Should KiwiSaver evolve – or hold the line?
Retirement worries on the rise
More New Zealanders are heading into retirement with a sinking feeling, Kevin Norquay and Virginia Fallon reported in the Sunday Star Times yesterday (paywalled). According to a new survey of retirees by the Retirement Commission, only around half are feeling even somewhat confident they have saved enough, while one in five said they had no confidence at all. Nearly 40% of retirees rely solely on NZ Superannuation to get by, and a further 20% say they depend on it plus only a little extra.
The people most at risk of hardship are those who live alone, rent or have experienced setbacks such as illness or divorce, with single women among the most vulnerable. Lead researcher Dr Jo Gamble said many of those surveyed were 'just scraping by' and worried about what a financial shock could mean for their future. Retirement commissioner Jane Wrightson reinforced the message: NZ Super alone is no longer enough for a comfortable old age – KiwiSaver and other investments are now essential.
Bolder investments, bigger balances?
In that context, new research from the Financial Markets Authority (FMA) suggesting New Zealanders are becoming more proactive about growing their retirement savings is good news. The proportion of KiwiSaver funds in higher-risk portfolios has jumped from 10% in 2021 to over 40% today – a 'dramatic' shift that could leave investors better off, assuming long-term market trends continue. Morningstar data backs that up: aggressive funds have averaged 10.89% annual returns over the past five years, compared to just over 3% for conservative options. The move reflects both better investor education and the wider availability of growth-oriented products.
But for some, the change is also cause for concern, writes Newsroom's Jonathan Milne. Financial commentator Janine Starks tells him that older investors may be staying too long in standalone, high-risk KiwiSaver funds, when it would be safer to diversify their investments and spread the risk as they approach retirement.
A controversial argument for more withdrawals
One complication in risk planning is that KiwiSaver now serves two very different goals: saving for retirement and, increasingly, for buying a first home. As David Hargreaves points out in Interest.co.nz, those goals carry contradictory risk profiles – a person buying a home in five years should be in a lower-risk fund, while someone saving for retirement should generally opt for growth. He suggests allowing people to split their KiwiSaver contributions or creating a separate savings scheme for housing.
A more contentious position is held by property investor Nicole Lewis, whose column in Stuff calls for KiwiSaver to allow investment property purchases, not just first homes. With the average first-home buyer now aged 37, she argues many are left with little time to rebuild their balances. If KiwiSaver could be used for 'rentvesting' – buying in a cheaper region and renting where you live – then people would be able to purchase property earlier, giving them longer to save for retirement, she says. 'If [KiwiSaver] is to help New Zealanders achieve financial security in retirement, then home ownership, whether for living in or renting out, must remain central to that mission.'
Should KiwiSaver fund farms?
Lewis's argument is part of a broader push to expand KiwiSaver's purpose. Federated Farmers recently launched a campaign urging the government to let young farmers withdraw funds to buy their first farm, herd or flock – a proposal finance minister Nicola Willis says she's 'sympathetic to' and currently reviewing with Inland Revenue. Critics warn such a change would open a Pandora's box, reports Jenée Tibshraeny in the Herald (Premium paywalled). Massey University's Claire Matthews says allowing farm purchases blurs the line between home and business investment and risks undermining the fund's integrity.
Simplicity economist Shamubeel Eaqub notes that most farmers don't contribute to KiwiSaver anyway, and the average balance would barely make a dent in the cost of a farm. The proposal, he argues, could 'weaken KiwiSaver's core purpose' while benefiting very few. The bigger question, says the Retirement Commission's Tom Hartmann, is what KiwiSaver is really for – and whether broadening withdrawal criteria today could jeopardise retirement security tomorrow. As more people rely on KiwiSaver to bridge the growing gap left by NZ Super, the stakes for any change are higher than ever.
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