KiwiSaver

Kiwis who think their retirement savings are sorted because they have signed up to KiwiSaver may get a nasty shock when they reach 65.

David Boyle, group manager of investor education at the Commission for Financial Capability, said one of his biggest concerns about KiwiSaver was that savers would think that, having signed up, they did not need to do any more.

“People join and in a lot of cases they’ve ticked the box and think ‘I’ve done that, I should be set’. But they haven’t worked out what that might mean when they get to retire,” he said.

He said just contributing the 3% of income minimum, matched by the employer contribution, would not be enough to give most investors are comfortable retirement.  “Three per cent [of your income] is not going to get you there, even if you start really early, it’s not enough. That is a real problem.”

ANZ research has shown that 79% of savers want more than the $370 per week a single person can get from the pension in retirement.

Of those who want extra income, 40% want more than $300 extra every week, and 31% want more than $500 each week on top of super. To get that for 20 years, they would  need a lump sum of $700,000 or $900,000, respectively.

That is well out of the reach of someone on the average wage unless they top up their KiwiSaver accounts significantly.

Someone who joined KiwiSaver at 25 with a salary of $50,000 would need to contribute about $6600 each year on top of the 3% from their income and 3% from their employer to reach that $700,000 target at 65.

That assumes they are in a fund that adapts their risk profile according to their age.

Almost an extra $10,000 a year would have to be contributed to reach $900,000.

Boyle said the Commission for Financial Capability was asking KiwiSaver providers to regularly tell members not only what their balances were but what income that would deliver at 65.

He recommended savers seek advice to set them up with a plan.

ANZ general manger of wealth products and marketing Ana-Marie Lockyer said how much money a person could be content with in retirement would depend on the kind of lifestyle they expect.

“If you’re happy to reduce your living expenses and the lifestyle you’ve become accustomed to, you’ll need less. Is it important to leave an inheritance to your family or are you happy to gradually dispose of your assets through your lifetime?”

She said it was important that people did not wait until they were close to retirement to work out whether they would have enough.  Savers should check in at least annually to make sure their savings were on track.

IRD is in talks with its counterpart in Britain after moves that have meant New Zealand KiwiSaver schemes can no longer accept British pension transfers without penalty.

A Qualifying Recognised Overseas Pension Scheme (QROPS) is a scheme that meets requirements set out by Britain’s HM Revenue and Customs (HMRC).

British migrants can transfer their UK pension benefits to the schemes without having to pay an unauthorised payment charge of 55% on the transfer.

Many make the transfer seeking simplicity, wanting to consolidate their retirement savings in one place when they migrate.

A number of KiwiSaver schemes have been operating within the regime but HMRC has sent a letter to schemes on both sides of the Tasman, asking them to confirm that policy-holders can only access their benefits before the age of 55 in the same circumstances as UK pension-holders in Britain can.

The only circumstance that is allowed is ill health.

But in New Zealand, KiwiSaver schemes provide for access to funds in the case of severe hardship, or for withdrawal for a first home.

That means KiwiSaver providers with QROPS status cannot accept UK pension transfers.

The letter was backdated to April 6.

Emma Dale, of law firm Chapman Tripp, said KiwiSaver scheme did not comply with the new rules and would not unless New Zealand or Britain changed their rules.

She said a British move was possible because the KiwiSaver effect seemed to be an unintended consequence. “They were quite happy with these providers until now.”

But she said if it did not, New Zealand could be compelled to change the law to ringfence money that was transferred from Britain.

New Zealand could do that by ringfencing the money transferred from Britain, she said.

“The  QROPS industry in New Zealand is relatively large. If the minister sees the need for a change it is possible.”

People who had already transferred their money into a KiwiSaver schemes should be unaffected, she said.

Growth in retail funds under management was concentrated in KiwiSaver funds in the first quarter of this year, FundSource research shows.

Its Retail Managed Funds Industry Trends and Market Composition report for the March 2015 quarter shows KiwiSaver inflows of $987 million.

That was up from $949 million in the December quarter of 2014.

Total KiwiSaver inflows over the 12 months to March hit $4.2 billion, taking the net funds under management of KiwiSaver funds to $27.3 billion.

KiwiSaver funds now make up more than half of all retail net funds management at 52%, compared to 47% in March 2014.

Of the other product types, funds in New Zealand unit trusts fell by $0.5 billion in the year ending March 31.

Superannuation funds and Australian unit trusts also experienced net outflows, while Group Investment Funds remained stable. As at the end of the March 2015 quarter, New Zealand unit trusts, the second-largest product type, accounted for 38% of net funds under management. This was down from 40% in March 2014.

The five fund managers who experienced the largest inflows in the March 2015 quarter were: ANZ, BT (including Westpac), ASB (including Sovereign), Milford Asset Management and Fisher Funds.

 

ANZ is running a campaign to remind KiwiSaver members to contribute enough to get their $521 free from the Government.

The campaign will run for two months.

The Government provides $521 as a member tax credit each year to KiwiSaver members who contribute at least $1042 to their accounts in the year ended June 30.

ANZ Wealth managing director John Body said it was a great benefit but too many KiwiSaver members were missing out because they had not contributed enough money during the year to qualify.

“Our analysis indicates that 56% of possible member tax credits were paid out last year which was up on the 50% paid in the prior year. It’s great to see more members taking advantage of this benefit but we estimate that last year KiwiSaver members nationally missed out on an estimated $400 million that could have been claimed if they had contributed the minimum amount.”

Body said ANZ Investments was contacting KiwiSaver members who had not contributed enough to qualify to remind them of the benefit: “We want to ensure our members make the most of Kiwisaver so they save enough for a comfortable retirement. Members still have a couple of months until June 30 to top up their contributions to make sure they get their full entitlement. Given the Government will give you 50 cents for every dollar you contribute up to $521, it makes a lot of sense to ensure you have contributed enough to qualify. In the past, we have found that members didn’t know about the benefit and were keen to contribute more in a lump sum so they would qualify for the full amount.”

Longer term,  Body advised KiwiSaver members to set up a direct debit if they want to be sure they qualify automatically for their full member tax credit benefit next year: “It’s a lot easier to put in just over $20 a week than it is to find $1042 at short notice.”