ANZ warns of $14b KiwiSaver timebomb

KiwiSaver investors could miss out on $14 billion unless major changes are made to the way default schemes are managed, ANZ says.

Thursday, January 19th 2012, 12:59PM 5 Comments

by Niko Kloeten

The country's largest KiwiSaver provider is lobbying for a change to the rules around default funds so that they are managed with a "life stages" strategy, meaning members have their fund allocation adjusted according to how far they are from retirement age.

Currently default funds are required to have conservative investment mandates, with a large chunk of the funds held in cash.

However, new research by ANZ Wealth and OnePath estimates that under the current default settings nearly 200,000 young New Zealanders could face a shortfall of $72,000 when they retire.

This shortfall represents the difference in median expected outcome between the current default settings ($248,000) and ANZ's proposed "life stages" strategy ($320,000), based on an investor who joins KiwiSaver at age 25 with an annual income of $36,000.

According to ANZ's proposal, members aged up to 35 would be allocated to growth funds, then from 36 to 45 they would be put in a balanced growth fund, from 46-55 they would move to a balanced fund, 56-60 a conservative balanced fund, 61-64 a conservative fund and from 65 a cash fund.

However, ANZ Wealth general manager of investment Simon Botherway acknowledged that even with these settings, investors could be missing out on returns by being moved out of growth funds 30 years before they are able to actually withdraw their money.

"What we are proposing is still quite conservative, but it is a lot better than the current default scheme settings."

ANZ Wealth managing director John Body said the people in question didn't have access to financial advice.

"The adviser community services a different part of the market, people that can pay for advice. We can't really expect the adviser community to provide advice to people who have just started in KiwiSaver and have $3000 to $5000 in their accounts."

Body said the ANZ and National Bank KiwiSaver schemes already use the life stages investment fund selection for people who do not select their own fund, and said several other default providers did this as well.

However, this is prohibited for default funds.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 20 January 2012 at 8:44 am Fred said:

Yes, excessive regulation does tends to stifle innovation or even sensible service. The $14b cost could be attributed to the threshold for advice having been set so high. Does it really need an AFA & 6-point plan to suggest young investors should favour growth?

On 21 January 2012 at 7:17 am tony said:

Joking, Misleading. 1) Simply say, when share market return bigger than cash return, put to growth fund, and when cash return bigger, put to cash fund. 2) Also consider Admin Fee and consulting fee - most are low income earner, please. 3) Above should be ads for Fund Company!

On 22 January 2012 at 9:57 am denis said:

If Conservative funds charged 50bps more in management fees than the growth/equity funds, would press releases like this one from ANZ appear?

Would there be this noble concern over whether people are in the right funds?

On 22 January 2012 at 11:25 pm Mortgage Broker since 1999 said:

You hit the nail on the head Fred.

On 24 January 2012 at 9:44 am David said:

The lifestages fund has one major problem, if at the age of 35 (mentioned above)I was swapped from the growth fund to the balanced and at this time the value of this fund had fallen significantly, then I would be effectively selling at a low and buying into a lower risk fund (balanced). This would mean when the markets recovered my balanced fund would not rebound as much as it would if I had stayed in the growth fund. Locking in a significant loss. The opposite of course could happen as well.

Nothing beats educated investors, then this sort of fund wouldn't be necessary, why would someone want to put there retirement funds on auto-pilot?

Not a very well thought out solution.