Ordinary citizens enticed to save
Five years ago, the average investor in what is now KiwiSaver's biggest investment provider, ANZ-owned Onepath, was a 52-year-old man.
Now it is a 34-year-old woman.
This is thanks to KiwiSaver, which Onepath calculates has cut the proportion of male investors from 60 per cent to 48 per cent, much closer to the real population. People are also now investing in its managed funds on average 18 years earlier.
The KiwiSaver scheme celebrates its fifth birthday this weekend and the benefits of rejuvenation for the funds industry are obvious. KiwiSaver is now approaching half of managed funds but ANZ global wealth managing director John Body says it has also benefited ordinary people.
ASB's Blair Turnbull says KiwiSaver has made retirement savings "kitchen table" conversation. "In past managed funds were skewed more towards males over the age of 50 and were seen as a very sophisticated vehicle," he said.
Preliminary research has suggested all but a third of KiwiSaver money would have been saved in some form anyway, and commentator Michael Littlewood has argued people would be better off repaying debt or putting money in a business, thus saving the Government billions in subsidies.
But Body said that missed the point.
"I find it very hard to believe that a 28-year-old would have $13,000 saved somewhere else if they hadn't been in KiwiSaver. They might have a better car or a good TV," he said.
Onepath has calculated a worker earning $40,000 who joined its scheme at the outset and paid in 2 per cent of salary (a conservative measure, as payments were initially higher) would have about $13,400 saved today, after tax and fees. Only $60 would separate someone in the riskier growth fund from someone in the more conservative cash and bond-heavy option.
At ASB, the second-biggest provider, the gap between risk levels is wider: According to funds researcher Morningstar, a worker earning the median wage of $800 a week (about $41,600 annually before tax) who invested the share-heavy growth fund at the outset would have about $800 less, before tax on returns, than someone who picked the more sedate conservative option.
Considering the turbulent few years since KiwiSaver's birth the returns were "pretty decent", said Morningstar co-head of research Chris Douglas.
The importance of the choice of risk profile would increase over time as balances grew and there was more divergence between risk categories, he said.
To date savers in growth funds have been buffered from volatility by making regular payments, which along with Government subsidies still make up a large part of balances compared with returns.
Continually paying into the scheme helped growth members catch a leg-up when the markets recovered strongly, Body said.
"Aggressive investors were still buying up shares at the bottom of the market so they've benefited from the upswing."
Morningstar tables show someone who invested a dollar and never added to it would have fared better in a conservative fund in the first five years thanks to slower but steady increases.
Many people do not add to their funds, either because they have taken break for financial hardship reasons, are under-17 and/or do not earn a salary.
Turnbull disagreed with ANZ's argument that default savers should automatically be put in life stages funds if they did not choose a risk profile, so young people would automatically go in growth funds to strive for better projected returns. Growth funds earn higher fees for active managers such as Onepath.
Turnbull said people should only move funds once they felt confident. "In the last five years the conservative fund has done very well for a lot of KiwiSaver people. It has been a very challenging market and if people are comfortable with that, great."
Body said savers could expect to see more of their money invested offshore by 2020 because funds growth would outstrip the capacity of New Zealand's capital markets.
The proportion of retail funds in KiwiSaver was projected to grow from 41 per cent to about 70 per cent by 2020.
At the same time the value of KiwiSaver funds would probably quadruple from almost $12 billion now to at least $50b, he said.