HOT TOPICS:   Election 2014  |    Fonterra   |  Home loans                                      RESOURCES:    Economic calendar   |  Credit rating explained

The comment stream

Reader poll

When do you think the Reserve Bank will resume increasing the Official Cash Rate?

Choices

KiwiSaver membership approaches 2 million mark; Close to half aren't contributing. Are you?

Posted in KiwiSaver

KiwiSaver membership is poised to break the two million mark before the end of the year with new enrolments averaging between 15,000 and 20,000 a month since the start of 2012.

Default provider Tower Investments, in its latest KiwiSaver analysis, notes the savings scheme is now 50,000 shy of reaching two million.

Chief executive officer Sam Stubbs attributed the membership growth to new workplace enrolments and also KiwiSavers who opted out returning to the scheme in light of recent debate about the unsustainability of New Zealand Superannuation given demographic pressures.

Stubbs said it was of "significant interest" that the monthly percentage growth rate for automatic enrolments into default funds had averaged about 1% per month since 2012.

He said the high level of KiwiSavers invested in default funds suggested that "more work needs to be done around educating people about choosing a KiwiSaver fund that best matches their personal risk profiles.” Just over half a million KiwiSavers are in default funds as a result of not having made an active choice about what kind of fund they want to be invested in.

“For many new KiwiSaver members, a default fund could be too conservative for their personal risk profiles and not produce the rate of investment return they will need to have a decent nest egg to help fund their retirement, unless perhaps they intend instead to use their KiwiSaver account to help save up a home deposit.”

Default funds are typically a mix of 80/20 cash and fixed interest investments to equities whereas growth funds are the inverse and balanced or moderate funds are more even mix of asset classes.

For more information on the types of funds in KiwiSaver and how they differ read this.

Stubbs said whilst pension age eligibility and concerns related to the exponential increase in New Zealand Superannuitants (from 500,000 in 2010 to 1.3 million in 2050) was getting a public airing the related issues of health care costs for an ageing population  (whose life expectancy is longer than ever) had yet to get a "similar airing.''

Additional costs for Government related to an ageing population will put more pressure on the financing of the pension system.

 

According to a recent C.D. Howe report out of Canada, annual health-care costs for a person over 65 are three to four times greater than for someone under 44. For a person over 85, they’re 12 times greater.

By 2051, it is estimated that there will be over 1.14 million people aged 65 years and over in New Zealand.  Over 65s, are expected to make up 25.5 percent (or 1 in every 4) of all New Zealanders (4.49 million).

Stubbs said New Zealanders joining KiwiSaver as a safeguard against any changes in the New Zealand Superannuation (NZS) shouldn't comfort themselves by thinking their KiwiSavings were sufficient savings to last in old age given the macroeconomic forecast.

“Any retirement saving-related consideration of the future costs and entitlements associated with New Zealand Superannuation and the public health system needs to be weighed in conjunction with what meaningful rates of contribution to individual KiwiSaver accounts should be.”

“Even if the statutory contribution rates aren’t changed and won’t be sufficient for many people to achieve a desired target nest egg, KiwiSaver scheme members can always increase their retirement saving contributions voluntarily through higher regular deductions from wage or salary."

The Financial Services Council earlier this week proposed a "KiwiSaver Plus" system that would have contribution rates boosted to 10% in order to maintain the age of eligiblility for NZS at 65.

Despite the growth rate of KiwiSaver, the Financial Markets Authority, in its most recent annual report on KiwiSaver, noted that 45% of KiwiSavers are not actively contributing to their accounts.

How much do you need for the lifestyle you want in retirement?

Sorted.org'nz's KiwiSaver calculator here

Interest.co.nz's cost benefit calculator

How much will fees and expenses eat into your returns?

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

16 Comments

"noted that 45% of KiwiSavers

"noted that 45% of KiwiSavers are not actively contributing to their accounts."
Wow just wow... so 45% of those almost 2 million people are not contributing "actively", would be interesting to see how many of those accounts are now currently below the amount that they started out with.  In other words how many taxpayers have funded fund managers to earn money, while coming out with less savings, and paying more tax to borrow more to get a $1000 kickstart, so that fund managers can leach it... Possible to get that info?

