KiwiSaver will be the second financial asset for many New Zealanders in their lifetime.
But even 10 years later, many of us still don’t have a great idea of ââKiwiSaver or how it works.
New research from Canstar has found that more than a quarter of women do not understand what they are reading when they receive written communications from their KiwiSaver suppliers. Twenty-one percent of men said KiwiSaver needed a âjargon breakerâ.
Of the 11 percent who didn’t bother to read the information their KiwiSaver vendors sent them, 35 percent said it was because they thought they wouldn’t understand it.
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âUnlike a mortgage or a term deposit, KiwiSaver is not a simple financial product,â said Canstar CEO Jose George.
“Often consumer literature is littered with ‘financial talk’ that can be off-putting and even intimidating, so people may find it easier not to get involved.”
It comes after data from the Financial Capability Commission revealed that around 800,000 KiwiSaver members did not know which fund they belonged to and half of that number did not know what they were contributing or their total balance.
Here are the main things that are confusing.
Members now see in dollars what they pay their KiwiSaver suppliers each year.
But TUE associate professor Aaron Gilbert said many people don’t understand how the fee works and its long-term implications.
“Higher fees reduce returns on long-term investments, a kind of reverse compounding where additional monthly fees mean you lose returns on investments.”
Canstar’s research showed that for someone with a balance of $ 11,500, the average conservative fund fees were $ 120.27 per year. For balanced funds it was $ 152.99 and for aggressive funds it was $ 191.56. In some cases, the highest fees charged were more than three times the cheapest option available.
If you are in doubt about your charges, ask the provider what you are getting for your money.
KiwiSaver providers report all the performance of their funds each month, quarter and year. But Gilbert said people put too much emphasis on it.
“The suppliers themselves say that past performance is not an indicator of the future.”
Just because a supplier has had a good month, or even a good year or two, does not mean that performance will be sustainable in the future.
To better compare returns, take a look at how your fund has performed against other similar funds – comparing growth funds with other growth funds over a number of years will give you a better idea of ââwho is performing. markdown than you would by just looking at the percentage return in isolation.
Morningstar research house offers long-term analysis of KiwiSaver performance.
MEMBER IMPT CREDITS
When asked if they had received the annual government contribution of $ 521, known as the Member Tax Credit, in the past year, the commission found that 28% of KiwiSaver members did not know. .
Ten percent did not even know the government contribution existed.
If you contribute $ 1,042 to your KiwiSaver account in one year, the government will contribute 50c for every dollar up to that amount – or a maximum of $ 521.
Gilbert said it was confusing for many people, not knowing what they were eligible for or if they were on track to get it.
Most providers have started contacting members annually to tell them to top up by June 30 if they are at risk of not receiving the full government contribution.
WHO IS THE MONEY FOR?
It’s still common to hear people say that they don’t want to âtrust the government with their moneyâ by putting it in KiwiSaver. You are not. The money invested in KiwiSaver is managed in the same way as if you were to invest in your own independently managed fund. The government cannot use it if it lacks a little money.
The downside to this independence is that there is no government guarantee on your KiwiSaver money. If your fund manager fails dramatically and your investment disappears, the government is not going to come and save you.
âIt seems like an eternal misunderstanding,â Gilbert said.
WHICH FUND? WHICH SUPPLIER?
It seems like the most basic aspect, but a lot of people are still not sure exactly where their money is or how to verify it.
Camilla Gribble, KiwiSaver advisor at IKONIK, said many people were automatically enrolled by their employer or bank and did not engage in the process.
“They don’t realize that there are so many different providers, how important it is to select the right fund, and what a difference making the right decisions could make to their KiwiSaver balance in the long run.”
“It seems too many of us are passive participants in our retirement preparation,” said Peter Cordtz, community and education manager for the Commission for Financial Capability.
âLife is not a lotto – you cannot leave everything to chance and hope for the best. KiwiSaver is something you can control by choosing the type of fund that’s right for you, choosing the highest contribution rate you can afford, and making sure you get the Member Tax Credit every year. “