Research exposes wildly different kiwisaver projections
Simplicity today released a research paper showing up to a $1m difference in projections of KiwiSaver members future wealth, using the same assumptions.
Projections for the amount a KiwiSaver member would have at retirement varied from $311,000 to $1.36m. This assumed starting KiwiSaver at 20, a salary of $40,000 per annum before tax and contributing 3% personally and 3% via their employer into a growth fund. For balanced funds, the range was $357,000 to $775,000.
“Our findings show that the results being produced are inconsistent, misleading and of very little use to a member seeking to reasonably project their future retirement income. It’s concerning ordinary KiwiSavers might rely on these projections,” said Sam Stubbs, MD of Simplicity.
“Some providers are selling their services by projecting returns which have no historical precedent over the life of an average KiwiSaver member,” he said. “There is no way an actuary would sign off on some of these projections,” he said.
“For some managers, showing a huge projected KiwiSaver balance is clearly a marketing strategy to get new members,” he said. “But given how important KiwiSaver is to our future, we don’t want snake oil sales tactics in NZ,” he said.
The report points out that only one manager states returns have been verified by an actuary. Many projections also vary widely from the standard set of assumptions managers must use in their annual reports.
“It's strange that the regulations require standardised assumptions in KiwiSaver scheme annual reports, which rarely get read. But the same managers use dramatically different ones for their marketing and sales purposes,” Mr Stubbs said.
The Ministry of Business Industry and Employment (MBIE) have announced it is looking at this issue and will be consulting the industry.
The research paper recommends the following:
1) The KiwiSaver industry be required to use a standard set of underlying assumptions in all marketing order to forecast a KiwiSaver member’s future wealth.
2) Retirement saving outputs should be provided on a before and after inflation basis, to show the impact of inflation on the purchasing power of a member’s money.
3) Tax should be deducted at the PIR applicable for the member based on their income, and be adjusted in line with the forecast income growth over time.
See the report here