There are a lot of big numbers swirling around KiwiSaver, most of them designed to get you fizzed up about saving for retirement or else lure you into a competitor’s scheme.’ Unfortunately wording for what is effectively a regulated investment product.
Of all those dizzying numbers, like the $100 billion sugar pot that has accumulated and the millions of dollars paid in fees each year, there’s one that will undoubtedly be coming in last in the beauty parade: the open rate of annual reports sent to investors by providers.
Not to be confused with your member statement (a more individualised report on how you are tracking for retirement), the annual report is a like a scorecard on how your provider fared in a given year, including new joiners, numbers of quitters, and how much moolah flowed in and out of their doors.
If you haven’t already received it, it’s coming soon. Check your junk mail and/or trash if you’re still searching in a week.
I have linked accounts for my family so forwarded the reports to my ‘kids.’
I only have two offspring. Neither could even be bothered to respond to my email, let alone open said email to read it.
I’ll let them off the hook because they’re busy students but if you count yourself among the masses of those contributing to that dismal open rate, think twice. There are some valuable insights that may get you saving more effectively for your old age.
So what does the report cover?
Firstly, there’s the enthusiastic cover letter from the CEO or MD running your fund who will highlight all the action of the year including new funds, new members, and exciting milestones they’ll professionally live or die by called FUM (Funds Under Management).
That’s followed by the table of contents, which may get you faster to what you’re interested in.
What caught my eye this time (and I’ll admit, I need to force myself to read these things too) was the first section where it breakdowns membership details including how many members contributed, how many didn’t, and what they contributed over the 12 months of the year.
Because this is a mandated document, everyone’s annual report will follow the same format regardless of your provider.
Most people who follow KiwiSaver with some interest (mainly journalists and fund managers and people who work for fund managers) know that contribution rates in KiwiSaver are dismal.
While more than two-thirds of the population is invested in KiwiSaver, (around 3.25 million) about 40% do not contribute anything.
By this measure, KiwiSaver is not the raging success story some would have us believe. KiwiSaver was introduced so that people could retire comfortably in their old age because the NZ Superannuation, if it still exists when you go to retire, will certainly not be enough for tens of thousands of people.
As it stands, research into how far it currently stretches shows that will provide the barest of financial security.
NZ Super is sacrosanct in NZ. If you raise the suggestion that it may be not around in the future to support a growing balloon of ageing people, who will also be facing expensive health care issues, you get shouted down by believers.
One of the more sane conversations I have heard on this issue was with Ross Stitt, a former tax lawyer and freelance writer with a PhD in political science. Stitt last year spoke to RadioNZ about Australia’s decision to lift the age of retirement to 67 and the reasons behind NZ’s reluctance to do the same, despite the trend among OECD countries worried about the sustainability of government supers.
You can listen to that interview here.
I was interested to hear that in Australia, their version of super, which is separate from workplace savings like KiwiSaver is means-tested. Translation: if your income and assets exceed a certain amount, you won’t qualify for it. Successive NZ governments have also suggested this will never happen here in Aotearoa.
But I digress. Back to the annual report.
If you’re in KiwiSaver and want to see how other investors in your scheme are behaving, both in terms of active contributions and average contributions, it’s a click away.
In my scheme, the number of contributors vs non-contributors in 2024 was similar to the national average; 37% didn’t contribute.
Of the 90,000 who contributed over the year, the average contribution was $2,785. That doesn’t include employer contributions which, on average, were $1,539, or the Government contributions for those who were eligible which were, on average, $333. I was shocked by just how low these numbers were, even when added up.
The total maximum contribution you can get from the Government, in any given KiwiSaver year, is $1,043, assuming you are eligible i.e. you were in KiwiSaver for 12 months and are over 18. Under-18s are excluded and those those who weren’t in KiwiSaver for a full year or didn’t contribute $1,043 themselves get a pro-rated amount.
What these numbers tell me is that as a nation, we still have a long way to go to catch up to our Australian, Canadian, and American counterparts who are saving more and who have been at this investment game much longer than us.
One encouraging number that stood out was the average value of those who were transferring their funds into KiwiSaver from Australia. Yes, under an agreement that was brokered a few years back, you can move your retirement savings across the Tasman.
While only 144 investors repatriated their savings from Australia (in my provider’s scheme anyway) the funds were worth a collective $8.9 million, an average of $61,981, which is double, yes double, what the average balance is worth in New Zealand.
There are a few reasons why these honey pots are so big compared to our own. Well two main ones actually:
Their salaries tend to be higher, AND their contribution rate is close to double ours; 11.5% versus our 3+3% of 6%. They are moving to 12% next July.
Okay maybe it makes for some depressing reading but some of the factoids should inspire and motivate people to get savings. Yes, it is hard to save when life is so expensive, but there are always ways to reduce spending and increase one’s earning ability.
If you have another saving and retirement strategy outside of KiwiSaver, maybe there’s no need to panic.
If you don’t, and you’re banking on the Government to save you, I would seriously think again.
As all financial advisors love to tell you, you can’t eat your house in retirement.
That’s doubly the case if you’re a renter!
The information contained in this article is for general purposes only. It is not intended as personalised financial advice.
