'Soft savings options won't cut it'

Investing

KiwiSaver providers view auto-enrolment exercise as half-way measure that is prolonging the inevitable way to deal with low savings rate: hard compulsion

19th Oct 11, 8:34am by Amanda Morrall

By Amanda Morrall

KiwiSaver providers Tower and Fisher Funds believe National's proposed auto-enrolment exercise doesn't go far enough to address New Zealander's brewing retirement crisis which will leave non-savers financially bereft in old age.

Pending a projected return to surplus 2014/2015, National is planning a one-time auto-enrolment blitz that would sweep into KiwiSaver those employees who aren't already there. (Gareth Vaughan and Bernard Hickey highlight the details here.)

Carmel Fisher of Fisher Funds Management said while it was a "bold and necessary" move, the savings situation in New Zealand required more radical action; hard compulsion.

"We have a serious retirement problem in this country, we aren't going to be able to pay for the retirement of today's children...I know there's a lot of people who are going to say `We want choice,' but the reality is that New Zealanders are too reliant on Government," Fisher said.

"We're going to need national savings to increase as a whole so today's children can afford to retire and live the kind of lifestyle that they need.''

How much is enough?

Tower Investments CEO Stubbs said the savings situation was so acute that the debate about compulsion, both hard and soft options, overlooked the more important issue of contribution rates.

"The debate shouldn't be focussed on compulsion, it's how do we get contribution rates up to levels that will meet expectations for retirement. So I think the next debate is how much is enough and how do we get there.''

Stubbs believes that to adequately meet retirement expectations, KiwiSaver contributions need to be gradually notched up from the current 2% and 3% (effective April 2013) to between 9-12% in line with savings rates across the Tasman.

"You have to create a savings habit and we're in favour of a scheme that looks something like that of Australian's,'' said Stubbs.

Rates need to triple

To bridge the gap between where savers are at now and where they need to get, Stubbs wants contribution rates be slowly raised by between .25% and 1% a year over the coming decade.

"One way or another" Stubbs said the country would be forced to move toward hard compulsion on KiwiSaver.

David Ireland, chair of Workplace Savings agreed the savings rates and habits needed to change in New Zealand, but he questioned the effectiveness of auto-enrolment, estimated to cost NZ$500 million.

"We'll sweep up a few, but the question is whether the benefits outweigh the costs.''

The targeted audience of auto-enrolment is sometimes referred to by the industry as "late adopters" or "reluctant savers.''

Ireland said those who aren't already in KiwiSaver tend to be those abstaining for financial or philosophical reasons. In forcing them automatically into KiwiSaver through their employers, he said Government runs the risk of them turning around and jumping out again, all of which would be costly.

Further, he said any auto-enrolment exercise would have to be flanked with a vigorous education campaign explaining the ability to opt-out of it.

More education a fool's paradise?

Education initiatives aimed at increasing financial literacy generally and driving home the importance of self saving for retirement might be a more constructive and efficient use of time, money and effort, said Ireland.

Fisher said it was "utopia" to imagine more education would solve the savings problem.

"If we wait around for people to be educated and for them to have that Eureka moment where the realise `Oh, I'm going to have to pay for myself,' we'll be waiting for decades. We simply don't have the luxury of time, but it would be wonderful if we could all educate ourselves.''

Given that the proposed auto-enrolment, which would be subject to public consultation, is still three to four years away (and also contingent on Government returning to a surplus) Ireland said the whole issue was speculative.

"This might not happen and when you say that it reduces peoples' enthusiasm for it. There's a high risk it could all be wasted. 2014/15 is a long way away.''

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112 Comments

by skudiv | 19th Oct 11, 9:07am 1318968464

Inflation (reported inflation) running around 3%, borrowing on the up and up, the only way govt can stop borrowing is if the public increases it's level of borrowing, not that stupid sorry. High borrowing causes inflation, low borrowing will cause a recession. You will take money from me, to play with in the global casino over my dead body. BB's will need to liquidate assets to fund retirement making them cheaper/bad investment. Pumping more money in, will struggle to keep prices level in notional terms let alone real terms. We have got serious problems and it requires a better solution then increased taxes via kiwisaver.

by SimonP | 19th Oct 11, 9:23am 1318969409

Of course fund managers are going to recommend compulsion because it gives them more business.

If an individual has debt they should pay that off first before investing in a superannuation fund, except in the unlikely event that the fund's average return is higher than the interest rate on the debt.

by Bernard Hickey | 19th Oct 11, 12:13pm 1318979593

SimonP

You make a good point about debt repayment.

But anyone who wants some diversification from having all their money tied up in one asset, or anyone who has paid off the debt, should be looking at options including KiwiSaver, particularly because of the subsidies involved.

We have to build up a savings culture and industry if we're going to start investing in productive companies that employ people on high incomes and earn export returns.

New Zealand is not going to grow its way to freedom by buying two bedroom brick and tile properties to rent out to the restive young.

cheers

Bernard

by Elley | 19th Oct 11, 1:11pm 1318983063

What about people who take on far too big mortgages that they have no chance to repay until they are well into their 50's (if ever). Might be leaving it a tad too late to start saving for retirement.

If the govt is going to make something compulsory, maybe the debt part needs to be addressed first and not let people get into too much debt in the first place so they actually get a chance to save.

by SimonP | 19th Oct 11, 1:37pm 1318984644

I agree with you both; the underlying problem is that people are too willing to get themselves into debt. I don't like compulsion though and I think the myth of endless capital gain has been debunked so people will start saving more as they feel their financial future is less certain.

My experience has been that portfolios run by investment managers do more poorly than if I do it myself, no investment manager can consistently out-perform the market and their fees erode a large percentage of the total return.

by Wolly | 19th Oct 11, 9:23am 1318969380

The urge to compulsion comes from a lack saving, which will not increase because of the debasement and from the failure to grow real wages. The effort is going into 'swamping the truth in bull...' about growth in credit demand and retail activity, while carrying on the property investment game using the cheaper credit for longer gambit.

The govt and RBNZ gamble is that there are more fools and gullible people, than there are peasants able to spot the trickery. The plonker media are a very real help to govt in this matter.

by Bernard Hickey | 19th Oct 11, 12:06pm 1318979177

Wolly

Can you refrain from the swearwords?

