KiwiSaver

New Zealanders clearly recognise the need to save for retirement, despite the current economic conditions, with many believing they must supplement New Zealand Superannuation to enjoy the retirement they want, according to the latest AMP SuperWatch research.

In the survey, when asked if retirement income from the Government’s pension scheme, New Zealand Superannuation, is adequate, nearly three quarters say they require additional income from personal investments or savings to realise their aspirations.

Notwithstanding current economic conditions, New Zealanders continue to save for retirement. Of those who are saving, 58% say they are saving for retirement. This is significantly higher than levels in February 2007 but lower than the high of 65% reached a year ago.

Commenting on the survey, AMP Financial Services NZ managing director Jack Regan said the results reflect New Zealanders’ retirement expectations.

“For many, New Zealand Superannuation will not let them live the life they want in retirement. The additional savings intention, over and above NZ Super, reflects people’s expectations of a better retirement. This is a theme that has been consistently reflected throughout the history of the survey,“ he said.

Two thirds of those already in KiwiSaver do not intend to vary their contribution to the lower minimum contribution level of 2% effective from 1 April 2009. Of the 23% likely to reduce their contribution, a quarter will save the money elsewhere, 13% will use it to pay off debt and less than half will use the extra 2% to cover increased living costs.

“This reinforces people’s commitment to save to match their needs and aspirations for a better retirement. Despite these extraordinary times and the pressure on personal incomes, people continue to embrace retirement savings schemes,� Regan said.

According to the survey, KiwiSaver’s popularity continues, especially among younger people. Almost 40% of those saving for retirement have already joined KiwiSaver and a further 26% say they intend to join this year. Of those aged between 18 and 24 years more than a third intend to join.

For the first time, of those saving for retirement, more see KiwiSaver (51%) as a way to save for retirement than paying off their mortgage (49%) or bank deposits (43%).

The survey also shows, for the first time, the level of confidence people have in their decision to join KiwiSaver. Most are confident they made the right decision with nearly two thirds saying they are confident or very confident.

Regan says New Zealand’s preference for KiwiSaver as a retirement savings option is becoming clearer.

“People are less inclined to connect repaying their mortgage and having the retirement they want. More people are joining KiwiSaver and those already in the scheme don’t intend to reduce their contribution, despite the opportunity to do so. In people’s minds, KiwiSaver is becoming integral to a better retirement,� he said.

According to the survey, more people intend to work beyond the age of eligibility for New Zealand Superannuation. Only a quarter expect to retire before the age of 65, down significantly from 35% a year ago.

AMP has been surveying New Zealanders’ retirement saving attitudes and behaviours since 2000. AMP SuperWatch is currently undertaken twice a year.

The NZ Herald published a feature article on retirement income savings on February 28. The author was strongly critical of the New Zealand Superannuation Fund’s construct and recent performance. In response, Adrian Orr chief executive of the Guardians of New Zealand Superannuation had the following to say:

