Although KiwiSaver membership continues to rise, overall growth rates across the various enrolments slowed in 2011 from 2010, default provider Tower Investments says in its latest monthly report on the retirement savings scheme.
Even though more than 253,495 new members signed on to KiwiSaver, bringing the total to more than 1.86 million from 1.6 million, monthly growth rates contracted by 40% in 2011 from 2010, falling from an annual average 1.97% over 2010 to an annual average 1.23% over 2011.
Tower CEO Sam Stubbs said the most notable difference was between the average monthly percentage growth rates respectively for automatically enrolled and opt-in via provider.
“Of the KiwiSaver join up methods, opt in via provider also increased 16% over 2011, whereas a notable above-trend lift occurred with automatically enrolled by employer at 18% annual growth, even though 21,000 more new people signed up via choosing a provider (127,855) than did by automatic enrolment (106,760).”
“In other words, automatic enrolment grew significantly faster on an annual percentage basis than opt in via provider, with the laggard join up category continuing to be opt in via employer at an 8.5% annual growth rate.”
Stubbs said the "above trend" retention in KiwiSavers automatically enrolled via their employer spoke favourably for the retirement savings scheme and for default funds.
“Clearly the automatic enrolment approach using KiwiSaver default funds is working as a means to induct New Zealanders into employment-based saving for retirement or a first home deposit, and on the basis of that success is proving its worth.”
“Given that newly automatically enrolled KiwiSaver members are enabled to opt out of the scheme before their funds are locked in, above-trend retention of these people is a strongly positive sign that the merits of belonging to KiwiSaver are registering with the working public, representing a significant development in the evolution of New Zealand’s savings culture.”
Stubbs said he expected the going would get a lot tougher for non-default KiwiSaver scheme providers over 2011 as competition, within the over-crowded environment, would intensify.
“Intensification of the competitive environment in which arguably too many KiwiSaver schemes are operating, combined with significantly falling average monthly percentage growth rates for opt-in via provider, saw 2011 marked by self-promoting alarmist attacks launched by some non-default KiwiSaver scheme providers on the fees and performances of KiwiSaver default funds,'' said Stubbs in a prepared release.
“The commercial logic behind these attacks is that because new opt in via provider members are getting harder and more costly to acquire, the line of least resistance is to pursue KiwiSaver default fund members who have demonstrated a pro-KiwiSaver attitude by not choosing to opt out of automatic enrolment when they had the chance to do so.”
“Willfully overlooked by these attacks calculated to blacken the reputation of KiwiSaver default funds is that these funds have always been intended to function as transitional ‘temporary parking lots’ for preserving the value of initial contributions made to the KiwiSaver accounts of automatically enrolled members until such time as these members choose another fund or scheme better suited to their personal risk profiles.”
“For most automatically enrolled KiwiSaver members, a KiwiSaver default fund should serve as a short-term way station and not a long-term abode for their workplace savings.”
“It is hardly news that most people automatically enrolled in a KiwiSaver default fund should move their savings to another KiwiSaver fund or scheme that fits more closely with their personal financial needs and goals than a generic default fund is likely to be able to do, much less a justifiable reason for propagating commercially-calculated cynical alarmism dressed up as mock public-spiritedness.”
“Additionally, the fees and asset allocations of KiwiSaver default funds are regulated by the Ministry of Economic Development and not set at the unfettered discretion of the default KiwiSaver providers.”
“In fact, KiwiSaver default funds generally do a good job of delivering capital preservation at low cost to members, which is what they are designed to do under the automatic enrolment system that lies at the foundation of KiwiSaver’s architecture.”