Dwindling KiwiSaver membership growth intensifies competitive pressures on scheme providers 

KiwiSaver membership growth analysis from TOWER Investments: January 2012

Default KiwiSaver provider TOWER Investments has released its regular monthly analysis of the IRD’s KiwiSaver membership statistics for the month of December, 2011.

“KiwiSaver membership growth trends weakened overall across 2011 and were mostly down on the key statistics for 2010, even though last year ended with just over 1.86 million New Zealanders signed up to the scheme,” said Sam Stubbs, Chief Executive Officer of default KiwiSaver provider TOWER Investments.

“Compared with 2010 (1,610,077 members), total KiwiSaver membership was up almost 16% (253,495 new members) year-on-year by the end of 2011 (1,863,572 members), but that increase masked some important shifts in the KiwiSaver market.”

“Of the KiwiSaver join up methods, opt in via provider also increased 16% over 2011, whereas a notable above-trend lift occurred with automatically enrolled by employer at 18% annual growth, even though 21,000 more new people signed up via choosing a provider (127,855) than did by automatic enrolment (106,760).”

“In other words, automatic enrolment grew significantly faster on an annual percentage basis than opt in via provider, with the laggard join up category continuing to be opt in via employer at 8.5% annual growth rate.”

“Clearly the automatic enrolment approach using KiwiSaver default funds is working as a means to induct New Zealanders into employment-based saving for retirement or a first home deposit, and on the basis of that success is proving its worth.”

“Given that newly automatically enrolled KiwiSaver members are enabled to opt out of the scheme before their funds are locked in, above-trend retention of these people is a strongly positive sign that the merits of belonging to KiwiSaver are registering with the working public, representing a significant development in the evolution of New Zealand’s savings culture.”

“Delving into monthly percentage growth rate statistics, growth was down across KiwiSaver join up categories over 2011 versus 2010 with the sole exception of opt in via employer.”

“Total membership average monthly percentage growth rates fell 40% from an annual average 1.97% over 2010 to an annual average 1.23% over 2011.”

“A very large difference noticeable was between average monthly percentage growth rates respectively for automatically enrolled and opt in via provider.”

“The automatically enrolled category fell only 20% in average monthly percentage growth rate from 1.73% in 2010 to 1.40% over 2011.”

“By contrast, opt in via provider plunged by 50% in average monthly percentage growth rate from 2.57% in 2010 to 1.24% across 2011.”

“Clearly, for KiwiSaver schemes heavily dependent on opt in via provider to accumulate new members, but most particularly the non-default KiwiSaver schemes (which do not gain new members directly through automatic enrolment), 2011 was a much tougher year for acquiring customer growth than was 2010.”

“Intensification of the competitive environment in which arguably too many KiwiSaver schemes are operating, combined with significantly falling average monthly percentage growth rates for opt-in via provider, saw 2011 marked by self-promoting alarmist attacks launched by some non-default KiwiSaver scheme providers on the fees and performances of KiwiSaver default funds.”

“The commercial logic behind these attacks is that because new opt in via provider members are getting harder and more costly to acquire, the line of least resistance is to pursue KiwiSaver default fund members who have demonstrated a pro-KiwiSaver attitude by not choosing to opt out of automatic enrolment when they had the chance to do so.”

“Wilfully overlooked by these attacks calculated to blacken the reputation of KiwiSaver default funds is that these funds have always been intended to function as transitional ‘temporary parking lots’ for preserving the value of initial contributions made to the KiwiSaver accounts of automatically enrolled members until such time as these members choose another fund or scheme better suited to their personal risk profiles.”

“For most automatically enrolled KiwiSaver members, a KiwiSaver default fund should serve as a short-term way station and not a long-term abode for their workplace savings.”

“It is hardly news that most people automatically enrolled in a KiwiSaver default fund should move their savings to another KiwiSaver fund or scheme that fits more closely with their personal financial needs and goals than a generic default fund is likely to be able to do, much less a justifiable reason for propagating commercially-calculated cynical alarmism dressed up as mock public-spiritedness.”

“Additionally, the fees and asset allocations of KiwiSaver default funds are regulated by the Ministry of Economic Development and not set at the unfettered discretion of the default KiwiSaver providers.”

“In fact, KiwiSaver default funds generally do a good job of delivering capital preservation at low cost to members, which is what they are designed to do under the automatic enrolment system that lies at the foundation of KiwiSaver’s architecture.”

“The going got a lot tougher for non-default KiwiSaver scheme providers over 2011, which could explain the motivation of much of the acrimony directed at KiwiSaver default funds during that period.”

“Over December, the monthly percentage growth rates for all categories of KiwiSaver join up method fell.”

“Such declines, especially the drop in the percentage growth rate for the automatically enrolled by employer category from November’s 1.30% to December’s 0.99%, could indicate that pessimism expressed by New Zealanders in recent surveys about the job market outlook is justified,” said Sam Stubbs.

Comparison of KiwiSaver membership growth trends for 2011 versus 2010

KiwiSaver statistics at a glance for December 2011