KiwiSaver

New Zealanders are becoming much more engaged with KiwiSaver as their balances creep up, says ANZ’s head of wealth, John Body.

The bank today released its latest Retirement Savings Confidence Barometer, which showed that people were a lot less confident about reaching their savings targets when they were adjusted for inflation.

The bank has changed the way it asked survey respondents about their level of confidence.

Instead of asking how much people wanted in addition to the pension in retirement, and then working back to show how much they needed to save to achieve that, then asking how confident the saver was of getting there, this time the amount they need to save as a lump sum was inflation adjusted.

Then, the same questions about confidence were asked.

The survey found only 39% of those with a retirement savings target were confident they would get there once the lump sum targeted was adjusted for inflation. That’s down from 50% in October.

But they were willing to take action to fix the problem.

A quarter of male respondents and 32% of female said they would increase their KiwiSaver contributions after seeing the impact of inflation on their goals. Another 58% said they would not change immediately but would need to save more in future.

“The results show that many people have not factored inflation into their savings plans. If you’ve got more than 10 years before you retire, then you’ll need to think about how inflation will impact the buying power of your savings,” Body said.

Confidence fell most sharply among those aged 24 to 44. Only 38% were confident compared to 54% in October.

People earning more than $100,000 were also less confident, down from 66% to 50%.

ANZ calculates that a 30-year-old earning $50,000 and contributing 3% using a life stages investment approach could have enough in their account to deliver $200 a week in 35 years’ time when adjusted for inflation.

Body said people needed to be putting more aside – “the more contributions the better” – but also to make sure they were in the right fund for their circumstances. Returns above inflation are likely to be higher for growth and balanced funds than for default conservative options.

“One of the ways to beat inflation over the long-term is to be in the right fund.”

He said advisers should be having the conversation with investors about what they needed to do to get to the required amount in retirement, taking into account the fund the investor was in.

He said it was also incumbent on providers to provide information.

But he said people were becoming a lot savvier. “Think about where we were two years ago versus where we are now. Retirement savings are on the minds of most people. We’re seeing action, people are engaging with KiwiSaver, they see their balances have grown to something reasonable and they’re starting to make decisions.”

Kiwibank is hoping to send out details of the merger of its two KiwiSaver schemes by the middle of this year.

Kiwi Wealth Management, owned by Kiwi Group Holdings, which also owns Kiwibank, bought Gareth Morgan Investments Ltd Partnership, including its  KiwiSaver scheme, in 2012.

It has planned to transfer members over from the AMP-managed Kiwibank KiwiSaver scheme to the Gareth Morgan scheme, to be known from next month only as KiwiWealth KiwiSaver, for some time, so that the bank only has one scheme.

Kiwibank acting chief executive Tracey Berry said the move needed FMA approval or member consent.

She said the Kiwibank KiwiSaver scheme closed to new members in December 2012 but was still operating as usual.

“Once details of the proposed transfer have been confirmed the manager of the Kiwibank KiwiSaver Scheme will write to all members with a comprehensive communications pack which will provide information relating to the transfer process.  Members will then have the opportunity to assess all options and decide whether they wish to participate in a transfer to the Gareth Morgan KiwiSaver Scheme.”

She said it was expected that the details of the transfer would be confirmed and communication packs would be sent out to members of the Kiwibank KiwiSaver Scheme at some point in mid-2014.

AMP directed inquiries to Kiwibank.

Grosvernor, which bought the Fidelity Life KiwiSaver scheme last year is planning to merge its scheme with the life company’s one – rather than the other way around.

Grosvenor chief executive David Beattie says the proposed merger is being done this way around as the Grosvenor scheme is smaller. This, he says, makes it easier from a communications point of view as the company only has to communicate with 35,000 members rather than 60,000.

He also said that Grosvenor has a very good database of its members’ details. This is important as the Financial Markets Authority could turn down a merger proposal if a scheme has too many “gone no addresses”.

If that happened members would be allocated to default providers.

Beattie says after the proposed merger the nine Fidelity fund options will be available along with four funds brought over from Grosvenor.

These are: International shares, Trans-Tasman shares, an Ethical share fund and its, high octane Geared Growth Fund.

Beattie says since Grosvenor bought the Fidelity scheme it has brought $125 million of funds in house and the remaining $250 million has remained with outsourced managers.

Also NZ Guardian Trust is stepping down as Grosvenor’s trustee this month and both schemes will then have the same trustee, Public Trust.

He says the merger is due to be completed by June 30.

Grosvenor is also seeking to become a default provider. The government is due to announce who the default providers will be by the end of this month.

Advisers aren’t surprised at New Zealanders’ low levels of understanding about KiwiSaver.

Mercer has released its latest KiwiSaver Sentiment Index, which shows that while a third of New Zealanders think they have a good understanding of KiwiSaver, there are still some big gaps in their knowledge.

Only 31% of working New Zealanders confidently understood that the Government’s maximum tax credit is $521 a year. More than 60% were unsure whether that was the right amount or not.

Most KiwiSavers miss out on the full tax credit because they do not contribute enough to their own accounts to qualify.

More than half the respondents also thought that a new employer would automatically start to contribute to their KiwiSaver accounts.

And only 28% realised that more than one tax rate applied to KiwiSaver investment earnings.

Financial adviser Carey Church said she was not surprised at how few fully understood the tax credit. “I actually think the real number could even be lower than 31%.”

She said financial information was not a high priority for many people.

“Many people just want to know that their balances are increasing and they aren’t getting ripped off. Is it that important that they know how much they are getting in detail from the Government?”

She said it was more important that people understood the type of investments their funds were investing in and the risks around them.

“But again, I think a lot of people don’t want to know.  Unfortunately, with the banks promoting that if people move their KiwiSaver to them they can see their balance, the focus will be short-term, on whether their balances are increasing. Therefore, communication will be required when markets and values fall, after the horse has bolted.”

She said more workshops and seminars would add value for KiwiSavers.

“When we do seminars in the workplace, people want to attend – as it is convenient and it is free.  Are many seminars provided these days?  It seems that these have gone out of fashion. If people aren’t interested, they won’t read, or do anything unless it is made easy for them.”

Don Stewart, of Share, agreed. “It does not surprise me as the level of advice and KiwiSaver education, given to consumers at time of joining a KiwiSaver scheme, is not provided. A consumer who has been enrolled into a default fund or simply over the counter at a bank may be given an investment statement which very few will read.  Those consumers who have used an adviser will have a higher level of advice and understanding of KiwiSaver maximum tax credits and their PIR. “