Bank KiwiSaver lure may backfire

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Being able to check a KiwiSaver balance online might be a double-edged sword, according to research by Massey University’s Claire Matthews.

Friday, May 31st 2013, 8:12AM 5 Comments

by Susan Edmunds

Matthews is speaking at today’s New Zealand Capital Markets Symposium, at AUT, about her paper on KiwiSaver member behaviour, which looked at what drives people to choose certain funds over others.

She said some of the research results were surprising.

Previous studies have shown that savers opted for bank funds because they could see their KiwiSaver balances online. But Matthews’ study said it also seemed to prompt people to move away from banks. “It’s odd. We’re speculating that it’s because they are able to check the balance, they can see when there is a downturn, they’re not happy and go somewhere else. It’s not a very good way of managing your KiwiSaver.”

She said it might be a sign of KiwiSavers’ inexperience. “It will be interesting to see whether that continues or whether it changes as people become more used to KiwiSaver and seeing ups and downs.”

One of the reasons she did the paper was to see whether banks were taking the lion’s share of KiwiSavers changing funds – as has been suggested by those who say banks are aggressively marketing to customers. But Matthews said her study did not bear that out.

She said: “Contrary to expectation, the primary finding was for a significantly negative relation between bank ownership and member outflows. The reason why bank ownership should be seen as a negative is unclear, and counters previous research that suggested Kiwisaver members saw bank ownership as desirable. One possible explanation could be that banks engage in aggressive cross-selling, which may have resulted in some unsatisfied members. Another possible explanation is that the visibility of a member’s KiwiSaver balance, via their usual internet banking page, may have invoked attention effects, which spurred the member to more actively manage their account.”

Providers’ fees were having a significant effect on which funds KiwiSavers chose to put their money in, Matthews said. But she said it was unclear whether they completely understood them. “People are going to be looking at the fees, whether they’re making good comparisons or not is unclear…. Sometimes you pay higher fees for higher returns.”

Matthews said savers were definitely not getting enough advice. “KiwiSavers are disadvantaged because they are making decisions that are long-term and have the potential to have significant impact on their retirement lifestyles but they are unable to access the advice they need to ensure they are making the right decisions.”

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