KiwiSaver threatens regular savings schemes

Tower Investments chief executive Tony Hildyard says that KiwiSaver is effectively the nationalisation of the regular savings industry.

His view is that many of the people who take up the KiwiSaver option will be unable to afford to also contribute to existing personal savings schemes.

“KiwiSaver will therefore represent a reallocation of the regular savings market rather than an increase in actual savings rates.”

“The target demographic will not have the means to increase its savings rate without a commensurate decrease in spending elsewhere or an increase in net income.”

Hildyard expects that regular savings products will become KiwiSaver compliant and will “certainly” need to become Portfolio Investment Entities (PIEs) to take advantage of the changed tax environment.

“This will largely be a retention strategy for existing funds under management.”

He says that current regular savings products will become legacy funds and may face significant fund outflows in favour of KiwiSaver schemes.

“This will create scale and efficiency impacts for managers.”

Hildyard agrees with the view that current workplace superannuation schemes will be threatened, however he does see a continuing place for them.

He says people on higher incomes will use both types of schemes, and will continue to contribute to non-KiwiSaver-compliant schemes as their savings are not locked in until retirement.