in. It took such a long period before it actually got recast a bit. But I think it's in a more balanced shape now, I would say, at least at the default provider level.