You might be on track to save more than expected in your KiwiSaver. Photo: RNZ / Rebekah Parsons-King
You might be on track to save more in your KiwiSaver
You might be on track to save a lot more in your KiwiSaver than you think.
When you receive an annual statement from your KiwiSaver provider, it will show you what lump sum you are on track to have saved by the time you are 65, and what that should mean per week.
The projections are based on assumptions set by the government, which include what returns you can expect from your fund.
These assumptions are also used in most calculators that you might use online.
But the problem is that many funds have been delivering more than twice those projected returns for a number of years.
The government says conservative funds need to assume a return of 2.5 percent a year after fees and tax. Balanced funds need to assume 3.5 percent, growth 4.5 percent and aggressive 5.5 percent.
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Morningstar data director Greg Bunkall said the growth fund benchmark had returned 8.8 percent a year for the past 10 years, before inflation.
Rupert Carlyon, founder of Koura Wealth, said tax would take off up to about 1 percent.
But he said the good returns of recent years might not continue at the same rate.
"It is important to point out that the last 10 years has delivered market returns of about 14 percent in New Zealand dollar terms, compared to a longer-term average of 9 percent. Blackrock are estimating equity returns for the next 10 years to be in the range of 5 percent to 6 percent. After adjusting for fees and tax, you are well below the 5.5 percent assumption currently used for a growth fund.
"The FMA is potentially being conservative with their assumptions, though I think that is the right approach. You are better off ensuring people have a little more than expected rather than using a heroic assumption that then means they come up short. The flip side is you are encouraging people to save too much and making their goal a little harder than anticipated.
"I don't think the returns have been reviewed since they were created and it would also be nice to understand the maths on what has driven those returns. "
Mike Taylor, founder of Pie Funds, said there could be an argument to expect 6 percent from growth funds and 8 percent for aggressive funds.
At Kernel, founder Dean Anderson said it was important the assumptions were standardised, and it was better if the assumption was too low rather than too high.
"They've created consistency and said we're not going to enable people to effectively market and attract customers through making up assumptions about the future but conversely it's obviously now potentially sort of understated - there's quite a conservative assumption about very long term returns."
Danielle McKenzie, financial markets manager at the Ministry of Business, Innovation and Employment said the ministry was aware the regulatory formula for calculating future returns on KiwiSaver investments, set out in the Financial Markets Conduct Regulations, needed review.
"This is not in our current work programme but will be considered as we look ahead. There is no timeframe for a review, which will depend on government priorities."
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