There’s a $383m hole in the NZ economy no one is talking about

09 June 2020

New Zealand is high on patriotism right now, so why are we throwing $383m of our retirements to foreign-owned KiwiSaver fund managers?

My mate Dave has been taking to the streets in recent months sporting locally produced possum fur hats and a tote bag filled with marmalade compliments of the lovely lady up the road. He’s become very active online too; a fierce contributor to the Buy New Zealand Made Facebook group and loyal sharer of patriotic news articles. The man seems to be just days away from getting Jacinda’s face tattooed on his chest.

Dave, like the rest of the country, is realising that New Zealand has been relying on internationally sourced products that can be just as easily made here at home. But Dave is also coming home from a proud day waving a silver fern around, only to throw 8% of his income in a KiwiSaver fund managed by ASB.

Last year, of the more than $522 million (yes you read that right) taken in KiwiSaver management fees, $383 million of that would go to line the pockets of foreign-owned KiwiSaver managers. People are failing to realise that more than half of the country is giving hundreds of millions of dollars to greedy Australians with big fat pukus. It’s a problem. A big one.

This isn’t something you can blame the individuals for. This isn’t millions of New Zealanders collectively turning their back on Kiwi business, it boils down to a systemic problem around education, which can be broken down into a couple of key points.

 

Purchasing decisions

Unlike deciding whether to go to Maccas or your local fish & chip joint, people don’t see their Kiwisaver schemes as a purchasing decision. To most users, it’s a savings device and to the educated few, it’s an investment, but what people need to realise is you’re also paying your KiwiSaver manager for their services — the average KiwiSaver sitting in growth will pay $268 / year — which can come across as an invisible cost when you don’t receive monthly invoices of the work they’re doing for you.

With $383 million leaking out of our economy a year to foreign-owned funds, New Zealanders need to think about bringing that money back home to managers that can not only do the same job but do it better.

 

Default funds

When the government set up the KiwiSaver programme many years ago, they established default funds as temporary accommodation before people moved their stuff into their permanent fund up the road. Like your 30-year-old cousin who moved back in with his parents after uni, one in five New Zealanders haven’t bothered to move out and are letting themselves and their financial futures stagnate.

These crimes might be a little easier to stomach if they were making us rich. But these default funds are providing the kinds of consistently bad results unmatched even by Australia’s ailing rugby union side. Over the last five years default funds gave 5.28% back into regular New Zealanders pockets, compared to 5.86% from the average of non-default funds. It’s a hole in our economy that we’ve been blinded to.

Like Americans setting up flags in their front yard after 9/11, a strong spirit of patriotism is important for New Zealand to conquer the massive fallout of COVID-19. However, we’re going to need to do more than token purchases that might quickly tail off, we need to investigate every part of our purchasing habits to figure out how we can better support New Zealand business — from your power, your KiwiSaver, your internet, through to the things you buy online.

 

Over $350m of KiwiSaver fees are shipped offshore each year. Time to bring it home.

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