Q. I have been reading your columns lately and want to find out more about the KiwiSaver Scheme I am in. I started KiwiSaver five years ago and I am in the ASB Conservative Fund. I don't bank with ASB and I didn't choose this fund, I thought KiwiSaver was all one big fund managed by the Government. I am 27 and single. Is ASB a good scheme to be in?
A. Good on you for deciding to find out a bit more about where your savings are going. There certainly is more than one KiwiSaver fund in fact there are more than 200, offered by about 30 different fund managers, including banks and private companies.
Apart from designing the legislation that introduced KiwiSaver in 2007 and its ongoing responsibility in regulating the scheme through organisations such as the Financial Markets Authority and Inland Revenue, the Government has no control over your KiwiSaver account.
What is a default scheme? The Oxford English Dictionary gives two meanings for the word default. The first is "failure to fulfil an obligation especially to repay a loan" - not ideal when you are talking about a long-term investment requiring considerable trust on the part of the investor that all will turn out for the best. In the case of KiwiSaver, the second meaning of default applies - "a preselected option adopted by a computer programme or other mechanism when no alternative is specified by the user".
Anyone who is opted into KiwiSaver when they start work is randomly allocated to one of the nine default providers by Inland Revenue when they receive your employer's PAYE return. In your case, this was ASB. At the time you would have received a letter of advice from Inland Revenue along with an investment statement for the ASB KiwiSaver Scheme. You would also have received a welcome letter from ASB.
Many people starting a new job will have a fair bit on their plate, and correspondence such as this can easily be overlooked.
All the KiwiSaver default funds are conservative. The Government decided that it was better to err on the side of caution when making investment decisions on behalf of people without having any input from them.
It is up to the fund manager (in your case ASB) to encourage you to look at their range of funds and decide whether to stay with conservative or move to a fund which may offer more growth over the longer term.
If you read more about ASB KiwiSaver Scheme you will discover that their investment style is what is known as index tracking or passive. This means that the fund manager does not make any active decisions about where your money is invested, it goes into a fund or series of funds which replicate one or more indices.
There is a huge ongoing debate on the merits of active v passive funds. Passive fund fans argue that, long term, they are cheaper, and deliver at least as good if not better returns than active managers. Active managers (of course) believe that they can add value and can justify their higher fee.
If you look at the returns of KiwiSaver funds to date, passive managers such as ASB have been lagging their more active counterparts. Your ASB conservative fund has achieved an average of 4.9 per cent per annum over the past six years compared with 5.46 per cent per annum from the ANZ conservative default or 6.61 per cent per annum from Mercer conservative default. Being based in New Zealand, we have a smaller less efficient market and a lively currency. These factors have helped most active KiwiSaver managers achieve better returns than passive managers.
While the fees of your passive fund may be on average half a per cent lower, the returns quoted by Sorted's Fundfinder are "after fees" so it appears the active managers have more than earned their higher fees over this period. The active v passive debate is unlikely to be resolved anytime soon. Investors will lean one way or the other according to their temperament and inclination.
In order to decide which is the best scheme for you, try some of the tools on the Sorted website. The more interest you take in your KiwiSaver scheme, the better outcome you are likely to have.
Shelley Hanna is an authorised financial adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to firstname.lastname@example.org.