We're a family site. Particularly now so many kids have been put into KiwiSaver ;)

cheers

Bernard

by Wolly | 19th Oct 11, 12:22pm 1318980124

Ok Bernard....pity the poor "kids" and I do hope my occasional B has not in any way distorted their capacity to discover the truth about govt uselessness and banking greed. Nothing like being 'put into something' by others who have not the foggiest idea what is being done to debase the currency and steal from the 'kids'.

They certainly will have to sidestep the current skool fluff if they want to understand why their futures promise low incomes, high taxes and probable riots.

by Bernard Hickey | 19th Oct 11, 12:36pm 1318981004

Cheers Wolly.

Interestingly we have quite a few school economics' classes using this site regularly.

The 90 at 9 is sometimes used to start morning discussions in some classes!

Hopefully that doesn't start any riots.

Although I remember speaking at one school and one of the kids asked me afterwards "...and who is that Wolly guy who's always commenting on your site?"

cheers

Bernard

by Wolly | 19th Oct 11, 12:48pm 1318981680

I shall retreat deeper into my cave!

by Boatman | 19th Oct 11, 9:44am 1318970645

C'mon Guys dont knock it , at least its a start . It was and is going to be a hard slog to change Kiwi attitudes to savings, pensions and handouts .

Kiwi's have developed a Culture of Expectation that the State will always provide for them , and from an actuarial point of view its unsustainable to expect the state to provide for you in old age

by laurence | 19th Oct 11, 10:10am 1318972200

No way am I joining KS. It offers loss of control of your savings and poor returns with huge costs. Just look at the results to date. If it wasn’t for the government bribe most members would be way out the back door. I am in the situation of the employee 2/3rds (according to the Colman survey ) that have no intention of joining. I would suggest these are generally the moderate and upwards wage & salary earners who can see no tax or other advantage in KS, and lots of long term downsides.

The finance industry is lobbying heavily to have these income earners added to their clutches and go thru another fleecing such as the 80’s and recent 2000’s fleecing. They are finding the current membership to be of the relatively low yield bracket.

Note that KS is a vastly different to the Australian super scheme that has self control and massive tax advantages to encourage successfully everyone to provide for themselves, and now has over $1T in savings. KS is bureaucratic, inefficient, and has done nothing for national savings.

Better to manage your retirement savings elsewhere.

by Joseph K | 19th Oct 11, 10:36am 1318973807

Like many, we joined to take advantage of the Govt kickstart. This has quickly been eroded by the relatively poor performance of (Gareth Morgan's) aggressive fund since then, leaving us slightly down even when the kickstart is taken in to consideration. Being self-employed means that we don't get the advantage of employer contributions. Hopefully in the long-term (before we're dead) it will improve. It made sense for the kids though.

"Fortunately" the vast bulk of our savings are elsewhere: reltaively safe on term deposit but being slowly eroded by inflation. Yay. At least we are in control, relatively.

KS is starting to smell like another rort; there for the financial advantage of the 1%.

by laurence | 19th Oct 11, 10:48am 1318974492

You are on to it Joseph, well done with the term deposits, they have probably done better than most other asset classes over the last while especially if in Australia.

You will not regret keeping control of your money in future.

Before you enrol the kids you should allow them to make the decision. You are committing them to contributing their lifetime income should they be employees to a scheme like you are in (GM or otherwise).

by Bernard Hickey | 19th Oct 11, 12:42pm 1318981320

Joseph,

There's plenty of choice and there's nothing stopping you from changing.

Check out all the info we have here on funds and performance.

http://www.interest.co.nz/charts/exchange-rates/monthly-exchange-rates

And dig around inside Amanda's excellent Q&A section

http://www.interest.co.nz/kiwisaver/questions-and-answers

cheers

Bernard

by Money Man | 21st Oct 11, 10:11am 1319145090

Why did you go into a Risky agressive fund if you can't handle the volitile nuture of this kind of fund.

There are plenty of cash only funds which you could have sign up to (and can swap to) where there will be stable but lower returns.

Sound like you didn't do your homework when you signed up.

by Bernard Hickey | 19th Oct 11, 12:15pm 1318979758

Laurence,

Why do you say you have no control over your savings?

You can change funds any time you want.

Have you investigated which funds are returning the best or have the right investment strategy?

Have you thought about what strategy you'd prefer or what asset allocation is right for your life stage?

Have you worked out how much you'll need in retirement?

Here's a list of the KiwiSaver fund performances we've compiled.

http://www.interest.co.nz/kiwisaver/performance-ranking

It shows quite a few producing better than bank term deposit returns?

Have a look. You might be surprised.

cheers

Bernard

by skudiv | 19th Oct 11, 12:45pm 1318981500

There is no real choice there IMO, its only paper. The only difference is some peices of paper have a faster probability of returning to the intrinsic value then others. Govt is selling our real assets like hydro power. We could be using the money going into kiwisaver to build real things that will have lasting value and give a return to the country. Kiwisaver could be fund like landcorp that owns farms, or geothermal power plants, state housing, things that we need, in order to have a future. Im talking about 100% ownership of our future, real investment for the future, not buying and selling shares based on the latest rumor or analysts comments. That is madness not investing, ponzi schemes relying on the greater fool.

If we own our power, our housing, our food supply, then it is free. We work for ourselves and pay ourselves, money becomes arbritrary, and we have controll of our destiny.

by laurence | 19th Oct 11, 4:51pm 1318996292

Bernard, with KS you have a choice of a dozen or so providers all of whom offer similar products. You cannot self manage or exit and place your retirement investment outside of these dozen. Have a look at the options available to our AU brethren. I know of members who have invested there super into their business because it provides better secure returns than managed funds.

Idea for you Bernard, how about a portion of your staff super being securely invested in your business? What a great return. I think I have read this elsewhere..... a company called google or something.....

by laurence | 19th Oct 11, 5:01pm 1318996919

Yes its sure great to see the returns some of which have been greater than term deposits. Amanda suggested Fisher was a standout, great in hindsight. Unfortunately (or possibly fortunately ) she is not alone in not being with Fisher and it will be very interesting to follow next year and all of the succeeding years.

