It's a good time to take stock of your current KiwiSaver scheme. Photo / Supplied
It's a good time to take stock of your current KiwiSaver scheme. Photo / Supplied
The world of KiwiSaver offers many options. There's plenty of providers – but only a few of them are appointed by the Government as default providers. As of December 1, that number got even smaller.
Every seven years, the Government reviews the default KiwiSaver providers to make sure you, theinvestor, are getting the best bang for your buck. They conduct these reviews based on a number of factors including investment performances, services, and fees.
The idea is that the default funds selected by this process are going to give you the best outcome for your retirement journey.
Breaking it down
The recent shake up saw the default schemes change from conservative to 'balanced' type funds. This is because the Government had observed balanced funds generating 3 per cent better than conservative funds over the past 10 years. So, they are keeping an eye on things, and you reap the benefit of this if you're in a default fund.
The default providers from December 1 will be BNZ, Booster, BT Funds Management, Kiwi Wealth, Simplicity and Smartshares. AMP, ANZ, ASB, Fisher Funds and Mercer will no longer have default fund licences.
Good news for investors with sustainability in mind; there will no longer be investments in fossil fuel production or controversial weapons for the default funds.
Finance Minister Grant Robertson said of the change:
"We know many Kiwis care about where their money is invested, so we are excluding any investments in fossil fuel production. This reflects the Government's commitment to addressing the impacts of climate change and transitioning to a low-emissions economy."
Other changes will increase provider transparency, decrease fees and promote more informed decision making for members.
If you are in a default fund, here's how you will be affected.
1.) If you were in one of the providers that got the boot, you will have automatically been switched to one on the new list by Inland Revenue.
2.) If you were in a default conservative fund, you will have been automatically changed to a default balanced fund.
3.) You aren't required to stay in this fund. You can choose to change from your default fund at any time, as per usual.
Importantly, you will only be affected by this change if you are in a default scheme currently. If you are in a fund of your own choosing, you will continue as you were until you decide to change.
Nick Stewart
Should you stay or should you go?
With this switch up and the usual introspective mood that comes with the end of year, it's a good time to take stock of your current KiwiSaver scheme and whether it will get you where you want to go.
For most of us, KiwiSaver is the primary vehicle that will help us reach our retirement goals. And, as with our cars, it's important to ensure that our KiwiSaver meets our requirements and runs properly and efficiently.
The more time you have, the more risk you can think about taking. Time gives you the space to make back any losses and benefit from compounding returns.
A 20-year-old can generally take more investment risk than a 50-year-old, so if you have a long time to go until retirement (ie. more than 10 years), you might want to consider an investment fund that has a higher exposure to shares (growth assets).
While there are exceptions to this – such as for people who are looking to withdraw money to buy a first home (if you are eligible) – once you've determined how long you have left until you need to access the money in your KiwiSaver account, you will know your investment timeframe. And this can help you understand your tolerance for taking on investment risk.
Your risk tolerance is how comfortable you are watching market volatility potentially affect the money in your account. With market upswings, you could see your account grow in size, but, as with the recent market downturns, you could also watch the money in your KiwiSaver account shrink too.
If you have a longer investment timeframe, then it may allow you to take on a higher level of risk, because you have time to ride out the ups and downs that come with high risk assets such as shares.
Another factor to consider is what your entire financial situation looks like. What other assets will you have at retirement? To what extent are you relying on KiwiSaver to fund your retirement?
If you will be relying heavily on your KiwiSaver account to fund your retirement, then it makes sense to take less risk – but again, you need to consider your investment timeframe and risk tolerance before you make this decision.
The right mix for you
The assets you choose to invest in are completely up to you, as are the amounts that you invest in each of the assets that you decide to go with.
There is no one-size-fits-all approach to smart investing, but there are some commonly cited concepts, such as splitting investments across fund types, known as diversification.
Some experts believe a diversified approach is important because of the financial risk that putting all your eggs in only a few baskets can carry.
As a financial adviser, the key thing for me is advice. I believe the quality of the advice is as relevant as the choice of your KiwiSaver provider, and we encourage our clients to seek tailored advice on contribution rates and fund choice to track their progress towards retirement.
At the end of the day, your personal asset mix will depend on where you are in life, and your personal appetite for risk and for the ethically minded, what you feel comfortable investing your money in. And as with all investing, talking to a trusted fiduciary is a great place to start.
· Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
