Confused KiwiSavers play it safe

Just under a third of KiwiSavers would like to see their retirement savings invested in low-risk term deposits, research by ASB shows.

It’s a finding that has the bank’s senior wealth economist, Chris Tennent-Brown, scratching his head.

Term deposits are relatively safe investments, but they are unlikely to provide the kind of long-term returns people need for a prosperous retirement.

ASB surveys KiwiSaver members each quarter to understand how they see the retirement savings scheme – but, 10 years into KiwiSaver’s existence, many people don’t seem to have come to grips with it.

The latest survey indicated investors remained extremely conservative in their investment preferences, Tennent-Brown said.

‘‘Investors who remain in conservative funds and term deposits for their retirement savings may be disappointed in the long run. It’s surprising that a high number of investors regard term deposits as the investment likely to provide the greatest return, with many saying they would like to see term deposits available as an investment choice within KiwiSaver.’’

Conservative funds, mainly composed of bonds and cash, remain popular with KiwiSavers, who had $11.3 billion invested in them at the end of December, according to fund research company Morningstar.

By contrast, there was $10.3b of KiwiSaver money invested in balanced funds, which contain a higher allocation to shares, and $12.5b in growth funds, which are largely invested in shares.

ASB’s surveys indicated some KiwiSavers would like to take a lot more risk than those hankering for term deposits. In all, 29 per cent of people surveyed would have liked to invest in direct shares.

The latest survey also identified a knowledge gap among much of the KiwiSaver population.

Despite having had a decade to understand the scheme, only 31 per cent of respondents said they rated their KiwiSaver knowledge as a 6 or 7 on a scale of 1-7, though that was up from 26 per cent a year before.

During that time, KiwiSavers have been sent updates, statements and videos by providers such as ASB, material that should have left them well informed.

It was also a period in which growth assets such as shares had delivered very good returns, vastly outperforming bank term deposits.

Many people were ‘‘not connecting with the messages we are trying to get out’’, Tennent-Brown said. While some of that may be a failure to talk in a language that ordinary people understand, he believed many people were simply not taking the trouble to get acquainted with KiwiSaver.

The latest survey shows one in five KiwiSavers (19 per cent) didn’t even know what type of fund they were in, while 17 per cent had never reviewed their fund choice.

The past two weeks had seen a spike in engagement from KiwiSavers, Tennent-Brown said, prompted by media coverage of falls in global sharemarkets.

‘‘The fluctuations in the NZX are consistent with dips we have seen over the past decade, but it’s important to factor in the large gains over the past year when considering the February declines.

‘‘The lack of volatility and the staggering sharemarket gains of more than 20 per cent over 2017 are more unusual than the early February dip. Unless an investor’s timeframe is very short, we expect some exposure to sharemarkets will enhance their long-run returns. A reasonable exposure to sharemarkets within a KiwiSaver fund is appropriate for investors with a decade or more until retirement.’’