I am pleased to watch from outside the KS camp and retain investment flexibility and control over my money. At year 5 so far so good as far as I am concerned.

by laurence | 19th Oct 11, 10:25am 1318973111

Further you can be sure the government will sweep as many as possible into KS then promptly drop the kickstart and top-ups in order to improve the governments balance sheet and assist the return to surplus. How will that make your KS account look. To do this calculation remove the government contribution then project forward using the current (or for optimists the 30yr average return less fees) till your 65^th year. Remember to incorporate inflation. Hmmmm, might provide for a replacement car at best. Not what I want to retire on.

The only people who should join KS are the over 60’s for the subsidies and the self employed who can cut their contributions to match the governments. Mind you the rules on this may well change as well and you are LOCKED IN.

by Nicholas Arrand | 19th Oct 11, 10:32am 1318973577

How about if we get Japanese style deflation, laurence? Then, those savings you so oppose will look mighty nice as those who are now 30,who retire at 70 ( by then) and can buy a house for 60% less than they cost today, to live out their lives in. Won't happen? Well the Japanese didn't think so either, and fought it tooth-and-nail. And they had a vibrant export economy to stop it....what does New Zealand have to stop it, other than the capacity to sell itself off to the highest bidder? The sooner we save, the better we shall be.

by laurence | 19th Oct 11, 10:40am 1318974029

Not opposed to savings and investment NA. I am doing plenty of both to provide for my retirement.

What I am opposed to is being locked into a scheme you cannot exit. You cannot change investment tracks should hyperinflation or deflation or otherwise occurs. With KS you are locked in and under the control of the finance industry and government rules whims which we have already seen plenty of.

Even if you take a contributions holiday the fees and poor returns continue. And like Hotel California you have no out. Good luck with that.

by Nicholas Arrand | 19th Oct 11, 10:49am 1318974551

Here's the problem as I see it, laurence. You may save, Wolly may save, and I may save...but the mass of our population, do not. At best some speculate on 'guaranteed returns' from property, but most will leave work with nothing to show for it except, hopefully, their home. We can't run our society on that basis. Because it relies on the fact that we have a new tier of workers supporting the eldery though to death. The jobs that those new, younger workers need to do that ( whether they are home grown kiwis or imported ) just aren't there, and they arent coming back. So there will be no net income from the young to pay for the eldery mass...unless we 'make' them pay for their own old age, now. The' faires't option is to make us all pay into a similar scheme; no opt-out. If we choose to suppliment that with our own additional desisions...thehn that's a bonus for us and the country.

by laurence | 19th Oct 11, 10:53am 1318974804

I suggest you make the decision based on your own circumstances rather than saving the country or any other grandiose notion.

And talking of saving the nation its worth contrasting the Australian, Singapore and other countries approach to KS. Their schemes do contribute to individual wellbeing and domestic wealth. KS is not in the same camp.

by Nicholas Arrand | 19th Oct 11, 10:57am 1318975034

KS should be in the same camp then. I agree. Sinpagore is a fabulous example. One account, with the State, attached to you, for life. You draw down on it to pay for your education; pay into it as you earn, draw out of it if you need to support joblessness , buy your home from it if you need a loan and retire on the remains of it when you age. But the thing is...it compulsory. That's what KS should be.

by Ms de Meanour | 19th Oct 11, 10:59am 1318975189

Could you explain what it is that is different about the Australian and Singapore schemes that you think makes them better? They're compulsory, and they entail a massively higher contribution rate - both things that I would have thought you would oppose.

by laurence | 19th Oct 11, 4:45pm 1318995906

MDM this is simple. The AU scheme charges input tax at 15%. This is so advantageous that untill a cap was put on many people were placing millions into it.

by Ms de Meanour | 19th Oct 11, 5:04pm 1318997054

Oh I see, so your problem with KiwiSaver is that the taxpayer-funded bribe to induce private saving isn't big enough, and that it fails to reward rich people more than poor people. Glad to have got that clear.

by iconoclast | 19th Oct 11, 5:28pm 1318998507

MdM: it wasnt quite as simple as that. For a period of one year only, 2006, people older than say 50 years of age could pay in to their superannuation fund up to $1m. Other than that there are strict limits on how much you could pay in. Once it's in its locked in. Many people with investment properties sold their investments and took advantage of the tax holiday. Others held on to their properties, raised mortgages on the security of the property and paid it in. Then the GFC hit and a lot of them were snookered.

The value of many super/managed funds collapsed 50%, and the value of the properties fell at the same time but not by as much. The whole scheme was a poisoned chalice. A $500k loss in 12 months for some.

by laurence | 19th Oct 11, 5:23pm 1318998222

Not quite correct MDM. One of the issues with KS is paying full income tax in the input, then at the governments discretion some of it comes back via the top-up, now reduced and bound to reduce again. As an average income earner do the calculations based on the current top-up rate over the period till you are 65. Then redo the calculation assuming the government will reduce and possibly eliminate their contribution. Remember you cannot leave this scheme and holidays continue to incur the fees and for most of the schemes, low returns.

Those who save privately for their retirement are saving the government considerable expenditure and should be recognised. The AU 15% input tax does just that and benefits all levels of income. No wonder average income people are keen to join and depending on personal circumstance salary sacrifice into it.

by Ms de Meanour | 19th Oct 11, 5:53pm 1318999986

Am I to understand that you don't pay income tax on the input into other managed funds, that they don't charge fees when you are not contributing, and that they all make better returns than KiwiSaver funds do?

Am I to understand that other savings schemes enable you to make withdrawals before retirement and still have the same amount of money at retirement?

In what way are those who save privately saving the government considerable expenditure? They still get paid NZS. They're saving the Government the cost of their KiwiSaver subsidies, that's all. A 15% input tax would cost the Government a lot more than that.

by laurence | 20th Oct 11, 10:48am 1319060912

MDM income tax is payable on income in NZ irrespective of whether it is invested in KS, other investments or a flash car. In AU there is considerable incentive via the low tax to invest in a super fund. As a consequence AU pensions can be much lower and targeted to provide a basic living to those who spent all their money (on the flash car?).

Many savings and investment options have no fees and higher returns. Managed funds are just one investment option. Get a book on investment strategies to learn more.

KS is forcing the government to borrow, mostly overseas. A low super tax would not. Government expenditure and debt is growing out of control (hence the downgrades) but that’s a separate discussion.

Private savers like myself anticipate nothing from the government. Unlike John Key I have no faith NZS will be there at its current level by the time I retire.

by Money Man | 21st Oct 11, 10:28am 1319146117

Rubbish, those KS who invest in NZ Bonds, Bank deposits, NZ sharemarket etc contibute to NZ.

