By Martin Hawes*
Recently I was on a panel put together by Asset magazine to discuss KiwiSaver. At the end of the two-hour session, we were asked to rate how we thought KiwiSaver was doing.
Most of my fellow panellists rated KiwiSaver well but I rated it highest of all: on a scale of 10, I rated KiwiSaver’s performance as a savings scheme at 9.5. I raised some eyebrows.
Still, 9.5 out of 10 seems to me a reasonable assessment for our national retirement savings scheme. KiwiSaver has been going about 13 years. If you had said to me 15 years ago (i.e. before KiwiSaver was even mooted) that we would have around 3,000,000 people in a retirement savings plans and that this scheme would have around $70 billion in it, I might have thought that you were on something.
In terms of uptake by the public and the savings we now have, KiwiSaver has been incredibly successful. Even though Kiwis do not seem to think much about retirement, large numbers of people now see KiwiSaver as their main vehicle for saving.
Other countries like Australia have schemes that are more successful in these terms, but you have to remember that KiwiSaver is still a voluntary scheme while Australia is compulsory. Australians also have an advantage insofar as their contribution rates are higher: 9.5% of wages go into Australian Super accounts at the moment but it is heading to 12%. This compares to ours which is a bit over 6% (3% from both employer and employee with some extra contributed by government).
Nevertheless, we Kiwis now have $70 billion tucked away for retirement – money that we might not have had. And this has all been done fairly painlessly – for many, the money is off to the KiwiSaver fund before the saver sees it. Many people hardly know it is gone.
Nevertheless, I did not score Kiwisaver 10 out of 10 – there are still some areas which could be better. The first improvement would be to allow people to have more than one provider (i.e. that you be allowed to have some of your money with, say, your bank’s Kiwisaver and the rest with someone else.)
KiwiSaver is about the only financial product that must be with just one supplier – you can have term deposits, mortgages, insurances, investments etc. with multiple providers. Why not KiwiSaver?
There are plenty of people with large amounts in their KiwiSaver accounts – they could benefit from diversifying management risk.
The second thing to improve KiwiSaver is that managers redouble their financial literacy efforts. During March, when share markets took major falls, many KiwiSavers found that they were in the wrong funds – and switched. These people have, no doubt, lost out badly in the subsequent rebound of the markets.
However, it was not so much that people and switched that is at question here: it is the fact that they were in the wrong fund. The cardinal rule of investment is that you take on an amount of risk with which you are comfortable.
The March collapse showed that many people were found to have broken this rule (Warren Buffett says that when the tide goes out, we know who has been swimming naked). Although KiwiSaver providers have mostly tried hard to educate members on the importance of taking on the right amount of risk, too many KiwiSaver were found skinny dipping.
However, these things aside, I think KiwiSaver is an excellent scheme and the evidence for that is found in the 3 million members collectively owning $70 billion.
One day, off in the future, the country will have to decide whether to join Australia in making Super savings compulsory and, perhaps, increasing contribution rates.
However, this is not the time. Even at the very best of times, New Zealand has too many people struggling to make ends meet. And these are not the best of times: COVID is likely to see a lot more people lose their jobs or their businesses in the coming months and people will simply be unable to afford the current rate of KiwiSaver contributions let alone much higher ones.
These big reforms will have to be left for future discussion but in my view, we should celebrate the excellent scheme we now have.
*Martin Hawes is the Chair of the Summer Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd and a Product Disclosure statement is available on request. Martin is an Authorised Financial Adviser and a Disclosure Statements is available on request and free of charge at www.martinhawes.com. Martin is a Director of Lifetime Income, an Annuity provider and a Board member of the New Zealand Shareholders Association.This article is general in nature and not personalised advice. Summer competes with banks and other KiwiSaver providers.