It is interesting that Towers

It is interesting that Towers Kiwisaver default fund is its best performing, and low and behold, has the lowest fees.
 
It must be hard for Sam to swallow that the fund with the least management has consistently outperformed in the last 5 years.

I'm superised at the fact

I'm superised at the fact that no one else I know bar myself and my parents are topping up their accounts to recieve the $1042 benefit.
Also the fact that half of my friends don't know who their provider is and the other half who do, don't know what type of fund (balanced, growth, conservative, etc).
The lack of peoples willingness to look over the details before joining baffles me. I read over Mary Holm's kiwisaver book front to cover before joining.

$521.43 annual tax credit

$521.43 annual tax credit now?

I top-up mine to the $1042

I top-up mine to the $1042 even though I'm a student. I also agree with your comments, most of my friends have no idea who their fund provider is or what fund they are in.... Sad really...

45% not contributing. So many

45% not contributing.
So many of those are children (ie my grandchildren) who have been started off to get the government bonus contribution.  And why wouldn't we.  These kids will eventually start earning and will automatically be contributing into the scheme from a young age.  Thats great.
But there are too many exceptions. 
1.  Kiwisaver needs to be 100% universal - you earn - you pay in.  Including those on benefits.
2.  We need to get rid of all of those 'holidays' 'pauses' etc.  Everybody who is not paying in will cost me in future.  And will cost my grandchildren in their taxes.  Why should those 'holidaying' people have a free ride at pension time.  Make it compulsory - no exceptions.
As for Sam saying people are not playing the financial services agenda by being in default schemes etc.  Well he would say that anyway.

Just a question KH, if your

Just a question KH, if your grandchildren have joined to get the kickstart, but then are not contributing, won't their kiwisaver account be going down in value due to fees? And if so, wouldn't it be better to wait till closer to the time that they are going to be working, so that there is less erosion/leaching of this kickstart contribution? Also inflation of course is reducing the actual value of the amount in their accounts constantly... Of course if the bonus is going to be removed, just before government does would be the ideal time to enrol children surely.

You are correct Midge.  But

You are correct Midge.  But you got to allow for the selfish in me.  The government benefits are so large compared with my contribution that it still works, even if eroded.  Just exploiting the taxpayer frankly.  You can't predict when the government will remove the bonus.
I have been advocating universal compulsory KS.   Say at 15%.  Part of that is I don't believe the Government should be subsidising it at all.   But I will take it if it is there.

I'd rather cut out as many of

I'd rather cut out as many of the middlemen between me and my cash, thanks all the same. I'd also rather keep as much distance between my savings and meddling politicians who just can't help themselves with a little tweak here and a little tweak there.....

I am sure you very wisely

I am sure you very wisely manage your cash Hamish.  But the point of compulsion is not to make the wise people like you have savings.  It's to ensure the silly people have some savings, so you will not have to pay for them through tax, compulsory, as you do now.
Yes- the politician are a worry and may succeed.  But one of the good points is that KS cash is still in your own name.  As the years roll by and the personal balances get bigger it does get harder for the manipulating pollies.  They would meddle at their peril.

That's a very good point. The

That's a very good point. The larger the total funds in management, the less the politicians will likely meddle.
 
But, it just seems very one sided to me, that already there has been 'tweaking', yet each time some aspect is changed, it doesn't give participants the opportunity to review if the deal still stacks up for them and re-sign an updated contract. Once you're in, you're in (aside from hardship, FHB etc.). That's a heck of lot of commitment and trust until you can finally access YOUR funds at 65.

You got to expect a lot of

You got to expect a lot of tweaking (positive).  And hopefully that's not fiddling (negative).  Although it's hard to spot the difference.
Tweeking that was always intended I believe was to move to compulsion and to up the rate.  More Australia - like.

As pointed out by Amanda,

As pointed out by Amanda, Westpac is waiving admin fees for under 18s so they only pay a percentage of funds (a current max of 0.765% for the growth fund). Assuming their investment makes more than .765% above inflation then they will come off better.

Good to know someone reads

Good to know someone reads those Q&As. cheers
 

thanks for that :)

thanks for that :)