It’s fair to say the relationship between financial institutions and New Zealanders has a chequered past. Generally speaking, we’re a nation that has opted for the tangible security of an investment in bricks and mortar (usually our home and if we’re lucky a bach or rental property). This is a natural outcome after many of us being burnt by the 1987 sharemarket crash, 1990s tax driven special partnerships investing in everything from goats to film and most recently finance companies.
Historically, we’ve not exactly embraced a national savings scheme either. Nearly 20 years ago – before the Aussies kicked their super scheme up a gear – our political leaders ditched the idea of compulsory superannuation.
However, with the introduction of KiwiSaver this culture of saving and investment in New Zealand has developed. As of April 2011, 1.7 million people were members of a KiwiSaver fund, and this number is growing. However, it will be a real test of its popularity if this continues after the signalled changes. There is an increasing sense of consciousness, amidst our rapidly ageing population, of the need for people to actively save for their retirement. But that doesn’t mean Kiwis have embraced financial institutions with open arms. In fact, the contrary has occurred, with finance companies being tagged as the least trusted industry in New Zealand in a Horizon Poll conducted at the start of this year. The financial services industry ranks right up there with telemarketers, used-car salesmen and politicians. Also, the global financial crisis has shaken investor confidence and the misdemeanours of the past have not been easily forgotten or forgiven.
This feeling of distrust is one that the industry needs to reverse, particularly if we want KiwiSaver to continue to flourish and encourage more people to make preparations for their retirement – an outcome that is in our national interest, not simply a sales opportunity for the fund providers.
Trust is built up over time; it’s based on meaningful and open communication, doing what you say you will do. In the KiwiSaver setting this can be translated to simplicity – creating products that people understand; transparency – particularly around fees and predictability – products that do what they’re meant to do.
Mercer which is a default KiwiSaver provider, along with many of our peers, is committed to improving trust through focusing on improving and simplifying our communication with members, providing greater transparency around fees and ensuring appropriate management of KiwiSaver investments. We recognise that alongside this commitment, regulatory changes have helped to simplify the financial system overall for consumers, and the industry body (ISI) has taken steps towards recognising the customer is the central focus of the industry.
But the constant tinkering with KiwiSaver threatens to undermine this progress, and ultimately the trust that New Zealander’s place in KiwiSaver. In this month’s Budget, KiwiSaver was subject to yet another host of changes, and while some were positive, regular change does little to instil a sense of certainty around KiwiSaver.
Ultimately we must aim to create a system that today’s 18 year olds entering the workforce will embrace with a high degree of confidence; providing them with greater predictability as to what they’ll be putting in, providing products they can easily understand and that will deliver the expected returns at the other end of their working life.
There is also major reform needed to ensure KiwiSaver meets the needs of its members throughout their retirement. Specifically, the industry and government need to pay careful attention to the decumulation phase. There needs to be a simple product structure that enables retirees to draw down an income throughout their retirement as opposed to the current practice of taking savings as a lump sum at retirement. This will go a long way in helping Kiwis have an income that is well managed, and lasts throughout retirement, while their remaining capital continues to generate returns.
There also needs to be a clearer vision of the role KiwiSaver will play alongside NZ Super in creating an adequate and sustainable retirement income system, which eases the financial burden of our ageing population.
These notions represent a cultural shift which can only be achieved with a genuine, bi-partisan review of our retirement income system in its entirety and reaching agreement on what our ideal pension framework looks like. Mercer has called for a review of this kind, involving policy makers and industry, repeatedly.
With such a review underway we have a better chance of letting the Government create the best environment for KiwiSaver and allowing financial institutions to then deliver products that are true-to-label and focus on the job of creating simple and transparent solutions – and ultimately rebuilding trust and providing the platform on which to make New Zealand even greater.
So let us learn from past mistakes and focus on the great things New Zealand has and let us build the future we all dream about and want for our children and their children.
- This was published in The Dominion Post Weekend on Saturday 25th June and in the July edition of NZ Investor
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @Mercer_NZ