KiwiSaver members not on track

Kiwis who think their retirement savings are sorted because they have signed up to KiwiSaver may get a nasty shock when they reach 65.

Thursday, May 21st 2015, 6:00AM

by Susan Edmunds

David Boyle, group manager of investor education at the Commission for Financial Capability, said one of his biggest concerns about KiwiSaver was that savers would think that, having signed up, they did not need to do any more.

“People join and in a lot of cases they’ve ticked the box and think ‘I’ve done that, I should be set’. But they haven’t worked out what that might mean when they get to retire,” he said.

He said just contributing the 3% of income minimum, matched by the employer contribution, would not be enough to give most investors are comfortable retirement. “Three per cent [of your income] is not going to get you there, even if you start really early, it’s not enough. That is a real problem.”

ANZ research has shown that 79% of savers want more than the $370 per week a single person can get from the pension in retirement.

Of those who want extra income, 40% want more than $300 extra every week, and 31% want more than $500 each week on top of super. To get that for 20 years, they would need a lump sum of $700,000 or $900,000, respectively.

That is well out of the reach of someone on the average wage unless they top up their KiwiSaver accounts significantly.

Someone who joined KiwiSaver at 25 with a salary of $50,000 would need to contribute about $6600 each year on top of the 3% from their income and 3% from their employer to reach that $700,000 target at 65.

That assumes they are in a fund that adapts their risk profile according to their age.

Almost an extra $10,000 a year would have to be contributed to reach $900,000.

Boyle said the Commission for Financial Capability was asking KiwiSaver providers to regularly tell members not only what their balances were but what income that would deliver at 65.

He recommended savers seek advice to set them up with a plan.

ANZ general manger of wealth products and marketing Ana-Marie Lockyer said how much money a person could be content with in retirement would depend on the kind of lifestyle they expect.

“If you’re happy to reduce your living expenses and the lifestyle you’ve become accustomed to, you’ll need less. Is it important to leave an inheritance to your family or are you happy to gradually dispose of your assets through your lifetime?”

She said it was important that people did not wait until they were close to retirement to work out whether they would have enough. Savers should check in at least annually to make sure their savings were on track.

Tags: KiwiSaver