KiwiSaver too passive

New Zealanders are being too passive about their potential KiwiSaver earnings, according to analysis released by KPMG.

Wednesday, October 14th 2015, 11:28AM

KPMG’s new Funds Industry Management Update, released today, includes several articles that highlight the strengths and gaps of our KiwiSaver scheme.

Independent investment researcher, Morningstar, says there’s an unnecessarily high concentration of KiwiSaver investment within conservative funds – mostly due to savers who default into a scheme rather than choosing their level of risk.

“We believe this is a major flaw,” writes Morningstar analyst Elliot Smith.

“In Australia, most default funds are in the growth or aggressive […] categories, which is far better aligned with the long time horizon of investing for retirement.”

John Kensington, KPMG’s Head of Financial Services, agrees that New Zealanders need to take a closer look at their potential KiwiSaver growth – given that in recent times a growth fund can deliver double-figure rates of return, compared to a cash fund at around 2-3%.

“As a rule of thumb, if you’re aged between 25-40, you should be more disposed to a growth fund; as you have plenty of time to earn at higher level and recover should the market fall. If you are a little older, you might lean toward a balanced or growth fund. People who should be in a conservative fund are those who are nearing retirement age and wanting certainty around their capital – but even then, they might want to split their risk.”

John Kensington encourages New Zealanders to further educate themselves around their investment needs, their risk appetite, and the range of available opportunities.

Another Update contributor, John Body of ANZ Wealth, says a joint survey by ANZ and the Council for Financial Capability in 2013 found that only 15% of people had consulted a financial adviser in the past year.

“If we look at the two million-plus members of KiwiSaver, 1.95 million of them haven’t used an adviser,” says Body.

Getting specific advice on KiwiSaver has been further complicated by the introduction of the Financial Advisers Act – which provides that advice can only be given on an individual’s entire financial position.

On a positive note, Morningstar said New Zealand politicians, investors and industry players “should applaud the evolution of the [KiwiSaver] scheme since its 2007 launch, especially it’s expectation-beating rate of adoption.”

Another “under-the-radar” positive of the scheme was the multimanager structure – which allows KiwiSaver providers to have elements of their managed by some very highly-regarded equity managers.

“The standard of the underlying managers is generally very high, with investors getting access to high-quality investment professionals both locally and abroad.”

Kensington says KiwiSaver has been a game-changer for the New Zealand funds management industry.

“With its semi-compulsory nature, KiwiSaver has exposed a large number of New Zealanders to what it means to invest, and what a set of investment fund accounts look like. As the investment pool in KiwiSaver continues to grow, the spin-off effects will increase. Not only will we be a nation that provides for its retirement – we’ll also have a more financially literate population, and a culture of saving.”

Tags: KiwiSaver