John Body: Coddling our national nest egg

Six years on, KiwiSaver is a popular success, so where to now?

The question for KiwiSaver is: How do we reduce the number of people on contribution holidays? Photo / Kellie Blizard
The question for KiwiSaver is: How do we reduce the number of people on contribution holidays? Photo / Kellie Blizard

KiwiSaver is the retirement savings vehicle for more than 2.1 million New Zealanders, and now has more than $13.5 billion of funds invested.

It has been a great success since its launch in 2007 with many people actively saving for retirement outside of property assets for the first time.

Changing demographics will continue to force us to think at a national and individual level about retirement savings.

KiwiSaver funds will also be a significant source of capital for growing "NZ Inc", as the size of funds allocated to equities increases and these in turn are invested into New Zealand companies.

We see three important themes in KiwiSaver for industry and policy makers to resolve:

• The risk profile of default KiwiSaver funds;

• Extending membership and contribution levels; and

• The longer term issue of the depth of New Zealand capital markets for funds to invest in.

We have long been advocates of a "lifestages" approach to KiwiSaver, which we believe will ensure the vast majority of investors are in a risk profile appropriate to their age and time to retirement. Defaulting younger people into conservative funds when they have decades ahead in their investment horizon will reduce retirement savings accumulation.

We can look to our closest neighbours for a comparison. When we compare New Zealand's total market allocations in KiwiSaver to Australian superannuation funds, New Zealanders are far more heavily weighted to fixed interest or cash.

According to RBNZ figures, 54 per cent of KiwiSaver FUM is allocated to bonds and cash compared to Australian superannuation funds, where 23 per cent is allocated to bonds or cash, according to the Towers Watson Global Pensions Study 2013.

The upcoming decision from the Government's review of default KiwiSaver provider arrangements will determine the future of these conservative fund allocations.

The second theme for KiwiSaver is contributions. How do we reach the rest of the population who have not yet joined, ensure those in the scheme are contributing enough and reduce the number of people on contribution holidays? Our quarterly ANZ Retirement Savings Barometer has shown that only 47 per cent of New Zealanders are confident of achieving their retirement goals.

There are also 95,000, or almost 5 per cent of members on contributions holidays. Our analysis shows that if all these people take a five-year gap in their contributions, it will result in a $4.5 billion hole in retirement savings over the next 30 years. This is a significant industry issue involving affordability, incentives and financial literacy.

The final theme is around the depth of our capital markets. This requires more New Zealand companies coming to the NZX, so KiwiSaver funds can invest beyond the top 20 or 30 listed companies.

The capital markets issue is about how the combined retirement savings pool can help bring companies to the market. Part of the solution may be asking the NZ Superannuation Fund and KiwiSaver to play complementary roles, where the NZ Superannuation Fund focuses on incubating emerging businesses and KiwiSaver in the listed markets.

The transtasman portability of savings scheme, expected to come into effect this year, is a major focus.

We need to help New Zealanders bring their Australian superannuation funds back home as easily as possible.

Six years old in July, KiwiSaver is in good heart. Now the focus needs to be on how we build on the foundations to create a retirement savings scheme with excellent outcomes for 'NZ Inc' and all New Zealanders.

6years old: KiwiSaver's anniversary in July

2.1million New Zealanders are in KiwiSaver schemes

$13.5 billion of funds invested in KiwiSaver

54 per cent of KiwiSaver FUM allocated to bonds and cash in New Zealand

47 per cent the percentage of New Zealanders confident of achieving their retirement goals.

5 per cent of KiwiSaver members are on contributions holidays.

John Body is , Managing Director, ANZ Wealth and Private Banking, NZ

- NZ Herald

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