Disappointment lifestages not adopted for default funds

Financial Services Council chief executive Peter Neilson said the decision to stick with default schemes investing conservatively would mean New Zealanders had to save more, for longer, and pay more tax.

He said it was a missed opportunity and the OECD had provided information on how guarantees could be provided if the Government was wary of risk.

“Many people who have enrolled into KiwiSaver have defaulted into conservative funds without making an active choice to be there…If someone on the average wage contributing 6% pa stays in a conservative fund for the next 40 years they’ll end up with a nest egg at least $150,000 smaller than if they invested in a balanced portfolio, $250,000 less than being in a growth fund. Investors also need to know that conservative funds suffer the highest effective tax rate which increases the savings required to get to a comfortable retirement.”

Other changes as a result of the default scheme review, which started last year, include the requirement that default providers offer investment education and impartial financial advice.