29 March 2019
Lets rethink KiwiSaver
OPINION: Default - If you check the dictionary, the first thing that comes up is the "failure to do something".
When it comes to KiwiSaver the default fund is simply the worst place for many savers to be, yet KiwiSaver providers, and government organisations, have not found an effective way to get those KiwiSaver members to move.
Which is why it's time for a radical idea that will really shift outcomes without needing to change behaviour. So here it is.
For all default members who have not decided to actively stay in the Default Fund, all future employer and employee contributions should automatically get allocated to a Balanced Fund, which would have around 50 per cent income assets and 50 per cent growth assets.
The problem with KiwiSaver Default Funds is they are largely invested in lower-risk, lower-return assets like cash and bonds (maximum investment in growth assets like shares is 25 per cent).
The lower the return the smaller your retirement nest egg will be.
I know how hard it is to get some KiwiSavers to make an active choice.
I was general management of a provider who had a default scheme and, before moving to Mint Asset Management, I preached the benefits of KiwiSaver while I was at the Commission for Financial Capability.
It seems apparent to me a nudge and a wink just doesn't cut it, and no matter how much information and contact providers have made with their default members, for many Kiwis it's just not high on the Richter scale of life.
My idea will give New Zealanders better futures, mitigate the risk to government (of shifting people's money to higher-risk funds) and allow KiwiSaver providers to work on other key areas the regulator wants them to focus on.
The wins are everywhere.
For Government they reduce the risk of any short-term market fluctuations on the member's current KiwiSaver balance.
It would also mean a large number of the 511,155 thousand default members would be better off in retirement, which would not be a bad outcome for any government.
The Financial Markets Authority would not have to monitor this aspect of KiwiSaver, thus freeing up their regulatory resources to focus on other things.
The KiwiSaver providers could concentrate on more effectively communicating with, and educating their members, and see how they can improve their funds and performance along the way.
And it's a great win for most investors. First home buyers and those nearing retirement would need advice, however in most cases they would have a bigger balance to retire on without having to do a thing.
I'm not knocking the work that most KiwiSaver default providers, the FMA and CFFC have tried over the years, but I think it's time to try something materially different.
New Zealanders are living longer and this means they need to have their money working harder for them so their income lives as long as they do. Get this right and, as Hot Chocolate would say, Everyone's a Winner.