23 July 2012
In July 2012, KiwiSaver reaches its fifth birthday. Andrew Gawith reflects over the last five years and considers how KiwiSaver may evolve in the future.
Interviewer: So KiwiSaver has reached its fifth birthday this month. How do you think the KiwiSaver of today compares to the original vision?
Andrew: Well it depends; the original vision under Labour was actually for a very cut down scheme, but before it was launched they actually added - Michael Cullen added - a lot of bells and whistles to it. So, in fact, it started with a hiss and a roar. And subsequently National have trimmed some of those bells and whistles, so it’s a bit of a half-way house between what they originally envisaged for KiwiSaver, then pumped up before they launched. National have taken it down a bit because it was a very costly scheme when they launched it. But, in effect, that sort of ‘bells and whistles’ approach from Michael Cullen really got the numbers rolling in very fast.
Interviewer: Has it met its original objectives?
Andrew: Well it’s certainly exceeded its original objectives in terms of how many people would join the scheme; would opt in or would remain in after having been automatically enrolled. So, in that sense, yes, it far surpassed the original forecast. It’s much less clear as to whether KiwiSaver has produced a lift in overall national savings. But I’d suggest that it’s certainly brought more people into the savings habit and that may well improve over time as well as people remain locked in to KiwiSaver, they can see their accounts growing.
Interviewer: What are the main successes over the past five years?
Andrew: Clearly the number of people that have joined the scheme, as I say, is far in excess of the original expectations, so that would be a huge success. I think the other success is that we have got quite an array of competitors in here. So you’ve got a pretty contestable market in terms of providers, and I think that’s been good, and in some cases there have been fairly innovative new providers entering this market. To be fair, it’s sort of shaking down to the usual big guys, but at least we have had some of that rather innovative approach from the smaller guys.
Interviewer: What have been the disappointments?
Andrew: Well, the big disappointment, I guess, is that KiwiSaver was launched almost on the day the world went into a financial crisis that it’s still trying to dig itself out of. So for mum and dads, young couples etc. starting up the savings habit, this has been a terrible sort of induction to the returns that one might have traditionally expected, or normally expect, from investing. I mean the growth funds, are just struggling to get above the waterline at the moment. I mean, share markets around the world are still lower, in some cases substantially lower, than they were five years ago.
Interviewer: In what way do you see KiwiSaver evolving in the future?
Andrew: People look across the Tasman and look at their compulsory superannuation scheme which has now got over a trillion dollars invested in various managers. And there have been calls here to make KiwiSaver compulsory; whether that eventually happens will be up to politicians, obviously. So we would expect to see certainly more people joining, so a bigger portion of the population in KiwiSaver. I’d also expect the minimum contribution rate to lift over time.
What we’re looking for is a scheme that becomes so familiar to Kiwis that they understand everything about it and there’s no mystery to it. At the moment, there are some complexities about it, there have been a number of changes, and I think that uncertainty puts a few people off.
KiwiSaver turns five: What this means for members who are eligible to withdraw
Andrew Gawith looks at how KiwiSaver's fifth birthday affects those who have been members for five years and are aged 65 plus.
Interviewer: For members, what is the main milestone marked by KiwiSaver turning five?
Andrew: When KiwiSaver got started, it was a retirement savings plan. Well, now we’ve got members reaching retirement, and their KiwiSaver account becomes available for them to use, to withdraw completely if they wish to, to use as an emergency fund, or simply to supplement their New Zealand super. This is an important milestone for some of them as they’ve done their five years inside KiwiSaver.
[text: KiwiSaver members are eligible to withdraw from their account if they have been in KiwiSaver for 5 years AND have turned 65]
Interviewer: What is our experience of members who will be eligible to withdraw this year?
Andrew: There is a significant, but small, percentage that have indicated that they wish to withdraw everything and close their KiwiSaver account. And there is an equally significant portion that are indicating that they will use their KiwiSaver account as their primary retirement management account. So I think it would be fair to say that we’re surprised at the number of people who actually are going to keep their KiwiSaver accounts open.
[text: Check with your KiwiSaver provider about the specific options they offer to members who are eligible to withdraw]
We introduced two months ago the CashPlus option, which is an investment option that has no shares in it - so it’s fixed interest and cash – designed primarily for those eligible to withdraw that wanted a much safer investment option than even conservative, which is pretty safe. We’re seeing some interesting inflow into that CashPlus option.
[text: More information on CashPlus for the Gareth Morgan KiwiSaver Scheme can be found at www.gmk.co.nz or by calling 0800 GARETH]
Interviewer: What are the changes to government and employer contributions after you become eligible to withdraw?
Andrew: It’s really important to understand that, when you become eligible to withdraw, you will no longer be eligible to receive the government contribution each year – the $521. And neither will you be entitled to receive the compulsory employer contribution.
[text: These changes take effect once you are eligible to withdraw from KiwiSaver, not just when you reach the age of 65
Check with your employer if they will continue contributions after you become eligible to withdraw]
Nonetheless, we are finding that some employers are willing to continue contributing to KiwiSaver accounts for those eligible to withdraw. People should check with their employer whether they are willing or not to continue contributing. That’s a real bonus if they are prepared to do so.
Interviewer: What are the benefits of using KiwiSaver in retirement?
Andrew: Your alternatives would be to obviously have a retail bank deposit, which is very safe but in the end, after you’ve paid the tax on it, doesn’t actually return you as much as even a conservative fund, with a balance of fixed interest and shares would. From a retiree’s point of view, it’s a relatively low-cost, certainly by comparison to retail funds management, well-regulated way of looking after your savings. And, remember, you’ve got the choice to pull out of KiwiSaver, or to transfer to any other provider of your choice, which is very simple to do, anytime you like.
Any opinions expressed in this video are the personal views of the interviewee and should not be treated as appropriate for your personal financial situation or relied on for making an investment decision.
For advice on managing your retirement savings, contact an Authorised Financial Adviser.
See our video What Happens to My KiwiSaver When I Turn 65?
Read more on our KiwiSaver and Retirement Page