The next steps for Kiwisaver

• KiwiSaver should be compulsory

That is an idea which was supported by our research. Sixty per cent of respondents supported compulsory KiwiSaver while only 33 per cent said no and 7 per cent were not sure.

Among those who supported making KiwiSaver compulsory, 88 per cent said contributions should be compulsory if you are earning an income.

Interestingly, the percentage of people who supported making KiwiSaver compulsory was similar to the proportion of respondents who told us they were KiwiSaver members.

Sixty six per cent said they had enrolled in KiwiSaver. A third told us they had not joined, while 1 per cent of people were not sure if they were members or not.

The results suggest people who are KiwiSaver members now view it as integral to their savings plan.

The research also found 80 per cent of people from households with an annual income of $NZ100,000 or more were KiwiSaver members.

That compared to 53 per cent of people from a household with an annual income of $NZ50,000 or below.

This raises questions about whether KiwiSaver is reaching many of the people who need it the most and illustrates why ANZ Investments believes making the initiative compulsory is a good idea.

But we also recognise much more needs to be done than just making KiwiSaver compulsory.

• Members should have more flexible employee contribution options

At the moment, employees who are KiwiSaver members can opt to contribute 3%, 4% or 8% of their salary, with a contribution from their employer which will generally be 3% of the employee’s before-tax pay. But we know saving can be tough for many people, especially with modest wage growth and rising living costs.

To provide more flexibility, ANZ believes an option should be introduced for members’ employee contributions to be automatically increased by small increments (e.g. by 0.25 per cent, 0.5 per cent or 1 per cent) up to a capped rate.

Equally, some people might prefer to reduce their contributions when money is tight, rather than stopping saving altogether. There should be options for reducing employee contributions by small increments (e.g. by 0.25 per cent, 0.5 per cent or 1 per cent) for a set period.

• Changes should be made to the current ‘contributions holiday’ facility

Many employees who are KiwiSaver members are opting to suspend their contributions, taking what is called a ‘contributions holiday’.

Any employee who has been in KiwiSaver for a year can then opt to suspend their contributions for between three months and five years. There is also no limit to the number of times they can do this.

ANZ Investments favours changing the name of the ‘contributions holiday’ to the less alluring ‘savings suspension’ and reducing the maximum length to one year, thus requiring members to reapply annually if they want to suspend their contributions again.

• Members should select more-balanced risk profiles or follow a life-stage model

All new employees are automatically enrolled in KiwiSaver. But if they don’t actively choose which KiwiSaver scheme they want to be with and if their employer doesn’t have a preferred scheme, Inland Revenue will allocate them to one of nine default providers where their contributions will be placed into a default conservative investment fund.

These funds are generally low-risk and low-return, with a much higher exposure to income assets such as bank deposits and fixed interest investments and a lower exposure to growth assets such as shares and listed property.

While this may suit some people’s risk tolerance and investment timeframes, it may not help everyone reach their retirement goals.

People need to ensure they’re making active choices about their KiwiSaver accounts. ANZ Investments believes all default funds’ risk profiles should be more balanced or follow a life stage model rather than a conservative risk profile.

This will provide better long-term outcomes to those default members who may be hard to reach or choose not to make an active choice.

• KiwiSaver scheme providers should work with the government to increase transparency around fees and improve member education about returns after fees

In recent months, New Zealanders and the financial services industry have been engaging in a debate around KiwiSaver fees.

Our research shows younger people in particular are placing a lot of emphasis on finding a provider which offers fees as low as possible.

To address this, the government has mandated KiwiSaver scheme providers disclose the fees they charge in dollar amounts in their annual member account statements.

That way members can see how much they’re paying for the services and benefits they receive in return – ANZ Investments strongly supports this. But we also believe it is essential people consider the most important measure – returns after fees. 

• Financial ‘health checks’ should be provided to members at various stages to ensure they continue to meet their retirement goals and know how to use those funds when they reach retirement

It can be hard to work out how much you will have saved for retirement.  This was reflected in our research when only 35 per cent of respondents under 65 said they had worked out what their KiwiSaver balance and other savings might be by the time they retire.

When the remaining 65 per cent were asked why they hadn’t done this, 35 per cent said there was too much uncertainty, 27 per cent said they did not feel they needed to, 24 per cent did not care and 22 per cent said it is too hard or they don’t know how.

To tackle this, ANZ Investments believes providers should grant a free service to investors at specific life stages to help them identify their savings and retirement goals.

Health checks, tools and resources should also be provided to groups most in need of support, such as non-contributing members, women and those nearing the retirement age.

Just over half of poll respondents agreed it should be compulsory for KiwiSaver providers to give members ‘free financial health checks’ to see if they are on track for their future retirement (e.g. at 40, 50 or 60 years of age). 

It’s also essential to ensure members can decide the best way to ensure their KiwiSaver savings last them through their retirement.

ANZ Investments believes providers should encourage members approaching retirement to set a plan or seek advice for how they will draw upon their savings. Sixty two per cent of respondents said they would like their provider to give them access to free professional advice on the options for withdrawing funds. 

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.