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KiwiSaver: why you should consider switching

KiwiSaver: why you should consider switching (Photo: Thinkstock)
If you've been in KiwiSaver for a while you should have a few thousand dollars built up towards your retirement. It's amazing how a small amount each month adds up fast.

The chances are that you're invested in a conservative fund with a default provider, or a fund chosen without too much thought.

Here's why you should consider switching:

  • If you were enrolled by your employer and didn't actively choose a fund, it's definitely time to review your investment. Kiwis with money in Conservative funds may struggle to keep pace with inflation and people who have money invested in them will have less to spend in retirement.
  • Switching KiwiSaver is easy.
  • KiwiSaver is a long term investment and your choice of fund will affect your retirement income.

    Here's how:

    It's incredibly easy to switch KiwiSaver providers. Go to the website of the company you want to switch to. Locate the "enrolment form", fill it in and send it to your new provider. The provider's staff members then do all the work for you. You'll need your IRD number, your PIR rate and your employer's IRD number.

    If you want to switch funds, but stay with the same provider, look for the "switch form".

    Here are some tips:

    • Be prepared to see your KiwiSaver funds "fall in value" every few years. It's part of investing. You have good years and bad years, but overall your money tracks up in value.

    • Don't chase last year's winner. It's human nature to think that the fund that grew the most last year will continue to do so. It doesn't always happen.

    • Be aware of fees. Large fees do eat into the growth of your fund. KiwiSaver providers with high fees claim that their investing prowess makes up for their fees. This isn't always the case. Look for the MER% that tells you the percentage of your payments that go to fees instead of investment.

    • Consider risk and return carefully. Even the most volatile KiwiSaver funds are much safer than a lot of other investments people have put their money in such as finance companies and property investment schemes. The money in a KiwiSaver fund is spread across a whole range of individual investments, spreading the risk.

    • Too many young people are invested in conservative and balanced KiwiSaver funds. Leave the conservative stuff for old farts or at least the over 50s. I personally only ever consider the highest risk "aggressive" funds that are invested as near to 100 percent in shares to put my KiwiSaver money in. They are proven over time to grow in value faster than bank deposits, bonds, and other "lower risk" investments. Not everyone has the stomach for this. The logic is, however, that I have 20 years until retirement, and I want the highest growth possible over that time.

    • Again I view so-called "low risk" investments such as bank deposits as high risk. That's because over time your money is eroded by inflation and fees. To me the "low risk" option is spreading my money across high growth, and perhaps volatile investments. This makes me a contrarian. This isn't conventional thinking, so don't follow it blindly.

    • As you near retirement it's worth considering moving your money to a balanced fund or even a conservative one. Having said that, you could easily live for 20 or 30 years after you retire and a portion of your investments need to stay in growth assets or your nest egg will be eaten away by inflation.

    • If all of this is too much of a pfaff, choose a "life stages" KiwiSaver fund. This is a type of fund provided by a number of KiwiSaver providers that automatically changes as you grow older. You start in a growth fund and as you age, your accumulated funds are switched into more conservative funds.

    Your say: Have your switched? Will you switch?

    Read more:

User comments
I have advised my daughter whom entered the scheme when she first started working - so 4 years ago to select conservative when the scheme gave that alternative as she will be saving for her first home - the other funds have not shown a great growth - think the higher risk even minus but hers has averaged 4.5%. After (hopefully) purchase of her own home and using Kiwisaver funds then I would suggest she goes for a higher risk fund. This seems good advice to me along with nearer retirement leaving funds in conservative as I have done.
Diane, could you back up your assertion that over time (how long?) shares will outperform more conservative investments, by detailing the gross return you have received by following this strategy? To complete the excercise what is the gross return from say laddered bank term deposits compared with shares over the last 30 years?. One further comment on Kiwi Saver Funds and other Funds. When you have a succession of down years the Fund continues to cream off fees and that can have a devastating effect on the amount invested. I look forward to reading your research.
Don't blindly follow advice, particularly financial advice from a journalist - why not talk with a professional?! The money invested getting the help of a professional may be worth far more than the saving you would achieve otherwise. For example, contrary to the view given in the above article shares have performed very poorly over the last 20yrs, in fact fixed interest and bonds have almost out performed shares 2 to 1 The idea that shares are better in the long term is dated. It is generally the result of analysists commencing their NZ research in 1970 , or overseas - neither are applicable. Even if you had been invested in shares since 1970, your returns would only be marginally better, and this is before you take into account the additional fees required to sustain share based investments. Ditto for 'lifecycles' which are a dangerous, lazy alternative to getting the right advice for your own situation - you need help, and because you get what you pay for, free advice is not enough.

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