Yes some funds also invest in overseas bonds, equities etc which brings in overseas curreny.

You can't have all you eggs in one basket, whether within or outside NZ, same industry, markets etc.

If you are talking lon tterm investment you must spread risk.

Are you saying that all funds in Aussie Super schemes are only invested in Australia? I think not.

by Andrewj | 19th Oct 11, 10:47am 1318974420

Moire people on this site need to read the Great Illusion. Could never happen here?

This review is from: The Great Illusion - A Study of the Relation of Military Power To National Advantage (Paperback)

As documented in The Guns of August, this book was the darling of the intellectual set for the two years preceding World War I. The war disproved the happy conclusions and predictions of this well-meaning economist that the industrial nations could not become in a long war because it would be too devastating, and someone would stop it. Well, it was devastating, but the nations of Europe (eventually most of the world) not only did not stop it, they could not figure how.

by Bernard Hickey | 19th Oct 11, 12:18pm 1318979880

Laurence

If you have so little faith in what the government is promising on KiwiSaver, why do you have so much faith that NZ Super will be there in 30 years time?

And if it isn't, where will you be then if you don't have KiwiSaver?

cheers

Bernard

by Wolly | 19th Oct 11, 12:31pm 1318980705

Bernard, a simple request of you...please present in real terms the debasement of the Kiwi$ over the last 40 years....and details on the real returns made by a wide range of investment funds over that period.

I suspect the next 40 years will bring a steady debasement of the Kiwi$, and poor average returns for managed funds.

Which will mean the Kiwisaver funds when 'owners' are allowed to get them will require some serious topping up from the taxpayer.

But it will also be the case that the fund managers will have sucked out massive amounts of capital as fees over that period.

by Bernard Hickey | 19th Oct 11, 12:51pm 1318981912

Here's our monthly exchange rate chart showing basically not much change from early 1980s.

http://www.interest.co.nz/charts/exchange-rates/monthly-exchange-rates

And here's the RBNZ measures of real exchange rate (adjusted for inflation) which shows we're up about 20% in real terms over the last 40 years.

http://www.rbnz.govt.nz/keygraphs/Fig8b.html

That's part of the problem. Our real exchange rate is up, sending all the wrong signals to importers and exporters and encouraging us to borrow so much offshore.

cheers

Bernard

by Wolly | 19th Oct 11, 1:29pm 1318984189

No..show us all how the value of the Kiwi$ has been debased. The 'Chocolate fish picture' Bernard. The reason why Granny's savings that earn her a whopping 3% in a bank account are worth less each year.

And show us how the fund managers will suck out the fees......and the IRD will grab the tax!

by iconoclast | 19th Oct 11, 1:39pm 1318984788

Wolly, Wolly, Wolly. Again and again. So correct. Go and have a look at interest.co.nz's performance ranking of funds .. and see what's missing .. it shows how each fund has performed over 1 yr, 2yrs, 3yrs etc etc .. but what it doesn't show is the cumulative cost (over the same periods) of the fees charged by the funds administrators, and excludes the costs of the "fund managers".

by Wolly | 19th Oct 11, 1:51pm 1318985515

The bribe to join comes out of the pockets of those who join thinking they are getting a dollop of free money. It is a wonderful scam. Yes many peasants really do believe govt money is not their money.

No risk for the fund managers, so long as they do not tell lies, now that we have a real policing force prepared to slam the crooks.

The funds that by accident make screamingly great returns will be used to entice in more money. The average returns will be lucky to keep up with the debasement over 40 years and to make matter worse the IRD rules do not allow the fees to be deducted.

The kids will find themselves trapped and unable to access their own capital, unless they use it to buy property but to do that they will be forced to borrow from a bank...hello sucker, where have you been?

by skudiv | 19th Oct 11, 1:45pm 1318985133

A simple chart would be gold in NZD, gold for some unknown reason seems to buy the same amount of goods since it was first minted.

by laurence | 19th Oct 11, 4:42pm 1318995747

Bernard, I have little faith that NZ Super even with the Culenpre- fund will provide for my future. Mind you $300 odd per week is a pretty bleak future. I have less faith that the KS varient will do much better.

I prefer to save and invest outsidfe of these government whim programs and worry for all of those who are locked in. seen it before with the insurance endowment industry for those of us who study history.

by Ms de Meanour | 19th Oct 11, 5:21pm 1318998113

Implicit in Bernard's challenge is the apparent assumption that anybody who's not in KiwiSaver is not saving and will have no resources of their own at retirement. That's obviously not true in many cases, including yours Laurence.

However, it is true in some cases. Some people are only saving because of KiwiSaver; and some people not in KiwiSaver are not saving at all.

Of course we can all agree that everybody would be better off if everybody could manage their own finances more effectively. There would be no need for KiwiSaver, far less compulsion, then.

We're in the real world, however, where many people have difficulties with the discipline, long term outlook and know-how required for effective personal financial management over a full life-cycle. In the absence of KiwiSaver, many people would arrive at retirement age with no means of independent financial support.

You don't have to join Laurence, the Government's policy approach acknowledges that it's not the best option for everybody, but I cannot understand why you are so dead set against anybody else doing so.

by laurence | 19th Oct 11, 5:36pm 1318999004

True MDM I don't currently have to join and certainly won't even in the proposed 2015 sweep. I am pro everyone being aware of the pitfalls before locking into a scheme for which there is no out and the government has and will change the rules.

Were it not for the kickstart and top-up bribes I doubt many people would have joined. Free money sounds very attractive but NPV these bribes over the period of a working life and they are pretty paltry.

I doubt many are managing their finances more effectively as you suggest. Just look at the stats for 1) gone no address 2) in the default and poor performing funds. Mind you this is great for you fund manger companies eh MDM.

by Bullitt | 19th Oct 11, 6:34pm 1319002495

You're also maing the assumption Kiwsaver will improve peoples savings habbits.

I have a huge number of objections to Kiwisaver but amongst the biggest is its being sold as a cure to peoples retirement needs. Don't worry about doing any other saving, don't worry if NZ super is taken away, apparently 2% of your salary will provide you plenty to live on.

And that's before most people dissave in other areas because of it.

by Money Man | 21st Oct 11, 10:35am 1319146540

Well put M D M,

For many KS will be the only form of savoing and may be forced upon them.

