Inaction over KiwiSaver could be costing NZ’ers thousands of dollars.

Many New Zealanders could be letting tens of thousands of dollars slip through their fingers because they do not fully understand how to take advantage of KiwiSaver.

Estimates showing one in four of the 2.7 million people in KiwiSaver do not know how to make the most of their funds is probably conservative, according to Aidan Vince, ASB's head of KiwiSaver and Outbound Advisory.

"My gut feeling is half - if not more – do not understand the power of KiwiSaver and how it could work for them.

"For many KiwiSaver is merely a blip in their lives," he says. "Many think KiwiSaver will provide enough savings no matter what they do; many don't realise it is more than just a savings plan but is also a low cost way to access an investment fund (also known as a managed fund).


"The approach of 'set and forget' could ultimately be costing people tens of thousands of dollars by the time they reach 65."

A 2016 survey showed 77 per cent of KiwiSaver members don't know what their account will be worth when they retire, while more than a quarter (27 per cent) don't know what type of fund they're invested in.

The survey, conducted by Auckland-based Horizon Research, questioned 781 KiwiSaver members. It revealed 31 per cent have never reviewed their fund, 14 per cent don't know who their KiwiSaver provider is (this rises to 38 per cent for people under 25) while 75 per cent said they had not or did not recall having received information on how to use the scheme when they signed up.

The Financial Markets Authority (FMA) annual KiwiSaver report showed 445,000 people still had their savings in a default fund at the end of March 2017.

Vince says the big challenge for all KiwiSaver providers like ASB is how to help people engage with KiwiSaver and research the different providers, much like they would when comparing different models while buying a new phone.

He says ASB is the KiwiSaver provider for about 500,000 members, but estimates it only gets to discuss fund management with around 10 per cent of these people each year.

Vince says although KiwiSaver is a good way for people to start saving for retirement, many are under investing.

He says the example of a 55-year-old on annual income of $85,000 with a current KiwiSaver balance of $50,000 proves the point: This person would have a balance of almost $119,000 at 65 if leaving the savings in a default fund, but would rise to over $130,000 - an increase of more than $11,000 - if they switched to a fund more suited to their timeframe and savings goal.

"Making a change like this takes less than five minutes," says Vince.

Likewise increasing contributions can also impact the ultimate balance. The same 55-year-old - even if leaving their savings in a conservative fund - would see the $119,000 rise to over $129,000 by increasing their contribution from three to four per cent or $170,000 with an eight per cent contribution.

"This shows people can influence how they pay themselves in the future through both contribution rate and by choosing the appropriate fund," Vince says.

"My first recommendation to people is to look at how they want their future to be," he says. "I recommend they calculate how much money they will have at 65 by using a simple online tool, decide whether they are happy with the amount and make changes if necessary - it's about giving yourself options."

Vince says choosing the right fund is hugely important at any age, but, as his example shows, also for those 55 and over who can see retirement looming.

"These people still have 10 years, probably are out of debt and may have no kids left at home; this provides an opportunity to make a big difference by the time they reach 65."

Vince says although people can withdraw money once they reach 65 (those joining after the age of 60 must still wait five years before being eligible to withdraw) his advice to those eligible is not to close their account.

"Many have the view that once they get to 65 they must withdraw their funds and put them in a bank term deposit," he says. "But this is not the case and your account doesn't need to close at all when you reach 65.

"Interest rates are low and have been for a number of years, while KiwiSaver provides ongoing, lowcost access to a managed fund. It is also designed so you can set up regular withdrawals to provide an income meaning you don't need to set up anything new and can leave your savings in your chosen fund to continue to work as hard as possible."

Although Vince recommends people talk with their provider for fund advice, they can also start by reviewing their account online. ASB's Fastnet Classic banking enables members to track and manage their account; while other online ASB tools help people choose the right fund and see the impact of increasing contributions.

Kiwis can also dig into the performance of their fund with the KiwiSaver tracker, a new tool recently released by the FMA. It allows people to see the annual percentage return on their fund - over one and five years - before and after fees are taken out.

This article does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice. Amounts used in this article are based on calculations performed by the ASB KiwiSaver calculator on November 21, 2017. Assumptions for the above results can be found at Interests in the ASB KiwiSaver Scheme (Scheme) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB).ASB provides Scheme administration and distribution services. No person guarantees interests in the Scheme.