The fund is a simple concept. The government has legislated to invest money today to gain a return over the long-term. That return is to be used in the future to smooth the tax burden of the rising cost of superannuation income. One measure of financial success is whether the returns to the fund over decades are above the cost of government borrowing. This may or may not be the case over any randomly selected day, week, month, or year. In keeping with that we have deliberately and repeatedly highlighted the wide range of year-to-year outcomes we expect over the life-time of the fund, including negative ones. We have used our annual reports to illustrate this. A government is in a great position to benefit from investing over decades, more so than any individual. It can focus on the long-term and hence make investment decisions not available to many. It has the ability to ride out the tough patches and avoid ‘fire sales’. And, it can fund this activity at the cheapest rate and receive the tax on its local investment. The chance of investment success is as good as it can get. Right now, the earnings prospects for long-term investors have improved significantly. This is great for the Super Fund with the majority of contributions ahead. The global recession has seen asset prices fall and the rewards for accepting investment risk rise to historical levels. History also teaches us that the best time for investment returns is after significant downward corrections. However, we do not manage the portfolio around expectations of near-term events. Forecasting short-term is near impossible and leads to a lot of cost and lost opportunities. Exactly when a boom or bust will happen, what will trigger it, how it will unfold, and what the investment implications might be can not be forecast with useful precision – otherwise they would not happen. The forecasts the author of the feature article mentioned are long-term returns. Likewise, putting money only into cash or fixed interest dooms the fund to failure from the outset. The future retirement income liabilities, which follow nominal wages, will outpace the returns. Instead, the fund is invested for the long-term across a very wide range of assets that give us the best chance of buffering rising future retirement income payments. Diversification is the best means of managing investment risk. Imagine if we only had one asset and it happened to be the worst performing. A diversified portfolio removes that risk. And, we spend a lot of time on investment manager due diligence. Furthermore, whether a government’s operating accounts are in surplus or deficit makes no difference to the investment proposition of the fund. Neither do the returns to the Fund impact on the variability of the government’s debt program. The Guardians’ legislation was designed to provide clarity of purpose, operational independence, and transparency. It is recognised internationally for those features. When I took over two years ago following my role at the Reserve Bank, I inherited a set of investment assets selected to grow and to weather the long-term. These were chosen on a set of investment beliefs. Since then, we have been able to attract and retain world class people, and continue to implement a significant NZ and global investment strategy. We greatly increased our ability to manage and monitor our risk and liquidity, and invest in market-tracking indices, so that we are cost-effective and can avoid being forced to sell illiquid assets. We have raised the hurdle on our investment managers and let some go, and we have introduced tougher due diligence processes. And, we have deliberately reconsidered our global private equity and property strategies. Finally, we have benchmarked ourselves against the best in class long-term investing fraternity. They have all experienced the same challenges and remain committed to long-term investing. These are testing times which create the opportunities for long-term investors.

Unite has signed up “hundreds� of its 28,000 members to the Huljich KiwiSaver scheme, according to the union chief, Matt McCarten.

McCarten said while member sign-ups to Huljich have been minimal “this is just the start of the relationship�.

“This really a trial to see how it works,� he said.

Unite, which bills itself as the country’s “fastest growing private sector community unionâ€?, struck up a deal with Huljich in January to promote the KiwiSaver scheme to its members.

McCarten said Unite engaged a consultant to select an appropriate scheme to distribute after receiving numerous enquiries from members about how to choose a KiwiSaver provider.

“I did consider IRIS [a union-based KiwiSaver and superannuation scheme] and was approached by other unions to use it,� he said. “But we got a view of each scheme based around some criteria: it had to be New Zealand-owned; have an ethical investment policy, and; returns were also important.�

Huljich emerged from the pack based on these three crucial factors but it also “got� the message that many Unite members wanted to save for a house deposit through the KiwiSaver concessions.

McCarten said most of Unite’s members worked in highly transient service industries such as restaurants, were lowly-paid and mainly young.

“About half of the members are in their first job,� he said.

Unite collects a $40 fee for each sign-up to Huljich, which “just covers administration costs�, McCarten said.

Despite coming from different ends of the political spectrum – McCarten is a high-profile advocate of the left while Huljich directors include former National Party chief, Don Brash, and Auckland mayor, John Banks – he said the two organisations also share a “cultural affinity�.

“We’re both growing organisations, we work hard and we back ourselves,â€? McCarten said. “Although I would fight [Brash and Banks] all the way on political issues I’d trust them with my wallet.â€?

Huljich has also formed distribution relationships with associated mortgage-broking companies NZF and Mike Pero.

As at March 31, 2008, the Huljich KiwiSaver scheme reported just over $100,000 in funds under management, equating to about 50 members.

The Sorted website has been updated to include information for employers about the changes to KiwiSaver which come into effect on 1 April.

From 1 April employees will be able to change their contribution to the scheme from 4% of their gross pay to 2%, while the compulsory employer contribution will increase from 1% to 2%.

“The new information is on the site early to give employers time to assess what the changes mean for them and their staff,� Retirement Commissioner Diana Crossan says.

“By using Sorted’s KiwiSaver calculators people can work out how a change in their contribution would affect their retirement savings and decide what’s best for them.�

Employers can also download two free KiwiSaver seminars and material needed to run them. The seminars are designed to help staff understand the savings scheme and decide if it’s right for them.