Kiwi pensions growing fast but still catching up

As the population ages across the world, countries are saving harder for retirement and New Zealand is no exception.

Wednesday, March 22nd 2023, 10:43AM

by Andrea Malcolm

New Zealand retirement savings assets grew 15% per annum in the decade ending 2021 and 20% in the year ending 2021 putting it among the top five countries of 90 reported in the latest OECD Global Pension Report.

New Zealand’s total pension assets as a percentage of GDP is 37.3%, way behind the leader Denmark at 233%, Iceland at 218%, the Netherlands at 213% and the United States with 174%. Australia’s pension assets make up 147% of GDP. The top ten in this category are all mandatory or quasi/mandatory plans.

Of the six countries using auto-enrolment plans with the ability to opt out, New Zealand has achieved the greatest coverage with 81% of the working-age population. The UK which uses the same approach has 52% coverage.

The report noted that coverage rates of pension plans are uneven across countries taking this approach but that 14 years since the launch of KiwiSaver, New Zealand has achieved a coverage rate close to countries with a mandatory system, with an increase of three percentage points per year since 2011.

Globally more people tend to hold a funded pension plan in 2021 than ten and 20 years ago, independent of whether participation is mandatory, voluntary or encouraged through soft compulsion.

New Zealand was among a number of countries to adjust mandatory or minimum contribution rates over the year along with Australia and the UK. While minimum KiwiSaver contributions were lifted from 2% to 3% of gross salary for employees and employers in 2013, the Australian superannuation guarantee rate rose from 9.5% to 10% in 2021 and again to 10.5% in July 2022. It is scheduled to increase progressive by 0.5% annually until it reaches 12% in July 2025.

Investment rates of return

Benefitting from buoyant stock markets, pension plans recorded positive investment returns (net of expenses) in 41 out of 70 reporting jurisdictions in 2021. The OECD average was 3%,, with some of the largest pension markets being higher including Australia (1.8%), Canada (5%), and Switzerland (6.2%).

For asset allocation, the report said there has been a shift away from bonds towards equities and other instruments over the past decades.

Looked at the potential impact of the Russian invitation of Ukraine on pension portfolios.

Less than 1% of total pension assets in the OECD were invested in Russia before the war. A larger impact on the financial performance of pension providers was through non-Russian assets, partly related to declines in stock markets. Indirect impacts through inflation, rising interest rates, lower GDP growth prospects.

Tags: OECD