Most KiwiSavers not addressing retirement savings shortfall

Wednesday, 7 November 2012, 8:35 am
Press Release: ASB

Media Release
Wednesday 7 November 2012

Most KiwiSavers not addressing the retirement savings shortfall

• Nearly 90 percent of KiwiSavers are not planning to change their current contribution rate within the next year
• One quarter of those in KiwiSaver don’t know how they will use their funds once they retire
• Conservative funds see strong growth in popularity as KiwiSavers remain cool on risk

Most KiwiSavers are not currently planning to save more for retirement, despite evidence of a continued retirement savings gap, according to the latest ASB Kiwisaver Survey.

ASB’s Executive General Manager Wealth and Insurance Blair Turnbull: “The latest ASB KiwiSaver Survey indicates that despite the debate around the shortfall in retirement savings, the vast majority of Kiwis have no immediate plans to increase their contributions to their KiwiSaver funds. Nearly 70 percent of all those surveyed admit they need to save more for their retirement years, yet almost 90 percent of respondents had no immediate plans to change their contribution rate over the next year.

“We are seeing Kiwis increasingly acknowledge that they need to be doing more towards their retirement but we’ve not yet seen the flow through in terms of changes to current retirement savings patterns,” Mr Turnbull says.

According to the survey, of those respondents currently enrolled in KiwiSaver, 43 percent are contributing the default amount of two percent. “Affordability issues are likely be a contributing factor to people’s reluctance to raise their contributions above the minimum amount,” says Mr Turnbull. “It also suggests that a significant proportion of New Zealanders have no clear strategy for the lifestyle they want in their retirement.”

Around two thirds of respondents to the ASB KiwiSaver Survey estimate they will need under $50,000 income per year for each year they are retired, with 43 percent of all respondents estimating they will need $30,000 per year. Kiwis believe on average they will be retired for just over 23 years with almost 80 percent planning to retire after they turn 65.

On average, respondents aspired to save $565,000 by the time they retire. In June 2012 the ASB KiwiSaver Survey highlighted a marked difference between the savings aspirations of respondents and actual savings in the ASB KiwiSaver Scheme. The actual average savings rate is around $50 per week per ASB KiwiSaver Scheme investor aged 18 and over and saving in this way, a 35 year old person will accumulate just $70,000 by the time they retire.

“Kiwis have set themselves solid retirement savings goals, but with nearly ninety percent of all KiwiSavers not intending to change their contribution rate in the next year, this gap between aspirational retirement savings and actual retirement savings is unlikely to go away quickly,” Mr Turnbull says.

One quarter haven’t planned how they will spend their funds

Of the KiwiSavers users surveyed, nearly a quarter say they don’t know how they will use their funds once they retire.

“It’s surprising that such a large group haven’t sat down and planned how they will use their KiwiSaver funds once they retire. With around a third of KiwiSavers currently choosing to withdraw their funds once they reach retirement age eligibility, this means there is a significant proportion of those who may receive their funds that haven’t planned what they will do with it,” says Mr Turnbull.

For non-KiwiSavers surveyed, one quarter of those who have not made up their mind about joining KiwiSaver say they simply do not know enough about the scheme with a further 16 percent still saying they are undecided at the current time but are considering if for the future.

“There is still a significant part of the New Zealand population who aren’t confident with their knowledge of KiwiSaver and are delaying making retirement plans. This means that there is definitely still work to do to engage with New Zealanders on the importance of planning for a comfortable and realistic retirement.”

Conservative funds growing

According to the survey, the last quarter has seen a significant increase in the number of KiwiSaver users choosing to be in a conservative-rated fund with nearly 30 percent of all KiwiSavers now choosing the low-risk option.

“The jump in the number of KiwiSavers in low-risk funds is likely reflective of a couple of factors,” says Mr Turnbull. “Due to the recent global economic uncertainty, a more cautious approach from investors is not surprising. The relatively solid returns of some conservative-rated funds in comparison to the returns of some growth focused funds is proving attractive as well.”

Note for editors:
The ASB KiwiSaver Survey is based on 786 online responses gathered from July to September 2012 with adults aged 18 years and older throughout New Zealand.

ENDS

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