Blair Turnbull: Hands-on-approach best for pensions

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Majority of KiwiSaver investors are in default funds and give little thought to their own investment decisions.

Investors need to get involved in assessing the risks and rewards. Photo / Getty Images
Investors need to get involved in assessing the risks and rewards. Photo / Getty Images

New Zealanders' legendary "she'll be right" attitude is a key part of our national identity, yet at the same time it could be holding Kiwis back when it comes to planning for retirement.

The introduction of KiwiSaver in 2007 was a major step in encouraging New Zealanders to think about their post-retirement lifestyle and put savings plans in place to achieve those goals.

Yet six years on, the majority of KiwiSaver members remain in the default conservative funds where they were automatically placed on first joining the scheme.

The problem is not the conservative funds themselves; indeed most KiwiSaver members in conservative funds enjoy healthy returns and appreciate the relative stability that they provide, without the exposure to equities and volatility that growth funds can sometimes bring. The real issue lies in getting KiwiSaver members to take a more hands-on approach to planning for their retirement.

The Government and most providers have made an enormous effort to try to get New Zealanders engaged with their KiwiSaver accounts and to get them more involved with making investment choices.

A key component of this is the new periodic disclosure regime which came into effect in October. Under the new reporting framework, KiwiSaver members now have access to a wider range of information on a more frequent basis which will ultimately help them make better informed decisions.

The statements summarise performance, fees, assets that the funds are invested in, as well as other useful information.

KiwiSaver providers like ASB believe that periodic disclosure is a step in the right direction both in terms of increasing the frequency of communication beyond an annual investment statement and also enhancing the overall level of transparency.

These disclosure requirements, along with our own initiatives around education and accessibility will undoubtedly go some way towards getting Kiwis out of the "set and forget" attitude towards their retirement investments.

The implication by some commentators that the popularity of conservative funds is somehow preventing KiwiSaver members from reaching their full savings potential for their retirement presents a somewhat simplistic view.

In some cases, and certainly in certain phases of the working cycle, a conservative setting will be the most appropriate investment strategy. For example, in Australia, many people close to retirement lost a significant proportion of their nest eggs during the global financial crisis by being committed to high growth funds which lost significant value.

The reality is of course that no one can predict the stage in the market cycle of growth assets when an investor will reach retirement age. The inherent volatility of growth funds can catch out investors seeking to withdraw funds at certain times in the market cycle.

New Zealanders gravitate to the major bank-owned providers for a range of reasons.

Firstly, there is an understandable sense of security by being part of a global organisation with all the benefits around reach, scale and access to world-class investment expertise that this provides.

Banks are also part of a highly regulated industry and take their obligations around disclosure and transparency of fees very seriously.

And finally, there are some real advantages around having a broad financial relationship with the bank that includes KiwiSaver. For example, having KiwiSaver balances highly visible through internet and mobile banking is encouraging customers to consider their retirement savings on a more frequent basis, every time they log in.

The key message then for KiwiSaver members is around the importance of taking the time to understand their risk and financial position and then matching this to the appropriate fund.

Individuals should always make their own fully informed decisions. ASB's online investor profiler tool and authorised financial advisers are all available to assist members in making appropriate choices.

The new disclosure rules along with the range of services on offer from some providers will serve to increase transparency and give investors the information and confidence they need to step up and get more involved with planning for their retirement.

Blair Turnbull is executive general manager for wealth & insurance at ASB.

- NZ Herald

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