It’s been a big year for KiwiSaver. According to the latest Financial Markets Authority (FMA) KiwiSaver Annual Report:
- Average KiwiSaver balances have risen 29%
- Total funds under management are up 31.7% to $81.6bn
- Membership is up 2.1% to over 3 million Kiwis
- Average investment returns are up a whopping 1708%, to $13.2bn
But it’s been an even bigger year for Milford’s KiwiSaver. For the second year in a row, Milford is the winner of Canstar’s prestigious Provider of the Year | KiwiSaver Award. It’s an accolade endorsed by the fact Milford is also one of our Outstanding Value KiwiSaver Award winners.
So to mark Milford’s strong performance, we sat down with Murray Harris, Head of KiwiSaver and Distribution at Milford, to learn more about what sets Milford apart, delivering the best KiwiSaver ahead of the field.
To win Canstar’s Provider of the Year | KiwiSaver Award for two years in a row is truly impressive. Can you tell us more about how Milford delivers extra value for its KiwiSaver scheme members?
We have an absolute focus on providing our members with the best value and highest quality KiwiSaver experience they can get.
We do this by having the best active investment team generating consistently top-ranking investment performance, knowledgeable and friendly client service staff (real people, not a chatbot or email) and transparent, easy to understand communications. We also invest in the same funds as our clients, so have a strong alignment of interest.
What tools does Milford have to help Kiwis make informed choices about their KiwiSaver investments?
Importantly, we provide access to KiwiSaver advice in three ways: via our online Digital Advice Tool, via our inhouse KiwiSaver advisers and via independent financial planners across NZ. This ensures our members have access to advice in a way that suits them and helps them achieve their KiwiSaver goals.
We also have, available via our online Client Portal and mobile app, a Forecast My Balance Tool, to quickly see what your KiwiSaver balance could be by age 65, and how simple changes can improve the outcome.
We have a Spend My KiwiSaver Tool, which helps members reaching 65 to work out how much they can spend per month or year in retirement, depending on how long they want their KiwiSaver money to last.
And we also have our online Client Portal and mobile app, featuring up-to-date information on your KiwiSaver balance, performance, where your money is invested and the ability to make changes to your account all online.
Do you feel Kiwis are becoming more aware of the benefits that KiwiSaver offers?
Yes, we think so. Particularly if you look at those who have used their KiwiSaver for a first home purchase withdrawal, which for the past year, to March 31, was worth $1.4bn (up 18.8%), and those over 65 who withdrew $1.22bn (+8.3%). These are significant amounts of money that are now being put to use as KiwiSaver was intended. Many young people tell us they could never have saved what they did for their home deposit without the help of KiwiSaver.
As balances continue to grow, members will see more value from their savings habit and no doubt feel even better about their efforts. The average balance across all members is now around $26,000 (Milford’s average balance is $73,000), that’s enough for people to take notice.
The experience in the Australian superannuation market was people start to engage with their super once it’s about the same value as a mid-sized new car. We are approaching that.
Covid-19 has caused disruption across the financial sector. Can you tell us your thoughts on the ongoing implications of Covid-19 for people’s KiwiSaver investments?
There are three key concerns:
Firstly, the longer the Covid alert levels remain in place, particularly with Auckland at level three, what will be the economic impact? It could lead to job losses and higher unemployment. With KiwiSaver being a largely employment-based scheme, members who lose their jobs will have a period of not contributing and receiving no employer contributions. That could also lead to not receiving the government contribution (or a much-reduced contribution). Even if only temporary, this could have an impact on their savings by age 65, due to lost contributions and the effect of compounding returns on a lower account balance.
Secondly, members under financial stress, but still working, may choose to suspend their KiwiSaver contributions (through a savings suspension), which could have serious long-term impacts on their KiwiSaver balances by age 65, depending on how long they suspend their contributions for.
Our advice would be that this should be an absolute last resort or, if needed, they should be for the shortest amount of time possible. The beauty of KiwiSaver is small but regular contributions, plus investment returns over the long term, add up to a nice nest egg to enjoy at retirement.
And lastly, the other potential flow-on effect could be more significant financial hardship withdrawals, which were up 42.8% to $159.3m in the year to March 31, 2021, according to the latest KiwiSaver Annual Report. Again, a hardship withdrawal should be an absolute last resort for members, but for some it could, unfortunately, be necessary.
Apart from those KiwiSaver specific issues, if financial markets perform poorly, they can impact returns for KiwiSaver funds, or even create losses if they drop again.
However the good news is, with markets being forward-looking, they have already adjusted to living with Covid, and we have not seen the same negative reaction we saw in March 2020.
What improvements do you think could be made to the national KiwiSaver program?
We think it’s good to continually assess, review and ensure it’s still fit for purpose and achieving what it set out to do. And you would have to say, overall, it is.
KiwiSaver is the best savings/financial product Kiwis have seen – maybe ever. Over 3 million members and over $80bn invested. Forecasters have it set to reach $200bn by around 2030. That is a significant amount saved by Kiwis.
It will help to fund their retirements and take some strain off central government retirement funding as the population ages. But we need to be careful we don’t tinker for tinkering’s sake, as that can be off-putting for members. But some areas that could be explored further are:
- Contribution rates – are the current rates appropriate? Why not any rate from 0.5% or 1%? Every bit helps over a long period of time. And why limit at 10% of income?
- Auto-increase of contribution rates over time. Could be +0.5% every one to two years.
- Most countries with successful super regimes have their workers contributing 10% of their income; 3% into KiwiSaver is not going to be enough for most Kiwis. We need to educate them further on this and demonstrate the benefits of saving more.
- Compulsion – the Financial Services Council survey KiwiSaver at a Crossroads showed 74% of respondents support compulsion. That’s incredibly high. Is it time to have the debate?
- Or, maybe a softer approach is compulsory employer contributions – but with some tax offset for employers so as not to strain them. The employers would be helping their staff to reduce strain on government-funded pensions in the future, so some quid pro quo could be appropriate.
- More KiwiSaver money flowing to NZ companies, private equity, longer-dated investment in infrastructure, roads, utilities. As a long-term savings vehicle, it is ideally placed. Why keep sending more and more KiwiSaver dollars offshore?
About the author of this page
This report was written by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.