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Summer KiwiSaver's Martin Hawes says big reforms for KiwiSaver will have to be left for future discussion but for now we should celebrate the excellent scheme we have

Summer KiwiSaver's Martin Hawes says big reforms for KiwiSaver will have to be left for future discussion but for now we should celebrate the excellent scheme we have

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.

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17 Comments

Tax is a big disincentive - there's little benefit going beyond minimum contributions at present. And if Kiwisaver returns count in calculating PIR tax (I believe so) then as balances (and thus returns) grow the tax on a "locked in" scheme may become considerable. Not to mention that if you have a PIR that is too high the government steals your money.

The problem with the tax on KiwiSaver is the absence of a tax on housing. Investing in houses is a no-brainer. This could be made more equal by scrapping the tax on KiwiSaver earnings, but that would mean looking elsewhere for revenue. What New Zealand needs is an annual tax on land, all land, including that beneath the family home.

Great way to create a nation of tenants, serfs to the State. Won't happen here.

The government should be concentrating its efforts into building a resilient and productive economy through education and vocational training to build up the productive capacity of the economy. An economy that will be able to provide all of the goods and services that an aging population will require. All of the money in the world will not be able to support the retired if this is not done.

NO point "owning" $70 billion of promises when a currency collapses

The whole point of ever lower trending interest rates / massive deficits / QE etc is to bring demand forward ... ie consume today and pay later ... all to make our growth mandated financial system appear less like an insolvent ponzi...

Which tells you something about the viability of those promises ever being worth anything

"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."

This is the rub. We have low wages and high living costs, even during the prosperous times. Locking away 3% or more of your wage for up to forty five years is not a compelling argument. If you are comfortable, it's not something you notice. If you are on the bones of your arse, 3%+ is a lot.

Awful stuff. KiwiSaver is part of the problem. Not the solution.

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 fails to mention that Aussies are withdrawing super as we speak to simply survive. Kiwisaver is a ponzi scheme that benefits boomers but relies on younger generations to participate so the whole scam doesn't collapse.

Australia’s $2.7 trillion superannuation system fighting for its future following early release scheme

https://smallcaps.com.au/australia-superannuation-system-future-early-re...

It also seems that the levels of savings per capita under Kiwisaver are no different to what they would have been without it, despite taxpayer subsidies. Those who are going to save will anyway, the others remain unchanged.

Yip
And in the meantime...
It's just a fees management slush fund

Post-private school social welfare program

"Kiwisaver is a ponzi scheme that benefits boomers"

Could you clarify how
1) it is a ponzi scheme (perhaps we need to agree on a definition of a ponzi scheme...) and
2) how a long term saving scheme benefits (mainly, as you imply) those close to retirement?

putting aside the fact that the whole economic system is now a debt Ponzi ...

imagine if they said that given the tough economic times everyone could drawdown on their kiwisaver funds as they wished...
the words bank run come to mind
The golden rule of finance ... dont let the masses crystalize their "gains" ... reinvest son reinvest! ... otherwise it will be all be revealed as paper
so as the boomers draw down we need the young to contribute into this bigger golden future to keep the facade up

Its an excellent form of persuasive savings, it encourages people to take positive steps to be less reliant on the State for welfare , and lets not forget that the savings of today are the Capital of tomorrow

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.

In the depths of the downturn in March I said "there will be a recovery at the end of this. A prudent fund manager will be converting more liquid assets and buying on the way down so that when the recovery arrives the fund gains more than it lost...Switching at this point poses a real risk of locking in the loss.".

Some people disagreed and asserted that timing the market wasn't that hard. Well, the NZ stock market recovery has already come and gone. Doubt many were able to time the market - instead they locked in their losses by converting to "fixed interest funds (capital preservation)" Those that stayed put in growth funds were able to benefit from the recovery - my kiwisaver, for example, is now almost back to where it was pre-COVID.

https://www.interest.co.nz/news/104176/nz-super-fund-ceo-has-dropped-890...

"The major risk to the Fund is that we close down our investment positions and lock in losses experienced in the current crisis. This would significantly impair the ability of the Fund to fulfil its long-term purpose..."

"We use several active, contrarian investment strategies..."

ie Yes. Up is down, good is bad, bad is good. No matter what, DONT alarm the sheep or they will stop feeding the Ponzi

by Kate | 20th Mar 20, 12:26pm
I just don't see how the market could re-inflate to anywhere near the ridiculously, insanely over-inflated levels that it had got to. Nothing - not houses, not stocks, not artworks, not anything...

Kate, I'd like to know if you've changed your mind?

https://ibb.co/3d6NDHT

https://www.interest.co.nz/news/104176/nz-super-fund-ceo-has-dropped-890...

I can't speak for Kate, but I'm quite convinced that the rebound is temporary, and those who bought the dip will be wiped out (more or less, obviously, depending on what exactly they're exposed to).

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Days to the General Election: 38
See Party Policies here. Party Lists here.