KiwiSaver

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.”

Data gathered from almost three million members of KiwiSaver has highlighted the gender gap in Kiwis’ balances in the retirement savings scheme, and how overall both sexes are lagging behind where they would have expected to be at this point.

Te Ara Ahunga Ora Retirement Commission engaged Melville Jessup Weaver (MJW) actuaries to collect previously unknown data about KiwiSaver balances across age groups and gender.

The MJW report contains data on 2,944,050 members with total balances of $85.44 billion as at 31 December 2021, representing approximately 93% of the total KiwiSaver member base.

The average KiwiSaver balance is $29,022, with the average balance for a male 20% higher than the average balance for a female – males ($32,553) and females ($27,061).

The findings also reveal 40% of KiwiSaver members have a balance of less than $10,000.

19% of those with less than $10,000 are aged 17 and under
24% of those with less than $10,000 are aged 18-25
22% of those with less than $10,000 are aged 26-35

However, 21% of those aged 51-65 also have less than $10,000 and they may not have saved as much as they would have liked for their retirement.

Te Ara Ahunga Ora Director, Policy, Dr Suzy Morrissey says the MJW report highlights the popularity of KiwiSaver across all ages, including the over 65s, and the difference in average balances by gender at all ages.

“This is the first time we’ve had access to this level of data on KiwiSaver balances and demographics and gives a strong picture of how New Zealanders are contributing to the scheme and how popular it is.

“While not surprising, given KiwiSaver is a retirement savings scheme closely associated with the labour market, this report provides robust data to further highlight the gender savings gap, which is apparent across all age groups.

The widest gaps are between men and women in their 40s and 50s. On average,

women in their 40s have approximately $10,000 (or 30%) less KiwiSaver than men
women in their 50s have approximately $13,000 (or 32%) less KiwiSaver than men
This likely reflects the combined impact of the gender and ethnic pay gaps, time out of paid work, and the higher percentage of women than men that work part-time.

“KiwiSaver is one of two pillars in NZ’s retirement income system and while not perfect when using a gender lens is still a good scheme helping New Zealanders head into retirement in a better financial position. This highlights why NZ Super, the other pillar, is so important as it does not disadvantage women because of its universality.”

Te Ara Ahunga Ora asked MJW to develop hypothetical scenarios for people who had invested in KiwiSaver for 14 years (the maximum time possible) without making any withdrawals and compare them to the average balances. The median wage for each cohort was used to determine the contribution amount (minimum employee and employer) and government incentives were included.

For example, a woman who joined KiwiSaver in a conservative fund when she was 20, who is now 34, could have built up a balance of $46,878, but the average balance for those aged 31-35 is only $19,141 (as at December 2021), a difference of $27,738. A man in the same cohort, could have built up a balance of around $53,381, compared to the average balance of those aged 31-35 of $22,738 (as at December 2021), a more than $30,000 difference.

“What this has revealed is when comparing current balances to what would have been possible for a median wage earner to have accrued over the 14 years of KiwiSaver, we see that they are lower, on average, across all age groups,” says Dr Morrissey.

“Part of this can likely be linked to first home deposit withdrawals and saving suspensions, and people not participating in the scheme for the full 14 years that it has been available.

“Access to this data is particularly useful to support our work which is underway on the three-yearly Review of Retirement Income Policies where we are considering a wide range of areas relating to retirement.”

The Retirement Commissioner will submit a report to government in December providing analysis on the effect of retirement income policies for New Zealanders and identify emerging issues for future policy consideration.

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.”

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.”