Coming back to decumulation - with the growing amount of money sitting there at age 65 through KiwiSaver, why do you think it’s taking so long for providers to include an option for members at that stage?
KiwiSaver is pretty immature. The world over, decumulation – as it’s called – hasn’t been solved. In New Zealand, we’re 10 years into KiwiSaver and people are retiring with balances of between $20,000-$40,000. My problem today is that with $40,000, if you’re given your decumulation product, you might get $5 a year. It’s not really going to help.
Would you say the balance needs to be around $100k?
With a balance of $100k you are seriously able to spread that over the life of your retirement. About one-third of members take their money out at the age of 65. We see another one-third taking a regular withdrawal from their KiwiSaver account. A lot of people actually continue to invest in KiwiSaver and add to it. I guess they’ve seen the benefits of saving through KiwiSaver. It’s really important that, when people hit 65, they ensure that they know their timeframe of future spending, to make sure that they are appropriately investing.
Is it too early for the decumulation side of the industry to develop?
I don’t think it’s ever too early to start thinking about what and how we’re going to develop in the future, because it won’t be too long before balances do grow. There’s a demand for it. Those who have quite big balances today, and can get a really good decumulation product, probably have a lot of other assets, too.
Member tax credits are essentially free money from the government, but a huge number of people are not taking advantage of it. How do we solve that problem?
Encouragingly, we see more members every year take out the free money from the government. That’s the positive.
But it should be everyone, shouldn’t it?
Absolutely. There’s another $300m out there that the government is offering to KiwiSaver members but, unfortunately, people aren’t putting in enough to get their member tax credits, I guess. One of the things I think is really important for members to understand is that if you put in $1,000 a year, and get your free $521 from the government every year, at the age of 65, you’ll have a quarter of a million dollars sitting there. It’s pretty compelling.
Should the government play a bigger role in trying to get people to take it up, or is that a provider issue?
A number of people have got a responsibility, absolutely. The government puts it up there and are happy to spend it. It’s a way of helping to incentivize people to use KiwiSaver to save for their retirement. Providers absolutely have an obligation to contact their members on an annual basis, particularly those members who haven’t contributed enough to get that free money from the government. It’s something that all providers tend to do, to try and contact members. It’s really important that there is a little bit of an onus on the individual, too, to understand the benefits of the product they’re invested in. It’s a compelling story. It’s not often that you get a 50% return on an investment like that. It’s really important for members, if they haven’t got the right contact details with the provider, or they’re not getting the right information, that they do ensure they are up-to-date.
$1.1bn has been taken out for first home purchases in the 10 years of KiwiSaver, by 74,000 members. That’s a lot of money going into the housing market. Is that contrary to what the scheme is all about?
I completely support first home withdrawals within KiwiSaver. You can’t retire without a roof over your head, in some way, shape or form. It’s a really good benefit we have in New Zealand, and I know other countries are looking to New Zealand as to whether they should also implement such a benefit. It’s well utilised. We’ve seen a 300% increase in the last year of people withdrawing from their KiwiSaver to buy their first home, which is great. That’s a really important step in the journey, but you can’t eat your home in your retirement, either. You need to start saving for your future. If you own your own home, it will cost you $110,000 in maintenance and insurance through your retirement. If you rent, it’s $650,000 in rental costs over your retirement. That’s a $500k difference. Therefore, that is the beauty of letting New Zealanders buy their first home - reducing their costs in retirement for accommodation, as long as they continue to consider how they then save to fund their retirement.
How many people get back on the wagon after a first home withdrawal?
It’s a really good question, and we asked members that recently. Encouragingly, about 83% of members said that they would continue to contribute or contribute at a higher rate. Disappointingly, we only see just under 50% contributing at a higher rate or restarting the contributions. About 50% of them will continue to contribute into their KiwiSaver. It’s good, and it’s really important for people to work out how they can pay off their mortgage, but I keep going back to the fact that they shouldn’t miss out on those benefits. Don’t miss out on your government contribution, don’t miss out on your employer contribution. Make the most of both.
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