The birth of the Retirement Income Group

New Zealand has a unique state funded pension scheme which commenced in 1898 and today guarantees all New Zealanders 66% of the average wage for life from age 65. The scheme is not asset tested and is funded from general taxation. The generous scheme has contributed to an environment where there has been little development of post retirement income products, as the state scheme has been perceived to be the primary provider of retirement income.

Raising awareness for the need for personal retirement savings in addition the state funded pension, lead the government to launch a new retirement income scheme in 2007 called KiwiSaver. KiwiSaver required all employers to enroll employees in a retirement savings scheme with co-contributions from their employer. Initially the rates were set at an equal contribution from employee and employer of 4%. The current default rate is 3%. Employees are automatically enrolled but do have the option to “opt” out if they wish. Up until May 2015 all new KiwiSaver enrolments qualified for a $1000 sign up bonus. Savers also receive a government contribution of $521 each year towards management costs if they save at least $1,042 each year. No savings can be withdrawn until age 65 and there are currently no limitations on how the savings are used.

KiwiSaver has been extremely successful, from a population of 4.5 million people, 2.5 million are now KiwiSavers with $29 billion saved to date. The scheme offers three savings profiles conservative, balanced and growth. Savings are collected through the state taxation system and then invested individually with 27 private sector investment management firms. The state monitors asset allocation, fees and disclosure.

Attention is now turning towards decumulation and future of the accumulated savings in KiwiSaver. In 2014/2015 savers aged over 65 withdrew $422 million from the scheme, an increase of 12.7% over 2012/13. Given the scheme was launched to help supplement the income from the state funded scheme, the issue of KiwiSaver and the future of retirement income is becoming a topical issue in New Zealand. In practice the management of KiwiSaver savings is the most significant investment in the New Zealand’s funds management sector dominating the local managed funds industry.