KiwiSaver: Industry-wide change will show savings balance forecast to age 65

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Annual KiwiSaver statements will include a new figure showing projected weekly income at retirement.

KiwiSaver members are about to find out if, based on their current balance, their weekly 'income' when they hit 65 will be enough to make ends meet - and perhaps a bit more.

From next month, KiwiSaver annual statements will include a projected amount for KiwiSaver savings, shown as a weekly dollar value of income in retirement.

The CEO of AMP Wealth Management, Blair Vernon, said that the new, industry-wide standard will give people better understanding of their current financial position so they feel more confident about how they're tracking for retirement.   

“The projected figure will be based on peoples' KiwiSaver balances at the end of March and factor in a range of data points, including the previous 12 months' market movements [which reflect] the impact of COVID-19 on the economy,” Vernon said.

He said that as New Zealand's Government retirement scheme is still in its early days, balances overall are quite low compared to other countries. As the forecast weekly balance will be based on each member's KiwiSaver balance to 31 March, it's likely to reflect the volatility of COVID-19 and - particularly for self-employed people -  any recent drop in contributions.  

"The balance projections show, for most people, a pretty modest 'weekly in-retirement' income," Vernon said.

"The key is to stay optimistic and positive rather than put it in the 'too hard basket'."

A recent AMP survey of 1000 kiwis highlighted a knowledge gap, as three out of four were unsure what their retirement savings would be at age 65 and over a third didn't know how much they'd need.  

The new feature will give savers transparency, prompt them to think about what level of income they'll need and match their choice of fund and contribution level accordingly.

“Given recent market ups and downs and the fact that many KiwiSaver members we talk to haven’t really thought about the trajectory they’re on, the projected weekly amount could come as a shock to many and significantly alter their expectations around quality of life in retirement," Vernon said.

He urges people who are unsure to work out how much they'll need in retirement and plan towards achieving it. As markets reach the bottom and start to recover, it's an ideal time for people to check their savings goals.

"The first thing to do is to give your KiwiSaver provider a call and make sure you’ve got a solid and realistic plan in place."

AMP Wealth Management CEO Blair Vernon.
AMP Wealth Management CEO Blair Vernon. Photo credit: Supplied.

Other options are to talk to a financial adviser, or use tools such as Sorted - or AMP's app to view forecasted retirement income, change contribution amounts and other variables and see how this affects the balance.  

In the current environment, for people on reduced incomes or who have lost jobs, contributing to KiwiSaver isn't going to be the number one priority.  Once the crisis ends, they'll be in a better position to re-start contributions.

“Many of us have 20, 30, or 40 years before we will need to access our KiwiSaver funds, so if you’re in the right KiwiSaver fund/s to suit your long-term goals and stick to your plan, you’re in a good position to weather this current storm and enjoy the benefits of a lifetime of working when you retire,” Vernon said.

AMP's survey also showed that only one in three people feel positive about their future financial situation in retirement and those who had thought about how much they'd need set the figure at $50,000 per year ($960 per week).

"I think the challenge for people who are unsure what they need in retirement is to start with 'how much do I need today," Vernon added.

Based on what retirees currently spend, a basic calculation on Sorted shows that a person living with a partner wanting a 'no frills' lifestyle in the city would need around $885 per week in retirement. With a lifestyle expectancy to age 94 for a female (age 91 for a male), that 29 years of retirement, in today's dollars, would require savings of $1,334,580 ($1,196,520).

Tom Hartmann, managing editor at Sorted, said that the question of how much money is needed in retirement is not a "one size fits all". Savings goals should be reviewed once a year as people move closer towards buying a first home or retirement.

"Other considerations for the amount needed at retirement are NZ Super and income from other investments, e.g. income from rental properties or a business," he added.

KiwiSaver has come under the spotlight recently as share market volatility around COVID-19 has resulted in significant hits to savings balances. People with at least three years to retirement or making a first-home withdrawal have been advised to stay the course and not to switch funds without advice. 

In March, the Government announced that from July 1 2021, around 400,000 KiwiSaver investors with savings sitting in a 'default' fund would have those savings switched from a 'conservative' to a 'balanced' fund. Members who wanted to stay in a conservative fund - or make a different choice - could confirm this to their provider, or choose a different provider offering that fund.

The five KiwiSaver contribution options are: 3 percent, 4 percent, 6 percent, 8 percent and 10 percent.

General information about KiwiSaver can be found on Sorted, such as tools to help people calculate how much they'll need in retirement and information about fund options.