KiwiSaver

AXA’s annual international retirement survey confirms one thing about KiwiSaver – it has got people thinking more about their retirement.The annual survey – the fifth held including New Zealand – shows three quarters of New Zealanders are now making some preparation for their retirement.

A year ago the figure was two thirds.

The survey, of more than 600 people, was taken at the time KiwiSaver was introduced, says AXA New Zealand chief executive Ralph Stewart.

New Zealanders came top of the survey in terms of happiness with their preparedness for their retirement – a result which could be partly the result of a universal pension, the advent of KiwiSaver, and a certain amount of “she’ll be right,” attitude.

What is of concern in the survey’s results, says Stewart and Arcus chief economist Rozanna Wozniak, is the low level of financial literacy in New Zealand and the unwillingness to get into investments other than low risk products.

AXA is encouraging those who get allocated into its conservative default fund to look at balanced or growth fund options.

“But the timing hasn’t helped, of course,” says Stewart, referring to the current international equity market turmoil.

And Wozniak says New Zealanders’ timorous approach to investment has led to an unsustainable property boom and also ill-advised investments in finance companies.

Finance companies looked a safer bet than a balanced or growth managed fund, she says, “because people thought they looked like term deposits.”

The Retirement Commissioner has entered the KiwiSaver analysis market with a fee calculation tool.It says the tool will help people “with the complicated task of working out which KiwiSaver fund is most suitable for them.”

“Our independent estimate of KiwiSaver fees will help New Zealanders make a more informed decision on which KiwiSaver provider and fund to choose,” says Retirement Commissioner Diana Crossan.

The fees analysis was completed by actuaries Melville Jessup Weaver and reviewed by several KiwiSaver providers and independent experts.

One of those is Michael Littlewood, a director of KiwiSaver provider SuperLife. Littlewood went public recently bagging a site which competes with the commission’s one.

Crossan says estimated fees are only one thing people should look at when selecting KiwiSaver funds. Other factors include the level of risk (and associated return), service level and communication offered by the fund provider.

The number of New Zealanders signed up for KiwiSaver at the end of the scheme’s first six months is far more than was expected for its first year, announced Finance Minister Michael Cullen and Revenue Minister Peter Dunne.
Press Release

As at 31 December, 381,000 New Zealanders were actively saving for their retirement through KiwiSaver. That compares to an initial forecast of 276,000 by 1 July 2008.

“The verdict on KiwiSaver is in,” Cullen said. “New Zealanders want to save for a better retirement and they know KiwiSaver makes that easier than ever before.

“New Zealand has a savings problem. We were recently ranked 108 out of 131 countries for our national savings rate. If that poor performance were to continue the consequences for our economy and for our living standards in retirement would be significant.

“KiwiSaver will address imbalances in the economy, create a domestic pool of capital to help local business expand and succeed, and will lift living standards in retirement.”

“One of the things that is particularly exciting is the continued popularity of KiwiSaver among younger New Zealanders,” Peter Dunne said. “Over 55% of KiwiSavers are under 45 years old and over 20% are younger than 25 years old.

“Starting the savings habit early will mean that these young people will be able to generate very significant savings by the time they retire and in some cases will be able to use their savings to buy a first home.”

Crown payments to KiwiSaver scheme providers in December totalled $104 million. Overall more than $300 million has now been transferred since the scheme’s launch on 1 July 2007.

The Retirement Commissioner’s suggestion of lifting the age New Zealand Superannuation kicks in has been greeted with a resounding raspberry by both main political parties.”No way,” was how Finance Minister Michael Cullen responded to a question about it from Good Returns at a briefing on the government’s Half Yearly Economic and Fiscal Update.

Cullen said there had been “enormous political disturbance over the course of 30 years” because of different parties changing the rules around superannuation and he had no intention of revisiting the issue.

It was one of the reasons there had been such a strong vote by older New Zealanders for MMP in 1993, he said, “and arguably the economy has paid a reasonably heavy price for that piece of fiddling around. We are not going to go there again.”

National’s finance spokesman Bill English is similarly negative.

“We’ve got no interest in changing superannuation,” he says.
Retirement Commissioner Diana Crossan’s three-yearly review of retirement policy said that, with people living longer, the pension age of 65 could be raised to 67.

“People are living longer and there are more of them,” Crossan argues. “So the question has to be, how do we finance that?”

The report was also critical of some aspects of KiwiSaver, saying it favours those on higher incomes.

The incentives to join KiwiSaver are “generous”, the report argues, and calculates that in 10 years time, will be costing the government’

$2 billion a year, partly in the form of the $20 a week top up and partly through employer tax credits.

English says National is looking at changes to KiwiSaver, but would not elaborate further.