Institute of Financial Adviser President Nigel Tate talks KiwiSaver with Amanda Morrall

Find out more about KiwiSaver with Personal Finance Editor Amanda Morrall and Institute of Financial Adviser President Nigel Tate

By Amanda Morrall

Haven’t given KiwiSaver much thought beyond cashing in on the NZ$1,000 kick start and making the mandatory monthly contributions to receive the benefit of tax credits and employer contributions? You’re not alone.

Roughly half of the 1.6 million New Zealanders who have registered have done so because they were either automatically enrolled or opted in via an employer without actively choosing a fund. What that means is that a high percentage of KiwiSavers are invested in a default fund.

It’s estimated that one-third of the more than NZ$7 billion that now sits in KiwiSaver accounts is parked in default funds.

Given market conditions since KiwiSaver was introduced three and a half years ago, default funds have proven a safe haven from the financial carnage that saw indices world-wide sheared by  40% in value. That has to due with their composition; which is roughly 70% cash and bonds and 30% equities.

They were deliberately structured that way by policy makers who wanted to protect uneducated first time investors from the risk that comes with a greater exposure to the equities market. It proved a sage bit of architecture as looking back over the past three and a half years, default funds were by far the best performers in terms of investment returns.

While past performance is no guarantee of future returns, the upturn in the equities has some in the industry suggesting the “golden period of fixed-interest” could be drawing to a close. That’s based on a belief that cash and bonds have had their day in the sun and that good health and vigour has finally returned to the equities market.  Whether or not you believe the forecast, now is as good a time as any to take a closer look at KiwiSaver.

The KiwiSaver landscape is dense with providers, schemes and funds and it's easy to lose your way, particularly when you throw in the confusing issue of fees and performance benchmarks.

Institute of Financial Advisers president Nigel Tate lay outs the following steps to keep KiwiSaver simple:

Step 1:  Make sure you’re enrolled. Get into the scheme first then worry later about which provider, scheme and fund you’re invested with.

Step 2:  Once you’re in, survey the landscape more closely. Find out what fund you are in and what kind of exposure you have to the equities market. Historically, equities have shown to produce stronger returns over-time than cash and bonds. To what extent you are investing in equities can make a dramatic difference over long periods of time if you are making monthly contributions, as you do in KiwiSaver.

Step 3: Sharpen your knowledge base. Do some research, consult with an expert or get some advice from your provider about whether your age and risk appetite is tailored to the fund you are in.

Step 4: When you’re confident you’re in the right fund, hold the course, follow the funds, read your statements and start thinking about KiwiSaver in more holistic terms as one part of a retirement savings plan.

In coming weeks, interest.co.nz will talk to three of the main providers about some of the key considerations for KiwiSavers tracking through different stages of life.