KiwiSaver

The Government had the opportunity to force KiwiSaver providers to quantify all their fees and add-on charges so that the public could have some certainty about what they were letting themselves in for.
Press Release – Gareth Morgan

Too many providers have continued the old savings and insurance trick of identifying only fees and telling savers in the small print that expenses will be “charged to the scheme”. The average saver could be forgiven for thinking that since the scheme will pay these expenses the individual account fees will be confined to the headline numbers. Absolutely wrong; all fees and expenses eventually get paid by savers.

This duplicitous behaviour is compounded by the fact that a significant chunk of ordinary fees and expenses are not quantified – savers are left to guess what these might amount to and how they might affect their long-term returns.

And this is an industry whose spokesman Vance Arkinstall claims pursues best practice and is a fit ‘to be trusted’ guardian of the public’s savings. It’s an industry that for decades has pillaged the savings of a trusting public and lined its pockets at its customers’ expense.

We would certainly support any move by the Government Actuary to force schemes to quantify all their fees. Our independently verified fees comparator recognises the insidious practice of having non-quantified ordinary expenses. Our estimates of how much these add to total fees are pretty conservative (around 0.12%). For those schemes with very low headline fees the real figure could be 0.3% to 0.4%.

If ISI members seriously believe in best practice they should include all ordinary fees and expenses in their headline fee number so the public can be quite clear about what they are being charged – then we and the public wouldn’t have to estimate them. Gareth Morgan KiwiSaver and SmartKiwi KiwiSaver schemes appear to be the only ones, so far, that have a single all-up fee covering all ongoing fees and expenses.

No newspaper-published table has recognised the non-quantified element of ordinary fees – a dereliction of care which puts the public at an even greater information disadvantage.

Virtually all KiwiSaver schemes have some ability to raise fees to cover the possibility that new government regulations could force up scheme management costs. The KiwiSaver Act allows schemes to charge reasonable fees, or put another way, they are not allowed to charge unreasonable fees.

Now the Government Actuary has some duty to prevent schemes from charging unreasonable fees, but so far it has not published any guidelines for what he regards as reasonable. So, the public have no idea how far most schemes can increase their fees. One or two, including ourselves, have stated their maximum fees, which, since the Actuary has ticked them off, must be regarded as reasonable and therefore at least what other schemes can raise their fees to.

It’s time to remove uncertainty over fees. It has been a strategy used by the insurance and savings industry to dupe savers for far too long and the government could and should have put a stop to for Kiwisaver schemes.

Despite a marked increase in the public’s awareness of KiwiSaver, the new government retirement savings initiative still doesn’t register a high level of engagement.This is the main finding of the second in a series of nationwide surveys on KiwiSaver undertaken by New Zealand financial and superannuation specialist, ING. The on-line survey polled 600 New Zealanders aged between 18-64.

In the first survey, conducted in May, only 62% of working-age New Zealanders were aware that a Workplace savings scheme was to be launched in July – although almost two thirds were in favour of the concept.

Two weeks out from the launch, ING’s second survey showed a staggering 99% of those polled knew of KiwiSaver. But although the same two-thirds proportion were still “generally in favour”, only 46% confirmed they would take it up.

Meanwhile, confusion still reigns, with just one in eight of those polled (13%) saying they felt “very familiar with the ins and outs of KiwiSaver”.

The survey – split 54% female and 46% male – included those in four income bands covering less than $40,000 to more than $90,000 and four age bands, 18-29, 30-39, 40-49 and 50-64. It also asked how ready New Zealanders were for retirement. These results were particularly revealing.

While only 5% of those polled felt the current NZ Super payment will be enough for when they retire, Almost 70% said they had “no savings strategy in place”. Of those who were saving, 61% listed their home as part of their retirement savings.

And one third reported they found their current financial situation “quite tough” – either struggling to make ends meet or having to budget very carefully.

Two thirds of those polled owned their own home, 60% were tertiary qualified, 60% were also employees, And 25% employers or self-employed.

Looking to the future, more than 60% expect to be working until the age of 65 and over half said they would be seeking full-time or part-time work beyond that time. Around 68% also felt that the current age of super entitlement should be lifted.

Other key survey findings were:

• Of the 46% who “expect to join KiwiSaver”, nearly two thirds will opt for the 4% contribution rather than 8%
• More than two thirds (72%) will “do their own homework or ask around” before deciding on their KiwiSaver provider
• 11% say they will opt for a default provider
• Females and those nearing retirement age are the most likely to sign up.

Steven Giannoulis, ING’s general manager marketing and investor services, says the new survey “clearly shows that in the lead-up to the launch of KiwiSaver, a large number of New Zealanders were looking for as much information about the scheme as they could”.

He says that the main hurdle to the uptake of the scheme by individuals will be procrastination during the ‘homework’ and decision-making process.

“The survey also shows that New Zealanders favour ‘self-help’ to a high degree, yet many are working from a weak knowledge base.

“It is now up to the Government, KiwiSaver providers and financial advisers to arm as many New Zealanders as they can with information that is both relevant and timely. I’m confident that the more people learn about the benefits of KiwiSaver, the more they will be encouraged to join.”

ING, one of the six government-appointed default KiwiSaver providers, intends to do a final survey within the next six months, measuring the take-up of KiwiSaver by employees and the response from employers.