Morningstar Report Showcases Growth
A recent survey by Morningstar has revealed a significant increase in KiwiSaver asset values during the first quarter of 2024. The survey was conducted over the first three months of the year and ended in March. It has shown that KiwiSaver assets increased by about $4 billion, reaching a total of $108.6 billion.
The report also noted the quarterly returns that Kiwis have been seeing across different funds. These returns are after applicable fees and before tax. The returns derailed ranged from 2% for conservative funds to 8.8% for aggressive funds. Morningstar highlighted the key factors influencing New Zealand investors: inflation and global interest rates.
"Central banks, including the Reserve Bank of New Zealand, took a wait-and-see approach, holding interest rates steady. This signalled some progress in taming inflation, although concerns remained", Morningstar noted.
The report made an emphasis on the strong performance of international shares, which have been fostered by the corporate earnings in the US and many investing in technology stocks. New Zealand showed steady economic growth, while the US economy was resilient and optimistic.
Positive Trends
Morningstar made a comment about the positive trends. "Overall, the first quarter offered a chance for cautious optimism. While inflation remained a concern, global growth prospects improved, and equity markets delivered strong returns, particularly for unhedged holdings due to the weaker NZ dollar.”
Historically, and particularly over the past 10 years, aggressive KiwiSaver funds have delivered the highest annual returns after fees but before tax. This return has been at 91%. This statistic has been followed by growth funds at 8.4%, balanced funds at 6.8%, moderate funds at 4.8%, and conservative funds at 4.3%.
ANZ has led the market share with $20.4 billion in assets. They have been followed by Fisher Funds at $16.7 billion, ASB at $16.6 billion, BT-Westpac at $10.7 billion, and Milford Asset Management at $8.6 billion.
Commerce Minister Advocates for KiwiSaver Reform
While there is a positive outlook on the market, Andrew Bayly, who is the Commerce and Consumer Affairs Minister has suggested changes for KiwiSavers in light of an increase in financial hardship withdrawals.
He spoke at the Retirement Commission Te Ara Ahunga Ora’s strategy conference in Auckland where he outlined his plans to reassess the KiwiSaver contribution rates.
While KiwiSaver balances exceed $100 billion, Bayly noted that the retirement savings in New Zealand is a far cry from that of Australia’s superannuation savings, of which have increased living standards of retired Australians. "I plan to turn my mind to the ongoing debate about whether the KiwiSaver contribution rates are appropriate," Bayly said, while highlighting the record-high number of financial hardship withdrawals in New Zealand.
Inland Revenue released data recently that showed there was $29 million withdrawn for financial hardship. Bayly is considering raising the employment contribution rate higher than the current 3%. However, he does acknowledge that this is a tricky situation given the current cost of living crisis.
Addressing Inequities and Enhancing Financial Literacy
Bayly has highlighted his concerns for inequalities within KiwiSaver. Those often affected include women, older and younger workers, and some ordinary workers. Bayly intends to explore the mandatory employer contribution for those under 18 or over 65 in order to bridge the gap.
Bayly also noted the negative impact of maternity leave on women’s contributions – for example, women on maternity leave do not currently receive the employer contribution to their KiwiSaver. Bayly called this situation unfair.
Some young workers, especially those in trades such as hairdressing, are often discouraged from joining KiwiSaver because of employer practices related to KiwiSaver.
Bayly emphasised the need to improve financial literacy amongst Kiwis. He highlighted that there are efforts to incorporate financial education into school curriculums. This would be in conjunction with the government’s campaign promises.
Bayly reiterated that his proposals to change the KiwiSaver structure is part of a larger initiative to improve New Zealand’s financial landscape. It’s also designed to ensure fairness, address inequities, and improve consumer data rights.
Challenges and Oversight
While Bayly’s suggestions have been met with support, there has been some criticism. Budget advisors have expressed concerns about potential funding cuts during a time where there are rising mortgage arrears and financial distress. Bayly clarified that the government is not cutting funding for budgeting services. However, the temporary funding that was introduced during the COVID-19 pandemic is coming to an end.
Optimise your KiwiSaver Journey
It’s a good idea to have a chat with a financial advisor to help you manage your KiwiSaver funds effectively. They can help by guiding you through your personal circumstances to help you achieve your financial goals.
Consider getting a KiwiSaver Healthcheck with our friends at National Capital, who are a KiwiSaver advice firm. This assessment can help you create a financial strategy that ensures your future is well-supported.
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