For others it might form a smal part of their savings.

Funny the first job I had it was a condition of emloyment that I jioned their Super Scheme.

I can now see why as these folk are very well placed in their retirement.

by skudiv | 19th Oct 11, 10:49am 1318974553

Look at a 30yr + chart of the stock market, and honestly tell me this is not the biggest bubble in human history. This time it's different {cue tui}

by Bernard Hickey | 19th Oct 11, 12:25pm 1318980329

Skudiv

Have you looked at a 30 year chart of the stock market?

Can you send us a link?

Let me save you the time.

This is the S&P 500 since 1955.

http://finance.yahoo.com/q/bc?s=^GSPC&t=my&l=on&z=l&q=b&c=

What does it show you? It has more than quintupled since 1980.

And KiwiSaver doesn't just invest in stocks. It can invest in many different types of assets or styles, including conservative funds in bonds, or growth funds in stocks.

http://www.interest.co.nz/kiwisaver/performance-ranking

Again. Please take the time to have a look at the data on our site on performance, which funds are offered, who's managing them and what they're saying (in numerous interviews) before simply writing them off with a mock Tui ad.

Spend some time. You might be surprised. ;)

cheers

Bernard

by skudiv | 19th Oct 11, 1:40pm 1318984811

What does it show you? It has more than quintupled since 1980. Bubble

I have looked at the charts for a few years and your statement doesn't refute the fact that it is in a bubble, what does a bubble look like? How many people believe in bubbles untill after the fact? Why do bubbles appear in the first place? In '09 I couldn't believe that a head and sholders pattern was forming over such a long timeframe, by this time next year it will become obvious, and in 5 years it will be all over and we will have a laugh about the crazy stock market bubble, just like any other bubble. The fundamentals will reveal themselves over time. I can pick a few, the current assets of BB's, have to be liquidated, banks and sovereigns are going bankrupt, tax burdens will go up, the derivitives market will add leverage to the losses of the financial institutions that use them. Mum and Dad will be the last to get out as usual.

by skudiv | 19th Oct 11, 2:46pm 1318988789

Head and sholders pattern explained.

http://en.wikipedia.org/wiki/Head_and_shoulders_(chart_pattern)

Technical analysis isn't vodoo, it just compares human behaviour with human behaviour.

Chart for the DJIA from yahoo. I have some charting software on my pc that I cant link. Does this not look like a bubble? If you had no idea what you were looking at, you would call it a bubble immediatly. The fact that few people believe it is a bubble means that they think this time is different, and I say yeah right.

http://nz.finance.yahoo.com/echarts?s=%5EDJI#symbol=^dji;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

by skudiv | 19th Oct 11, 2:56pm 1318989408

that is a logarythmic chart Bernard. why? To prove it's not a bubble? Sadly the logarythmic scale still looks bubble like, just not as bad.

by steven | 20th Oct 11, 8:59am 1319054380

BH,

Its a bubble caused by the BBs.......take a look at Harry Dent...it will burst as they sell....pretty much as you have said BTW on housing.....

Then consider that the share price / value of a company is based on that company using cheap and plentiful energy....

Kiwisaver also invests in commercial property much of which is consumer orientated based......then other commercial property is based on the value of the companies Ive mentioned above.

In short, pensions are screwed....

regards

by steven | 20th Oct 11, 9:06am 1319054819

They know they cant tax ppl more to "give it" to others "that deserve it" so they will do it via the back door of Kiwisaver....and "direct" how that money is invested....

Unit trusts etc, yep.....one huge ponzi lie....

and the Govn is handing these bozo's the state sanctioned monopoly on the condition the Govn gets to call the shots....which it will.

Not sure if my employer still has their own fund, if this becomes compulsory that's where I will go....it might survive the evil cluteches of teh fat cats and Pollies.....kiwisaver wil not IMHO.

regards

by Chris-M | 19th Oct 11, 11:20am 1318976451

How about first fixing the structural problems in our ecconomy so that productive enterprises grow and thrive. Then there will be fertile and sensible places to invest. Without that increased saving will simply fuel asset inflation and speculative bubbles. Thereby enriching only the Goldman Sachs of the world.

Motivation to save would be less of a problem if real long term returns could be demonstrated.

by skudiv | 19th Oct 11, 11:27am 1318976866

Why not be prosperous rather then grow? If I am earning 40k and get a 10% payrise (cue tui) I can either have another kid, or I can improve my lifestyle. It takes energy/money to grow, and this is only viable if there is a greater return in the future.

by steven | 20th Oct 11, 11:12am 1319062340

The structural problem, that of peak oil cant be fixed...

regards

by Wolly | 19th Oct 11, 11:23am 1318976617

This is a bloody joke...how can anyone suggest boosting savings when rents and mortgage debt financing suck out the bulk of disposable incomes. How hard must heads be banged against walls before these fools realise the credit induced property bubble the RBNZ is so keen to protect, is the root cause of the shite.

by skudiv | 19th Oct 11, 11:30am 1318977029

I can see a few bubbles, real estate, stocks, and debt. It would be a cunning stunt deflating all of these without some very real pain.

by Bernard Hickey | 19th Oct 11, 12:28pm 1318980530

Wolly,

You're right about too much debt.

That's why people need to spend less, repay the debt and then keep spending less to invest in the future.

That's how the Chinese do it. They save 40% of their income on average. It's no surprise China is a growing economy based on investment, production and exporting.

New Zealand, meanwhile, still have a negative savings rate as a country. Our current account deficit is expected to increase again over the next couple of years to 7% of GDP. That's why we just got downgraded.

We have to do something to stop the borrowing and spending.

If this is one way to do it then so be it.

cheers

Bernard

by Wolly | 19th Oct 11, 12:40pm 1318981223

It would be a great idea Bernard but for the fact that the fund managers are the ones MOST likely to benefit and the debasement policies of the nz govt and the RBNZ will ensure the value of the capital in the long run is destroyed.

The Chinese govt generated the surge in commodity imports using their own QE programme. To suggest it was or is the consequence of peasants saving pennies is misleading. The entire nation is drowning in debts and none of the data released is believed by the real traders and investment entities.

Here in nz the cause of the problem of not having the savings to tap into, is the credit splurge encouraged by the banks and the RBNZ....along with the decades of debasement that generate a public perception of 'spend it before it's worth less'. People will not save a currency that is being debased.

