Capital Markets: Jim McElwain: Life cycle approach

Jim McElwain.

The default funds which have been set up are a very low risk option, which is fine for a certain demographic but it doesn't really make sense for younger people who potentially have a 20 or 30-year investment horizon."

Statistics suggest that just over 40 per cent of investments are in growth assets for KiwiSaver, with the balance made up of bonds, cash and property - an inherently conservative mix despite the average contributing member being only 35. "Part of this is caused by the innate conservatism of many New Zealanders who don't necessarily trust financial markets, but hopefully that will change over time.

The Institue of Financial Professionals submitted a proposal for a lifecycle approach to investment over the current scheme. It would see investment risk and return matched with the investment horizon and lifecycle of the investor. A life-cycle fund offers a greater probability of increased asset growth rather than a conservative fund, better aligns participants' age-based risk profiles with their asset exposure than a single strategy does, and offers a mitigation strategy against market shocks.