Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Low-cost guarantees will protect KiwiSavers from downturns

MEDIA RELEASE

Embargoed until 6am, Monday 21 July 2014

Low-cost guarantees will protect KiwiSavers from economic downturns – and help deliver huge retirement nest egg rises

New research undertaken by Infometrics for the Financial Services Council (FSC) has shown capital guarantees on KiwiSaver balances are a much better deal for KiwiSavers than defaulting them into conservative funds as is the current policy.

FSC CEO Peter Neilson says for guarantees costing $2,799 a balanced fund investor would be $170,000 better off. For guarantees costing $3,465 a growth investor would be $220,000 better off at retirement compared with staying in the current default conservative fund.

“Rather than paying the cost as a one off fee it is probably better to charge a modest increase in your KiwiSaver contribution rate,” Mr Neilson says.

“We asked Infometrics to calculate the cost of guarantees that would ensure someone who was defaulted into a balanced or growth fund was protected against a major financial market downturn, specially when close to either retiring or withdrawing funds to buy their first home. If a KiwiSaver were to retire or put a deposit on a first home in a year of a downturn in capital markets they could find their savings had declined if they were in a balanced or growth fund.

“Understandably many KiwiSavers don’t want to find they need to access their funds in a year like 1987 or 2008 when the markets fell sharply.”

While conservative funds avoid much of this risk they do so at a very substantial cost, Mr Neilson says.

By age 65, someone on the average wage saving for 40 years at a 7.6% contribution rate in a balanced fund rather than a conservative one ends up with $170,000 more.

At age 65 after 40 years someone on the average wage saving for 40 years at a 6.1% contribution rate in a growth rather than a conservative one the gain is even greater - more than $220,000, the Infometrics study finds.

While the average earning rate is higher in a balanced or growth fund the earnings are more variable year by year. A conservative fund can expect to earn an average 4% each year after fees and tax whereas a balanced fund would earn 6% and a growth fund 6.6%.

When the default arrangements for KiwiSaver were reviewed last year the Government decided to stick with the current default into conservative KiwiSaver funds for those who don’t exercise their option to choose a higher earning/higher risk balanced or growth fund.

At that time the FSC and others suggested that for younger KiwiSavers a default into a balanced or growth fund made more sense while keeping the option to move elsewhere later.

Commentary around that time included concerns that those close to purchasing a first home or close to retirement would not want to find that coincided with a very bad year for financial markets.

Mr Neilson says: “This new research shows guarantees for KiwiSaver paid for by the KiwiSaver and backed by the Crown Balance Sheet appear to deliver significant benefits for KiwiSavers at minimal cost. When polled last year for the FSC by Horizon Research most KiwiSavers said that if they were in a conservative fund they would want to move to a balanced or growth fund if capital guarantees were in place.

“Most New Zealanders think it’s a ‘no brainer’ for the Government to make this the standard default option.”

FSC is asking all political parties to consider changing the default option for KiwiSaver so that younger New Zealanders default into balanced or growth funds with appropriate guarantees paid for by the KiwiSaver. They will pay relatively little to buy a guarantee – and end up far better off when they retire. It’s important we have some long term thinking to reap the maximum protection and benefit for the younger generation who work and save for a lifetime.”

InfometricsAreCapitalGuaranteesBetterWaytoProtectKSFirstHomeDepositWithdrawalsJune2014FinalEmbargoed_1.pdf
Fact_SheetFinal21.7.14_1.docx
Questions_and_AnswersFinal21.7.14_1.docx

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: NZ Dollar Catches Breath After "Goldilocks" Slump

The New Zealand dollar edged up following its dramatic slump yesterday after the Reserve Bank confirmed speculation it intervened in the currency market last month and PM John Key suggested a “Goldilocks” level far lower than at present. More>>

ALSO:

Biosecurity: Kiwifruit Claim To Hold Officials Accountable For Psa

Kiwifruit growers have joined forces to hold Biosecurity NZ accountable in the courts for its negligence in allowing 2010’s Psa outbreak that devastated New Zealand’s kiwifruit industry and exports. Foundation claimants representing well ... More>>

ALSO:

Poison: Anglers Advised Not To Eat Trout In 1080 Areas

With the fishing season opening in just a few days (1 October 2014), anglers are being warned by the Department of Conservation(DOC) not to eat trout from pristine backcountry waters and their downstream catchments, where the department is conducting 1080 poisoning operations. More>>.

ALSO:

Quotas: MPI Swoop On Suspected Fraudulent Fishing Activity

Ministry for Primary Industries (MPI) compliance officers swooped on a Hawkes Bay fishing enterprise today to secure evidence in an investigation into suspected fraudulent activity... “The investigation involves activity throughout the commercial supply chain – catching, landing, processing and exporting.” More>>

ALSO:

Scoop Business: Fonterra Slashes 2015 Milk Payout, Earnings Tumble 76%

Fonterra Cooperative Group cut its forecast 2015 milk price payout by about 12 percent, citing weaker global dairy prices and said there is a risk of further declines given strong global milk production. More>>

ALSO:

Scoop Business: RBNZ Keeps OCR At 3.5%, Signals Slower Pace Of Future Hikes

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. The kiwi dollar fell to a seven-month low. More>>

ALSO:

Weather: Dry Spells Take Hold In South Island

Many areas in the South Island are tracking towards record dry spells as relatively warm, dry weather that began in mid-August continues... for some South Island places, the current period of fine weather is quite rare. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand

Mosh Social Media
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news