How to improve a 16-year-old KiwiSaver

I can honestly say turning 16 was not one of my highpoints when thinking back over my life. That summer I was working on my sister and brother in-law’s farm over the Xmas holidays and waved goodbye to 1980 babysitting their kids while they (and my mates for that matter) were out partying and welcoming in 1981. Not long after my 16th birthday in January I had a call from my mum, who went through my School Certificate results.  Let’s just say the results fairly reflected the work I had done that year. It was probably one of the most embarrassing moments (and I’ve had a few) to deal with. It felt like my whole world was falling around me and I found myself at a crossroads that, depending on what I did next, would determine my future direction.

KiwiSaver turned 16 this year and, while it has had much more success than my scholastic career at the same age, there are still some mighty challenges ahead for it. Like many teenagers it will need some good parenting and boundaries to ensure it develops to its true potential.

The FMA recently released the KiwiSaver Annual report and while there was much to celebrate and a reflection of the tougher economic times we are in, there are some challenges ahead that need further investigation. There are also some murmurings coming to light about whether its key objectives and potential development could be derailed by its possible future guardians.

KiwiSaver is growing up

Not just by the number of new members, but also its size.  While it’s not necessarily dealing with the growth spurts some teenagers go through, it has amassed $93.7 billion of funds under management, as at the end of March. At the time of writing, it’s now well over the 100 billion mark, which has to be something to celebrate. That said, with 3.254 million members, with an average balance of just over $28,000 dollars, and more than one million members not contributing at all, much like my school reports the teacher would probably add “can do better” in their comments.

 More funds allocated to growth assets

One of the best outcomes we have seen over the past few years has been the transition of member balances and contributions from conservative funds to balanced and growth funds. A key driver of this came when the new default providers were appointed back in May 2021 all default members were transferred from conservative funds to balanced funds. This was a no brainer and should have happened years ago, but, as they say, better late than never. While the timing may have impacted some short-term results, over the long term this will genuinely reward KiwiSaver members.  Pleasingly, many other non-default KiwiSaver members have also moved to a higher growth asset allocation which can be attributed in part, because of advice they may have received and greater investor awareness.

Fees are down

This is the first year in its lifetime that the total fees have not risen. Quite an accomplishment given this would naturally happen, as most fees are calculated as a percentage of the funds invested. Two significant components have been behind this: lower default manager fees, and a number of providers finally scrapping their membership fees, which generally range from $2 to $4 per month per member.  I expect the latter to continue to drop further or even disappear as the competition heats up.

So, on the face of it, a pretty good overall school report. However, we are at a crossroads and it needs to be navigated well and commonsense has to prevail if we are to ensure KiwiSaver’s longevity and enable it to deliver its main purpose in life.

Here are two essential steps to help navigate KiwiSaver successfully into its 20s and beyond.

All political parties please stop using KiwiSaver as a political football

Imagine being brought up with different sets of parents throughout your life, each telling you what their rules are, only for the next set to change them, yet the objective you were given is still the same. Past governments have all played their part in disrupting KiwiSaver’s main goal in life, which is to provide a financial nest egg to improve Kiwis’ financial wellbeing through their retirement years. Some of the more concerning topics of change that have recently been proposed, like accessing your KiwiSaver to help with rental bonds and having more than one KiwiSaver provider, only reinforces my point why all political parties need to stop using it as a vote catcher.

Review KiwiSaver 2024/25

That’s not to say that nothing must change. Like any good student it’s important to look back on what has worked to date for KiwiSaver and what changes need to be made to ensure it continues to develop and deliver its original mandate. The review needs to have a range of interested parties including providers, regulators, industry experts and public and private representation to develop a clear path.  Once completed it then needs to be taken out of the political arena.

The FMA has done a lot of mahi around value for money and regulating providers, but its remit reaches only so far. This step needs to happen soon, so regular tinkering doesn’t lead to KiwiSaver going down the wrong road never able to reach its full potential.

I was lucky on two fronts when I turned 16. I had two great parents who supported and provided me with good boundaries to keep me on track. The second came from my English teacher Ross Palmer. Like all great teachers he saw something I couldn’t see at the time and helped me gain the confidence I needed to get through that year in a better place than I had started.  Let’s hope we can do the same for KiwiSaver.