So we have an economy that rides atop a property bubble being propped up by govt and RBNZ policy. The next round will be a drive to boost immigration to trigger another building sector bubble because the chch promise looks to be too slow in coming to save National in 014.

by Bernard Hickey | 19th Oct 11, 12:58pm 1318982320

Good questions to raise.

But as mentioned above our real exchange rate is up (not down) over the last 40 years and our RBNZ has not done any quantitative easing or money printing.

I agree there are problems with property prices in some areas.

All the more reason to consider other options and to save rather than spend.

cheers

Bernard

by Wolly | 19th Oct 11, 2:00pm 1318986036

"...our RBNZ has not done any quantitative easing or money printing" are you certain of this Bernard?...and what about the slashed ocr...is that not part and parcel of QE behaviour?

I agree with you about the need to encourage the saving. I do not agree that Cullen's Kiwisaver vote harvesting gambit is the right way to go.

Saving would happen if debasement were reduced, without any need to raise rates! 3% is a good return when there is no inflation. Why is Bollard allowing inflation to run free above 3%?

Is his policy any different to the one at the BoE?

by skudiv | 19th Oct 11, 2:15pm 1318986954

Leaky homes bailout, warm up NZ, finance bailouts, insurance company bailouts. Nope no stimulus to see here move along please

by steven | 20th Oct 11, 11:19am 1319062742

I think you balme the wrong ppl, ie the RBNZ.....now while I can accept they are offering some protection that's becaus ethe fallout of not doing so would be far worse. Labour and indeed Natiional were and are prefectly happy to let this keep going....I certianly recall Bollard's warnings....

Consider,

What happens to most 20 to 40 somethings if their house goes into (severe) neg equity? they are consumers and their spending will drop like a stone....they cant default, well..best they can do is go bankrupt....mght be cheaper....7 years and out and not 25.

If the above happens the 'assets" of the banks will be in-adequate due to leveraging and they will need bailing out by the Govn, ie us...which will also incl the abov 20 to 40s as they pay PAYE.

becareful what you wish for it can get worse.

regards

by Money Man | 21st Oct 11, 10:45am 1319147122

Isn't rent and interest a form of income from those who own property or save ?

Agree with your theory if people would let others live in their rental homes for free or get NO interest from their savings?

But Wolly aren't you always bleeting on about the poor returns for savers?

Sounds like you want your cake and eat it.

by skudiv | 19th Oct 11, 11:56am 1318978567

If Kiwisaver was investing in things that would have real value by the time I retire then I would consider it. The way of life will have changed radically by then.

Money is an illusion, things we need have value, food, clothing, shelter, community. Tickets for a big bank or government bonds have no intrinsic value. In fact investing in governement bonds for retirement is flawed by the fact that as a citizen I am the debtor and the lender, so how exactly will that work?

by Bernard Hickey | 19th Oct 11, 12:31pm 1318980670

Skudiv,

Again. Do some research. And here's the tool to find out more about bonds.

On our site.

http://www.interest.co.nz/bonds

As a holder of a government bond you are guaranteed to be repaid and serviced from the revenues the government raises in taxes.

Although New Zealand's sovereign credit rating has been downgraded, it is still stronger than most.

cheers

Bernard

by skudiv | 19th Oct 11, 1:14pm 1318983291

I am an owner of the government, as a voter and a taxpayer I have 1 share in the governement. Government debt is owed by me, and I will be called upon to meet all future liabilities. My children will be called upon to meet these liabilities, and they can't even vote. I can buy a bond and lend money to the govt, and at the same time I will be paying the money back to myself plus interest. My true net worth does not change if I buy or don't buy.

Govt has a big advantage in having domestic funding, because it can deflate away domestic debt easily. Which is no good for me, foreign debts need to be paid in USD which are impossible to inflate away through domestic policy, which is no good either.

Our borrowing has put us in a position that we cannot get out of without massive growth and no borrowings, ie trade surplus's for the next decade, or more. We don't own our future we have already spent it, and now we are spending my childrens future. I am a bit annoyed about it.

by Wolly | 19th Oct 11, 1:36pm 1318984564

" I am a bit annoyed about it"...crikey shudiv...you are some cool dude to be just a bit annoyed!

by skudiv | 19th Oct 11, 2:14pm 1318986843

well I am guaranteed by myself that I will pay myself back, and that molifies me a bit.

by Billy | 19th Oct 11, 1:07pm 1318982835

That's just vested interest talking. It's like a the bus company telling the government to make it compulsory that everyone must take the bus because it's environmentally better.

by skudiv | 19th Oct 11, 1:22pm 1318983731

Actually the bus company is being honest. The retirement crisis can't be fixed by kiwisaver now, unless you expect the money to go straight into the BB's retirement. BB's have already started to hit retirement age, and the majority will be retired in the next decade, so there ability to save for their retirement is nil. There is not enough money in the piggy bank to be able to let them live very long. If they do and we want to keep up their quality of life either more borrowings, or higher taxes. The retirement crisis is here now, and has can kicked for the last 30 years. Just another total lack of planning from our democraticaly elected leaders. Expect more of the same.

by Ms de Meanour | 19th Oct 11, 5:26pm 1318998413

All true, but the fact that we should have started thirty years ago is not a reason why we should not start now.

In any case it's not the case that no BB has any money for their retirement. Just because they haven't been saving it in KiwiSaver, or the Cullen fund, doesn't mean they haven't been saving at all.

by Elley | 19th Oct 11, 1:57pm 1318985834

I don't trust the govt or financial industry either but I did enrol in KS because at the time, it seemed like with the employer's + govt contributions it'd be difficult not to get a reasonable return.

I kinda regret now but that said, KS only represents a tiny portion of our overall and monthly savings (about 5%). So despite the crap returns, enrolling still doesn't seem too bad a decision because it helps diversify our investments.

by Wolly | 19th Oct 11, 2:03pm 1318986200

I trust you have no mortgage debt Elley?

by Elley | 19th Oct 11, 9:02pm 1319011333

Correct but that's kinda irrelevant. As I said in my earlier post, if you're going to have time to save for retirement you better not take on too much debt anyway.

