KiwiSaver: Plenty to be proud of but don't pop the Champagne yet
OPINION: Ten years ago this month, KiwiSaver was unveiled to the world by a beaming Sir Michael Cullen.
As we take time to celebrate its 10th birthday there's a lot to be proud of about the scheme, but a lot needs to be done before it can truly be considered 'world class'.
The good is easy to see.
Over 2.6 million of us are now signed up and more than $40 billion is under management in KiwiSaver funds. It has strengthened our financial markets and is well on its way to providing an important component of many New Zealanders' retirement incomes.
There's no doubt strong foundations have been built, but the question now is how do we capitalise on what we've learnt since 2007 to create a truly world-class system in the next decade?
Looking at best practice around the world there are five key areas that the Financial Services Council believes industry and government should focus on to enhance KiwiSaver.
Some are headline grabbing but politically challenging ideas like increased contribution rates, others are more mundane but just as important like financial planning and literacy.
Number one is engagement. More KiwiSaver members are now making informed decisions about active contributions, and are more intentionally investigating investment options and seeking advice. This is a great but it's not enough. More members need to be encouraged to do the same to maximise the value gained from their KiwiSaver fund.
When compared to Scandinavian countries, where they take a 'cradle to grave' approach, New Zealand is lagging behind. We need to get more people thinking about KiwiSaver as a lifelong investment of time as well as money.
In 2008 KiwiSaver signed up its 500,000th member, Remy van Cruysen, who got a cake with his parents, Megan Rose and Jules van Cruysen, at Parliament.
Number two is innovation. To meet the evolving needs of digitally-savvy New Zealand consumers, KiwiSaver providers need to advance their offers to support them in accessing information through digital tools, which also will help attract younger, first-time investors. We only need to look at the use of tech in market offerings in the United States to see what can
Thirdly we need to focus much more on financial planning as a life skill and encouraging Kiwis to think more about it.
This doesn't just mean reading some token advice, but having an honest conversation to best identify what you want to gain from superannuation. If we can drive such a shift in the mind-set of Kiwis so that they start thinking seriously about saving from a young age the impact would be revolutionary.
Fourth is financial literacy, and this is perhaps the most of important of the lot. Improving your financial literacy is a lot like improving your health and wellbeing. The more you are engaged in thinking about it and understand how your decisions affect it, the more you will take responsibility for the result.
Recent research from Massey University has shown that to enjoy a comfortable retirement, a couple needs between $50-$60,000 per annum – and what's clear is that the decisions you make today will make a difference as to whether you reach that goal or not.
Finally, there are the elephants in the room – contribution rates, compulsion, fees, and taxation. It might be hard to admit but we can learn some important lessons from our neighbours across the Tasman on these issues.
In Australia, there is no doubt that having a mandatory system with minimum contribution rates of around 9 per cent, and favourable tax treatment has delivered a world-class super scheme.
As a country, we are at risk of becoming captive to thinking the best way to grow wealth is through real estate.
This may be attractive in the short term while the market is hot, but it does not have the resilience that careful long-term superannuation does for creating a nest egg. We need to lift our ambitions and have a better debate on contribution levels and how we can increase them in a sustainable manner.
On fees, we need to constantly be challenging ourselves as an industry on whether we are delivering value for money to our members. The rise of low-cost KiwiSaver providers mean there is real choice in the market and if we aren't lean and efficient then it's clear that the public will vote with their feet.
And on taxation we need to ask some hard questions of our politicians about how they're going to ensure that the tax treatment of long term retirement savings is made fairer, especially in comparison to the taxation of residential property.
KiwiSaver has come a long way in the last decade but just like any ten-year-old it still has a lot of growing up to do. The road map for lifting it to the next level is clear, so let's challenge ourselves to make sure that its 20th is one really worth celebrating.
Richard Klipin is the chief executive of the Financial Services Council. The Financial Services Council represents the interests of the New Zealand financial services industry including KiwiSaver providers, major life insurers and fund managers.