Shelley Hanna: KiwiSaver v inflation: do your research

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Q. I'm not in KiwiSaver but my main concern is inflation. Every central bank in the world is printing money, countries are borrowing at virtually 0 per cent and NZ is $68 billion in debt. I know everyone warns you about real estate but I bought a house in Havelock North in 2006 for $300k which is now valued at $500k - a 40 per cent increase in eight years. Another example, petrol in 2006 was $1.70, today petrol is $2.16, which is a 21 per cent increase, so your purchasing power is being eroded. Leaving your money in an account earning a pittance while fund managers scoop out their fees is pointless. Furthermore, no one I have asked can tell me where their KiwiSaver provider has invested their money. Why should anyone bother with KiwiSaver?

A. First, a couple of corrections in your calculations: the increase in house price you quote is 66 per cent, not 40 per cent - and the increase in petrol is 27 per cent, not 21 per cent.

To calculate an increase in price divide the difference by the lower figure. To calculate a price drop do the opposite - divide the difference by the higher figure.

Having got that out of the way, let's look at the increase in value in your house. While on paper it looks impressive, if you calculate the increase in value over the eight-year timeframe it works out to less than 7 per cent a year. I would also point out that you have probably spent money on the house over this time, which should be deducted from your estimated sale price for a fair comparison.

To compare KiwiSaver as an investment, you can use the FundFinder tool provided by Sorted. Many KiwiSaver funds have outperformed your house, with the top performing fund achieving over 12 per cent a year since July 2007 after fees and tax). For many people the investment returns are less significant than the Government and employer contributions which provide a very decent "return" on their own. Someone earning $40,000 at age 35 will be contributing just $23 per week themselves into their KiwiSaver fund, but this will be topped up with $19 from their employer (that's after tax) and the initial "kickstart" and yearly MTC from the Government. Even saving at that modest level is likely to give them a lump sum in excess of $200,000 at age 65 when their KiwiSaver is unlocked.

Inflation was a huge concern in the 1970s and 1980s when it averaged between 11 per cent and 12 per cent and those memories still cause shudders among older New Zealanders. Since 2000, New Zealand CPI inflation has averaged around 2.7 per cent. So any investor getting more than 2.7 per cent a year after tax is beating inflation.

Inflation is a concern for investors who rely on bank term deposits, and most have to accept that inflation may eat into the "real" value of their capital over time. This is the price they pay for choosing a lower risk investment option and for many people, particularly with a shorter term horizon, this is perfectly acceptable.

There are people who don't trust investment markets. For them there are low risk KiwiSaver funds. KiwiSaver is providing a sense of financial achievement for many people who have not experienced it before. Income in New Zealand is taxed at 10.5 per cent to 33 per cent. That's a big chunk of what you earn going to the Government, with little or no say in how it is spent. Compare that with KiwiSaver, which is a mere 3 per cent put aside for you to spend as you please at a future date.

Moving on to your comment that no one you have spoken to knows where their KiwiSaver money is invested, this may simply mean that they haven't taken the time to find out.

Fund managers are required to make quarterly disclosure of KiwiSaver funds.

These quarterly statements are provided in accordance with the KiwiSaver (Periodic Disclosure) Regulations 2013 and require KiwiSaver providers to provide statements in a simple and standardised form. They show the total fund value, the number of members, the returns the fund has achieved, how fees are made up, the key staff members involved in running the fund, the actual investment mix as well as the target investment mix, and the top 10 investments. This information is readily available and any KiwiSaver member can get it by phoning their fund manager on the 0800 number or by looking for it on their website.

• Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.