KiwiSaver

The Government is cautiously supportive of including higher KiwiSaver contribution rate options and “increasing KiwiSaver coverage” but cannot say yet what that might mean.

Commerce and Consumer Affairs Minister Jacqui Dean has released the Government’s response to the Retirement Commissioner, Diane Maxwell’s, review of retirement income policies.

Maxwell made a range of recommendations as part of her three-yearly review, to improve New Zealanders’ retirement outcomes.

“Earlier this year the Government announced key changes to superannuation settings which are in line with the Commissioner’s recommendation,” Dean said.

“The review also addressed other key areas including KiwiSaver settings, the ageing workforce, and assistance to vulnerable groups in retirement.”

She said the Government was committed to raising levels of financial capability to help more New Zealanders have financial security in retirement.

It has already moved on Diane Maxwell’s suggestion that the age of eligibility for NZ Super be increased to 67, and increasing the length of residence required from 10 years to 25.

It has also announced its intention to decouple KiwiSaver from the age of eligibility for super, will allow people over 65 to join and is requiring KiwiSaver providers to disclose the total dollar cost of all fees in their annual statements, as well as requiring them to indicate the eventual balance a member is on track to achieve.

But while it is not proposing to follow Maxwell’s suggestion to increase the minimum employer and employee contribution rate from 3% to 4%, Dean said the Government supported increasing the range of contribution rates. Maxwell had suggested 6% and 10% as options.

Dean said it was also undertaking work to understand why members were not contributing.  It was supportive of the recommendation to increase KiwiSaver coverage. She said more work was needed to assess the impact of and options for introducing additional ways for members to contribute. There have been suggestions that KiwiSaver should be made compulsory.

Dean said more work was needed to consider the compliance costs for employers and the administrative impacts for Inland Revenue before the Government could commit to the change.

It would not remove the non-qualifying partner option or the direct deductions policy for overseas state pensions.

Dean said the Government agreed that as KiwiSaver balances and demand increased, it was likely that KiwiSaver providers would innovate and offer more drawdown options for members.

More than 50,000 of ANZ’s KiwiSaver members will receive an additional member tax credit due to processing errors amounting to about $2 million.

ANZ is making a claim on behalf of impacted KiwiSaver members to Inland Revenue for the additional member tax credits to be credited to those customers’ KiwiSaver accounts.

Those affected are people who have been members since 2009.

In addition, ANZ will credit their KiwiSaver accounts with the investment returns that would put them in at least the same position they would have been if the error had not occurred. ANZ expects payments to be completed in August.

While ANZ has identified 51,000 customers who are financially impacted by the error, the bank said exact numbers and amounts would not be known until the correction had been processed by Inland Revenue.

For most of those impacted members the underpaid amounts are expected to be $50 or less.

KiwiSaver providers should not be allowed to charge a fee of more than 100 basis points – and if they cannot run their funds on that, they should not be in business, says Paul Glass, executive chairman of Devon Funds Management.

He said the retirement savings scheme needed to be made compulsory and the NZ Super Fund and ACC should be tasked with providing KiwiSaver funds at cost.

Glass said both organisations had excellent investment teams and were well resourced, with good long-term timeframes. “If anyone could provide low-cost KiwiSaver, it could be one of those guys.”

Glass said while banks, which have the bulk of the KiwiSaver market, were competitive, there were some schemes that were charging too much.

“If the regulator or government said if you’re going to provide a KiwiSaver scheme, you can’t charge more than 100bps all up, I can’t see any reason why they should be charging more than that but quite a few schemes are.”

He said the expensive schemes were often those sold aggressively to “less sophisticated” investors. While default schemes are obliged to ensure their fees are reasonable, there are no constraints on other providers.

“Rather than the hurdles you have to go through putting someone into a managed fund with $2000, if that regulatory firepower could be used ensuring everyone is getting a fair fee structure for KiwiSaver, that would be time well spent.”

Glass said a lot of the New Zealand population would not read disclosure documents or fee schedules, no matter how they were disclosed. “We need to protect those people from themselves and people who employ more aggressive sales practises.”

He said 100bps was fair. “If they can’t run on that, they shouldn’t be in business.”

KiwiSaver should be compulsory and the annual tax credit should be cut, he said. Over time it was likely that the pension would become means-tested, and without compulsion those who saved would have to chip in to cover those who had not.

Compulsion would change the conversation, he said. “There would be less stress about the retirement age and more emphasis on how much is saved.”

New Zealanders are leaving their retirement planning too late, one KiwiSaver provider says.

Kiwi Wealth offers a Future You retirement forecasting tool to help people determine whether they are on track for their savings.

But a third of its users so far have been aged over 44 and two-thirds are over 45.

Head of retail wealth and marketing Joe Bishop said that meant many people were not getting started early enough.

“Being engaged and active in your savings as you get closer to retirement is great, but to give yourself the best chance of making the finish line in good financial shape, decisions have to be made much, much sooner,” he said.

“That’s why we think of retirement saving as a marathon. For many Kiwis retirement is a long way off, just as the finish line is a long way off when you start out in a marathon. But to give yourself the best chance of finishing a marathon you have to make a series of strategic decisions that keep you in the race.  The most important of which is knowing what your race or retirement goals are.”

Kiwi Wealth’s Future You tool shows that a 30-year-old male earning an income of $50,000 and contributing 3% into the Kiwi Wealth KiwiSaver Scheme Balanced Fund could have $175,600 at 65, potentially giving him an estimated income of $8700 a year.

If he only started investing in his KiwiSaver account when he turned 50, he could have $57,900 available at age 65 – or $2900 a year.

“Saving smaller amounts over a longer period is less risky, delivers better investment returns and is much less stressful for people,” Bishop said.

“For most Kiwis that means engaging with their KiwiSaver investment earlier in life.  That’s hard for people to do when you’re dealing with an investment horizon of around 30 years.  People just can’t see, or plan, that far ahead into the future.

“KiwiSaver providers therefore have a moral imperative to help their customers better understand their future wealth and how small decisions now can have a huge impact on their future.”