KiwiSavers break $40b mark

But average account balance of $14,903 points to deeper issues, say experts

Strong investment growth has boosted the value of KiwiSaver to more than $40 billion but individual balances remain low for many despite the scheme running for nearly 10 years.

Figures from Australian research firm Strategic Insight show total KiwiSaver funds hit $40.65b at the end of March up from $38.42b as of December 31.

Daniel Morris, senior manager data and systems support at Strategic Insight, said KiwiSaver had grown by 5.8 per cent over the quarter, bouncing back after a period of lower growth in the December quarter.

“It was probably a bit larger than expected,” Morris said.

The fastest growing provider was Bank of New Zealand, whose KiwiSaver funds grew 10.5 per cent over the quarter to $1.17b.

Milford Asset Management and Kiwi Wealth, a sister company to Kiwibank, also recorded strong growth up 9.2 per cent and 6.4 per cent respectively.

Mercer New Zealand had the slowest growth rate over the quarter increasing its funds by 3.8 per cent to $1.56b.

But while the total amount looks impressive individual savings are still relatively small.

Based on Inland Revenue figures, 2,727,675 people were signed up to KiwiSaver in March putting the average balance at $14,903.

David Boyle, group manager education at the Commission for Financial Capability, said on the surface KiwiSaver looked like it was going well.

“But scratch the surface and there are some significant concerns and issues that need to be addressed to really get KiwiSaver delivering to its true potential.”

Boyle said the average balance was affected by the number of under18-year-olds in the scheme who did not have much in their accounts.

“Most were signed up when the $1k kickstart was available and talking to a number of providers very few of these members are making any regular contributions until they reach the age of 18.

“So this affects the average balance.”

Around 360,000 members are under 18. Boyle said another group of about 580,000 people were not getting the full government subsidy which meant they were contributing nothing or less than $1043 a year.

KiwiSaver providers needed to do more, he said.

“Providers need to keep working on getting their members connected to their KiwiSaver account, especially those that have not made contributions but are eligible for the member tax credit.”

Claire Matthews, a KiwiSaver expert at Massey University, said it was hard to judge whether the $40b figure was a reason for celebration as people may have saved that money regardless of KiwiSaver.

“We don’t know what people would have saved without that.”

Matthews said an average balance of less than $15,000 did not sound a lot but it depended on the age of the person.

“For someone aged 60 — if that is all they have saved it’s not great,” she said.

But for someone in their 20s it was a good start which would now benefit from compound interest.

The Government needed to increase the minimum contribution rate to help boost balances, Matthews said.

She believed individuals should contribute 10 per cent of what they earn. The current minimum is 3 per cent.

Richard Klipin, chief executive of the Financial Services Council, said the average balance of $14,000 to $15,000 was a start.

“Like most developing countries we have got to start somewhere.”

But Klipin said it was not enough and it opened up the need for greater advice about how much was enough to live off in retirement.

Susan St John, co-director of the University of Auckland’s Retirement Policy and Research Centre said while average balances were growing those at the low end would likely not have much at retirement.

“Not only have withdrawals for housing accelerated, but many struggling families are having to access funds under hardship claims.

“Many of those under the median will have very small amounts, if any on retirement.”

On top of that issue she said male median balances would outpace female balances.