It seems a compelling argument – make an extra $235,000 in your lifetime – and yet 700,000 New Zealanders are ignoring it.
Rupert Carlyon, founder and managing director of digital KiwiSaver advisers and investors kōura, says the problem is even more widespread than that – quoting kōura research which shows that 53 per cent of KiwiSaver members (about 1.5 million people) are in the wrong funds, potentially costing them hundreds of thousands of dollars.
Carlyon bemoans the fact many Kiwis do not take KiwiSaver seriously enough – and will come up arrestingly short of the money they need in retirement.
"It's a big worry," he says, "as KiwiSaver is such a relatively new product here that many people do not adequately understand it - not like Australia, the UK and the US where pensions and super schemes have been around for a long time.
"That's why we are banging the drum and strongly recommending people get help with their KiwiSaver. The sad truth is too many people are missing out on so much money because of poor decisions – and they don't even know it.
"In New Zealand, for younger people, we typically ask our parents for financial advice. But our parents were never exposed to KiwiSaver – they don't know much about it either."
The "sad truth", he says, is that the 700,000 people sitting in KiwiSaver default funds are potentially waving goodbye to "hundreds of thousands of dollars" and others are suffering from poor KiwiSaver decisions.
KiwiSaver has a little over three million people paying in. Of that, about 700,000 (or 20 per cent) are still in default funds. About 300,000 of those have chosen to stay in a default fund; the other 400,000 have not made any active decision about which KiwiSaver fund to join.
Default funds were developed as "a parking lot", Carlyon says: "It was never intended that people would spend more than a few weeks in a default fund before making a decision to move to a different type of fund."
Take a typical 30-year-old earning $80,000 a year, starting contributions to KiwiSaver at three per cent, matched by the employer, says Carlyon. If he or she reviews the fund annually and follows kōura's recommendations, by 65, that individual could have about $590,000 in their KiwiSaver.
But the same individual, in a default fund from 30-65, will have only $355,000 – the $235,000 differential Carlyon says is the cost of "getting it right and getting it wrong" for that 30-year-old.
"Many Kiwis simply don't think KiwiSaver is what it is – an investment. Many just think, 'Oh, I'll think about it later – I've got 30 years to sort it out'. Others just think, 'I signed the forms, I've dealt with it'.
"I've seen it even in friends of mine – they have suddenly been petrified by the number they will get from KiwiSaver in retirement. People don't understand they need to make the right decisions now; they can't leave it until their 50s and 60s."
The lack of Kiwi nous about retirement plans can be seen from other sources too:
•About one in four people aged 18-24 does not even know what type of KiwiSaver fund they are in (a Westpac survey in September).
•KiwiSaver clients who receive personalised financial advice typically have balances 50 per cent larger than those without advice, according to the Financial Services Commission
•After Covid-19 hit and KiwiSaver balances dipped, in March many moved $1.4 billion of KiwiSaver savings either into conservative funds or cash.
Carlyon says the latter move cost the average KiwiSaver, according to koura calculations, about $5000: "The average KiwiSaver account holds about $20,000. Those who stayed in a growth fund would have seen their funds dip by about 25 per cent at that time - or $5000 – to about $15,000.
"But if they stayed in the growth fund, the market would have quickly recouped what they lost and they might even be up by a little, maybe $21,000 or $22,000 now. But those who shifted to a conservative fund, well, they will still be sitting around $15,000, maybe $16,000 best case scenario."
Good advice is a strong currency for KiwiSaver clients, he says, and kōura has built a unique set of digital advice tools that give personalised advice to all potential members, a service traditionally reserved for those with higher account balances. The kōura tools paint an easily understood picture for account holders to allow them to make the best possible KiwiSaver decisions.
"Few understand, for example, how important contributions can be; it can make all the difference" – a reference to the fact most New Zealanders contribute only three per cent of their income to KiwiSaver, giving them a weekly income of less than 50 per cent of their current income in retirement, significantly less than the required 70-100 per cent estimated to be necessary for a comfortable retirement.
"And when you look at things like 700,000 people missing out on thousands upon thousands of dollars, it's a crying shame," says Carlyon. "It's scary."
For more information, visit: www.kourawealth.co.nz