The KiwiSaver scheme was introduced to New Zealand in the Labour government’s 2005 budget, and was described by the then Finance Minister, Dr Michael Cullen, as being part of a package to increase the national savings rate in New Zealand. The enacting legislation was passed in 2006, and the KiwiSaver initiative commenced on 1 July 2007.
The initiative has been amended twice by the current government; shortly after the 2008 election in mid-December 2008 and again earlier this year. However, the fundamental structure of the initiative has not changed. The KiwiSaver scheme is a work-based savings initiative, designed to encourage participation.
While membership is not compulsory, anyone aged 18 years and over who starts a new job with a new employer is automatically enrolled in the KiwiSaver scheme. However, after two weeks it is possible to choose to opt out of the KiwiSaver scheme provided this is done before eight weeks have been completed in the new job. It is also possible to opt-in to membership at any time. Contributions are deducted from an employee’s pay at a minimum rate of 3%, and the employer is required to make matching contributions of at least 3%.
There is an annual tax credit for the KiwiSaver scheme. Early withdrawal of savings is also possible to assist with the purchase of a first home, subject to certain conditions.
In mid-2011, Finsia commissioned Dr Claire Matthews from Massey University to explore New Zealanders’ experience of and attitudes towards KiwiSaver and related matters. The timing of the research has allowed for an initial assessment of New Zealanders’ views on the changes announced in the 2011 budget.
Key issues explored
The research undertaken by Dr Matthews examines the following issues:
The KiwiSaver scheme membership
retirement savings generally
source and use of financial advice
views on the changes introduced in the 2011 budget.
Significant research results
New Zealanders have generally embraced the KiwiSaver scheme, with half of the key target demographic, 18 to 65 year olds, having joined. Most have joined because they recognise the importance of saving for their retirement.
In order to maximise the benefits of the KiwiSaver scheme, there is a need for both the major political parties to commit to its retention and maintain its structure. Many non-members do not trust the government to not change the rules again; which is perhaps unsurprising because there have been two changes in the four years the scheme has been operating. The government incentives are a key driver of initial membership and changes to these may see members suspend contributions to the KiwiSaver account, or choose not to join, and therefore reduce the benefits of the scheme.
Many KiwiSaver scheme members have chosen to keep their financial affairs in one place and have joined their bank’s KiwiSaver scheme, while others have simply stayed in the default scheme chosen for them by the Inland Revenue Department (IRD). This suggests a lack of real analysis of the options and selection of the best scheme, with the choice driven by convenience.
Of some concern is the lack of knowledge that some KiwiSaver scheme members have about their membership. Some did not know or misidentified their provider, and more than one quarter do not know what type of fund they are in. Many were unable to estimate the proportion of their retirement savings represented by their KiwiSaver scheme account.
It is known that many New Zealanders have other savings or investment plans in place to aid their retirement. There is a greater breadth of investment than is generally perceived, although residential investment properties are a large component of these investment plans. The reliance on the family home as part of retirement savings does raise concerns for the housing market in the future.
There appears to be a general reluctance to make use of financial advisers, with the advice of family and friends often preferred. Few New Zealanders have joined the KiwiSaver scheme or made changes to their KiwiSaver scheme account on the basis of the recommendation of a financial adviser. Books and magazines, and the Internet are relied on almost as much as financial advisers.
There is reasonably widespread awareness in the community of the changes introduced in the 2011 budget. The dominant view is that the changes weaken the scheme, but few people plan to make changes to the KiwiSaver accounts as a result of the changes. Few believe that the changes strengthen the scheme. Some non-members have been discouraged from joining as a result of the changes.
4 This summary of the KiwiSaver scheme and the changes made in 2008 and 2011 is necessarily brief and incomplete. Full details can be found at the official government KiwiSaver website (http://www.KiwiSaver.govt.nz) or the KiwiSaver section on the Sorted website (http://www.sorted.org.nz).
KiwiSaver savings scheme
The largest market share, by number of members, is ASB, followed by OnePath (which includes those who identified ANZ, The National Bank, or ING as their provider). The only other provider with substantial numbers that was identified was Fidelity (3%). The other providers identified included Aon, Superlife and Craigs Investment Partners. A small proportion (2%) are unaware of who their particular KiwiSaver scheme provider is. A number of respondents misidentified their provider (8%).
Reason for choosing the KiwiSaver provider
Most KiwiSaver members choose to have their account with their bank, but many simply join the default scheme selected for them by the IRD. However, a number of members had undertaken research of some kind before making their choice. For example, some made their choice on the basis of lower fees. Some KiwiSaver members had joined schemes because of trust of and/or admiration of the people associated with those funds.
The KiwiSaver Scheme Default Option
If you are in the KiwiSaver scheme, how did you choose your provider? Did you take the default option? How do you know if it’s the right provider to enable you to reach your retirement goals?
If you are a KiwiSaver member and you are some time away from retirement, it is likely that the fund will provide a sizable portion of your retirement income. It should therefore be treated as a significant part of your portfolio; you should be with the right fund manager and in a portfolio in keeping with your risk profile. At Iconic Financial we often find people have taken a default option and find their portfolio does not meet their expectations over the long-term. Speak to us today and we will be able to assess whether you have the correct provider to suit your financial needs. We work with both individuals and businesses so call us today.
No Obligation Consultation at Our Expense
Contact us now you have nothing to lose. We offer a no obligation meeting at our expense. It wont cost you anything to find out what benefits you will gain. Contact us today and discover how to get yourself financially sorted with the KiwiSaver scheme.