I think the "lack-of-saving" problem NZers apparently have is largely due to the fact that many take on way too much debt. It's all about "what's the maximum the bank will let me borrow". News flash: no one will get a gold medal (or world champion title) for borrowing the maximum amount possible ;)

by Money Man | 21st Oct 11, 10:54am 1319147659

I have mortgage debt but are in KS as my employer pays me an extra 2% and govt a bit more which means for me I am better off putting 2% of my salary into KS than using it to pay off my mortgage.

My KS is about $40k but I won't have repaid $40k off my mortgage over same time using the 2% I pay into KS.

The mathes is pretty simple

by skudiv | 19th Oct 11, 2:02pm 1318986134

Excellent read, "Whenever any stresses occur in the system the Washington modus operandi is to fail to accept the losses and double down the bets. "

by Alex13 | 19th Oct 11, 1:54pm 1318985650

There appear to be people frustrated by their inability to differentiate between the Government (i.e. public) coffers and their own (i.e., private) funds!...

by skudiv | 19th Oct 11, 2:07pm 1318986471

Yeh it's a bit technical for me. Who is liable?

by Kunst | 19th Oct 11, 2:06pm 1318986360

Dreaming on - "Kiwisafer" !

Bernard and others - here an example of another pension fond – every Swiss rich or poor, highly paid or not is obligated to pay from the age of 18.

Kiwisafer will never work out – just another bloody scam by the Nuts and Labour. As long as only workers pay into the scheme and not the entire nation – HA !!! – how long does it last ????

Massive unemployment just coming in 2012.

recommened: http://www.swissstyle.com/swiss-pensions

by Kunst | 19th Oct 11, 2:19pm 1318987186

….and by the way - did you hear something big is hitting the world and our parliamentarians still not adapting and performing to the situation should be flat by now. (sacked - including the minister of tourism)

As a Rugby nation - why are you still allow the ball going around the circle - not tackling the guys.

by rexelectrictriangle | 19th Oct 11, 2:28pm 1318987723

Kunst, It's an irregular shaped ball, is it not logical to expect Irregular outcomes?

by Kunst | 19th Oct 11, 2:36pm 1318988208

Irregular shaped exactly - like some of our underperforming parliamentarians (ministers).

by rexelectrictriangle | 19th Oct 11, 2:59pm 1318989577

Ever since Poilticans lost the connect from their constituants... and started persuing Pork, things have got a little irregular.

by skudiv | 19th Oct 11, 2:31pm 1318987866

We thought that was our team playing for us.

by rexelectrictriangle | 19th Oct 11, 2:47pm 1318988871

Skudiv, It has'nt been "Our Team" since professionalism was introduced.

Rugby, has become a De-based Currency.

by skudiv | 19th Oct 11, 3:01pm 1318989669

Bring back sound money, then we wouldnt need fund managers, and other parasites like former Justice ministers to steal our money. We could simply hide it in the matress and it would have the same value no matter how long we leave it. Money only needs to grow if it is constantly being debased.

by rexelectrictriangle | 19th Oct 11, 3:09pm 1318990150

Absolutely Skudiv, The Shape of the Ball is all wrong!... If we want predictable outcomes, we need to play with a regular ball... we need sound rules... and Ref's we can Trust!

by steven | 19th Oct 11, 3:31pm 1318991487

The easiest way to make it valueless is due to our own actions.....we borrow stupidly....if we avoid all but productive / minimal debt then the power of bankers is severly limited....

I suspect we will learn that lesson with a vengence very shortly however......between houses which will drop substantially and and HP on cars that will be valueless in 5~10 years debt heads into slavery....but we did it to ourselves, egged on by Pollies and snake oil seller like bankers, sure.....but we were easy push overs.

regards

by skudiv | 19th Oct 11, 3:43pm 1318992226

I can't make the politicians accountable, they have borrowed more money for me then I have ever borrowed for myself. Vote's mean little when every party wants to borrow more and more. This system was built before I was born, and I am stuck in a cycle of debased money. Borrowing makes more sense then saving, because interest is taxed on savings, and tax free on borrowings, with the tax savings lose and borrowing wins hands down. I don't blame people that have worked the best they can in the system we have. The debasement of money forces people to take risks, or watch their savings become worthless. The system that forces us to borrow rather then save is stupid.

by skudiv | 19th Oct 11, 3:54pm 1318992847

Edit; govt has not borrowed more then me, I worked it out. The gross notional debt per capita, is more then I have ever personally borrowed. That is per capita which includes 1yr olds and 100yr olds.

by skudiv | 19th Oct 11, 3:09pm 1318990185

Private capital formation: ie saving to buy things, or invest was at 70% before the Federal Reserve bank was formed. Since then, the Central banks around the world have waged war on savers, and have won. Now we have no savings and are running around like headless chooks trying to find a safe place to put it. The removal of the gold standard was the last straw and the debasement of money has increased at an exponential rate ever since. Why do people borrow and not save, because the debasement of money makes it profitable. Address that issue and you will have more people saving.

by rexelectrictriangle | 19th Oct 11, 3:19pm 1318990740

This is what the future of Kiwisaver looks like...>

"Value of private pensions falls by nearly a third in three years

Workers nearing retirement face a "double whammy" from turmoil in financial markets that will leave them with pensions almost a third lower than those who finished work three years ago."

http://www.telegraph.co.uk/finance/personalfinance/pensions/8814750/Value-of-private-pensions-falls-by-nearly-a-third-in-three-years.html

by skudiv | 19th Oct 11, 3:35pm 1318991756

Shhhhhhh, its all about perception managment. Perceptions fuel the economy and the stock market. Tell the world everthing will be fantastic, and it will be fantastic. You will have a glorious retirement if you put as much as you can into a kiwisaver fund. It is the only way. Don't invest for yourself, give your money to someone much smarter then you. They have done so well. Not those nasty ones that lost all the money and live in a palace, give your money to the good ones.

What is important when you retire? Family, community, security, don't invest in those things, give your money to the good investors, they are so much smarter then you. Invest in other peoples debts, and companies. Don't create your own company or pay of your own debts, you are not smart enough, give it to someone so much smarter then you.

by rexelectrictriangle | 19th Oct 11, 3:52pm 1318992741

Tradgically (or not) The best investment maybe a few chickens and a vege patch, if you are lucky (or wise) enough to have access to a piece of dirt...

