10 years on, KiwiSaver just works (for some)

“It just works,” was the famous mantra that Steve Jobs repeated throughout his career, meaning that a gadget simply did what it was supposed to, no questions asked. A decade ago he was reinventing the possibilities of what a phone could be. A few months after that, KiwiSaver became a thing too.

Seems so long ago now, since technology gets adopted at a much faster pace these days. Television took 14 years to reach 50 million users; the iPhone took less than 3. KiwiSaver, as new financial technology, has also been adopted quicker than expected, with more than $40.6 billion invested as of March and, as of last month, 2.75 million members.

The “just works” test is a good one, but if you consider that as of last September more than 1.1 million of those members had not contributed in the two months prior, the verdict has to be that it just works – for some.

Many times, KiwiSaver delivers. A member on an average salary in an average balanced fund from the outset, for example, would be sitting on more than $45,000 today. (Although keep in mind we’ve had an extraordinary bull run in the markets in recent years.) And over the past year, there were more than 32,000 withdrawals for first homes, totalling close to $642 million, according to Inland Revenue numbers. So it is certainly working for some.

Seamlessly.

The other half of “It just works” is the word “seamlessly”, which Jobs often tacked on to the end of his slogan. And again, we can say that KiwiSaver is mostly a seamless experience for many people, once it’s set up and dialled to the proper settings.

The scheme is a perfect example of the power of defaults, as new employees are opted in and start investing. And although they can opt out in the first eight weeks, the numbers of those who do so have lately been decreasing, as more people learn and grasp what it’s all about.

Especially for employees, KiwiSaver just hums in the background, funnelling their savings and investing it for the future. It’s a classic example of paying ourselves first, and “just works” in much the same way that taxes or student loans get paid. The money is out of sight, out of mind, and flowing.

Which brings us to the excellent public-private partnership that KiwiSaver is, with Inland Revenue making things happen administratively, alongside the various KiwiSaver companies who run their schemes. This success story doesn’t get recognised often enough. When people look from overseas at KiwiSaver, which is linked to our tax system, they typically marvel. We should raise a glass.

Yet it could work better.

Ten years of KiwiSaver is cause to celebrate, but the iPhone obviously didn’t stay frozen in its original state, and KiwiSaver needs to keep innovating as well. This can be challenging, since people can get nervous about the scheme if there’s too much change.

But consider the following, both of which lead to less-than-ideal results in the long run:

• At the end of May, 573,865 people were in default funds, with the majority not having made an active choice of which fund to be in.
• There were 130,747 people on a contribution “holiday” – and a whopping 110,048 were taking a break for the maximum five years.

This brings up the language of KiwiSaver, which expresses and influences behaviours. For example, KiwiSaver members aren’t just saving, they’re investing, and it’s a worry when we don’t consider how savings and investment accounts are fundamentally different. Contribution holidays aren’t enjoyable vacations, but really interrupt our investing and damage future results (and we’re hoping to rename them as “saving suspensions” soon).

While KiwiSaver is certainly part of the solution, it’s typically not the entire path to our long-term goals, particularly for retirement. Sorted’s KiwiSaver savings calculator can help you run some numbers and show the difference that raising contributions can make.

In the meantime, let’s give credit where it’s due. Serious props to everyone who worked so hard to get KiwiSaver off the ground and keep it flying this past decade. Happy birthday, KiwiSaver. May more and more of us be able to say, “it just works.”