by Niko Kloeten
Inland Revenue’s sixth annual review of KiwiSaver shows that while investors are becoming more active in their choice of fund, most are still making the minimum required contribution.
The report, for the 12 months to June 30 this year, shows that 67% of the 2.15 million KiwiSaver members have chosen their own scheme, up from 65% last year and only 49% back in 2008. In 2013 there were 136,167 transfers, an increase of 24% on last year.
However, the report also shows that 58% of members are only contributing the minimum amount of 3% of their salary or wages and their employer 3%. This is roughly the same as last year (59%) before the minimum employee and employer contribution rate was raised from 2%.
KiwiSaver has often been cited as a future catalyst for growth in the financial adviser market, but Financial Services Council chief executive Peter Neilson says the IRD figures show it will still be a few years before this happens.
“There will be an increased market for advice but if you look at the average numbers they are about $8-10,000 per person. People with $10,000 are unlikely to be major customers of advice but they may be in ten years’ time.
“Over time it’s going in the right direction but the vast bulk of people have got very modest balances.”
And the large number of people contributing the minimum will cause balances to grow more slowly, Neilson says.
“The problem is you’ve got a large number of people in KiwiSaver contributing at relatively small rates. You’ve also got a skew towards young people. People in their 20s are probably not going to want advice until they are in their 30s and 40s.”
Neilson says the FSC is pleased to see more KiwiSaver members picking their own funds, but many don’t know they are in conservative funds.
FSC modelling shows that if someone on the average wage contributing 6% stays in a conservative fund for the next 40 years they’ll end up with a nest egg at least $150,000 smaller than if they invested in a balanced portfolio and $250,000 less than being in a growth fund.
Conservative funds suffer the highest effective tax rate which increases the savings required to get to a comfortable retirement, the FSC says.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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