The Irish, Maori and Russians... would'nt be here today, were it not for the humble Tuber.

by skudiv | 19th Oct 11, 4:03pm 1318993399

It's a no brainer, what do I need when I'm old, invest in that. Once you have that then the next question is about what do I want when I'm old. This is economics, wants v needs, opportunity cost. Keep it simple, you cant eat a bond, or sleep in shares. Hedge funds trade shares, that means they buy and sell them to make a profit. They make a profit by stripping value off shares. They do not put money in, they take it out. Kiwisaver does the same thing, but less aggressivly. How is that going to feed anyone? How does that create value? It is just buying and selling. It is fundamentaly flawed and destined for failure.

by rexelectrictriangle | 19th Oct 11, 4:16pm 1318994190

Skudiv, the "Value" is only created as long as there is more to be printed, accompanied by the "Energy" to Underwrite.

by Ralph | 19th Oct 11, 3:46pm 1318992410

As I understand it, the macro economic purpose (theory) for saving is to make investment. That investment then drives economic growth. There are many questions that can be directed at the idea of government enforced saving.

1. Surely if there is a meaningful connection between Kiwi Saver and investment in business that creates jobs and growth there must be some evidence of it's positive influence in business starts and job growth?

2. What proof exists that driving people who have no understanding of and no interest in business investment creates the kind of growth and jobs we need and doesn't just get sent overseas or create bubbles in the local share market and real estate?

3. If I am an investor already - what economic argument exists that I should be forced into a government run investment scheme of any kind?

by skudiv | 19th Oct 11, 4:15pm 1318994145

Real economic growth, is a positive change in production. Buying a share in a company off a person who has no relation to the company, has no impact on the company. The money never even goes near the company. Buying a newly created share from a company provides cash to the company, and may help the economy only if the money is used to increase production. The same principal for bonds.

Governement Bonds have the same principal, If the bonds are issued to pay interest on existind debt, or principal, then they in no way contribute to real economic growth. If govt uses the money to create a new business, or in some way boost productivity then this will help the economy.

There is a direct way to invest, that does help the economy and that is by forming a productive business, or joining with others that are forming a productive business.

The vast majority of so called investments, are really just circulating money and waiting for the greater fool to pay a better price.

by Ms de Meanour | 19th Oct 11, 5:31pm 1318998715

The main macro reason for seeking increased national (public + private) saving is actually to reduce the vulnerability to external economic shocks created by high levels of external debt.

KiwiSaver isn't Government run, and you're not being forced into it.

by Kunst | 19th Oct 11, 4:28pm 1318994882

That article from Amanda has a number of titles written in bold – when I do that someone is quick and get rid of my title written in bold 2:06pm, “Dreaming on - “Kiwisafer” ! – how ridiculous small minded !

by skudiv | 19th Oct 11, 4:58pm 1318996693

Same here Kunst "If we own our power, our housing, our food supply, then it is free. We work for ourselves and pay ourselves, money becomes arbritrary, and we have controll of our destiny. "

by deanbo | 19th Oct 11, 7:38pm 1319006302

Welcome to inflation...

by Wolly | 19th Oct 11, 7:49pm 1319006993

I wonder why nobody mentions the nightmare through the eyes of students about to leave high school...what future do they have!

Most are average. Some a slow beyond belief while a few are bright as a new pin. Guess which group will become politicians and which the scientists doctors and engineers?

by MiniMe | 19th Oct 11, 8:40pm 1319010025

Totally agree with skudiv. All the KS funds are just different mixes of pieces of paper that are probably at the mercy of microtrading. Some computer program will decide to sell something and wipe out my retirement? This is not diversified. I want the option to buy into "shares" of utilities, property etc.

Why do all investment (shares) people go look at a chart of the last... years. Were they saying that before all the bubbles burst? Why would you believe the future will be anything like the past 100 years? Think how much the world has changed - I'm not investing my money based on the trend of the last 100 years.

by Wolly | 20th Oct 11, 1:45pm 1319071554

"Employees who were enrolled automatically in "default" KiwiSaver schemes lost almost half of the money earned on their savings in the past year - through providers' fees.

The Financial Markets Authority's annual report on KiwiSaver, issued this month, shows the six default providers charged a total of $43 million in fees on fund earnings of only $104 million - a fee ratio of 42 per cent." herald

Harrrrrrrrrrrrrhahahahaaaahahaaa....suckers.

by Black Celebration | 20th Oct 11, 3:45pm 1319078711

You're right Wolly, I feel such a fool. Almost without thinking, I have only built up a piddling $30K in my KS default fund and the total fees applied to my account last year were a whopping $150 (0.50%). What a mug!

So why didn't I lose half of my growth, as the Herald reports? The simple answer is that the Herald story is a load of rubbish. The fees are for managing funds totalling $2.25bn. So that works out to be about 1.9%

In year 1, I achieved very little growth - but that's because my balance was small in 2008. You get low investment returns on default funds because they are low risk - that's the Whole Point of them.

by Jack | 20th Oct 11, 3:16pm 1319077007

The Biggest Problem, I can see with Kiwisaver, is that you are (mostly) locked in until you are 65 years of age.

So what happens --if the Government changes the rules of Kiwisaver to 70 years---and also increases the retirement age to 70 years of age.

In my experience, life is full of Ups and Downs,--- Health--- Marriage---Children---Job--Business. Sometimes you really need money to assist.

I was locked in to Retirement Scheme called MFL --which lost a lot of money by changing from Direct Ownership of Property (Business-Big Buildings) to indirect Ownership in Property ( shares in property companies) and despite having 2 directors that were ex MD's of ING NZ --- they still managed to lose 40 % of my investment. Prior to this MFL was making 8--10% almost every year.

When I noticed its value declining, I could not take it out as I was not 60 years of age. MFL has recovered a bit but it has taken 3-4 years, and last time I looked they were still not back to where they were in 2005.

by beyerali | 20th Oct 11, 3:19pm 1319077178

mindful of the cost - estimated at about $550 million over four years - Mr English said auto-enrolment would not happen until the Government's books returned to surplus, which forecasts say is in the 2014/2015 financial year.

"While we're running deficits in the next two years, that's money the Government would have to borrow. Borrowing more money to put into KiwiSaver accounts is not real savings," Mr English said.

by Wolly | 20th Oct 11, 3:30pm 1319077817

I would like to see the workings which show a budget surplus....I do not believe a word spoken by any of them...show us the workings that should prove the projection is not spin.