Savings estimates vary wildly

KiwiSavers face enormously varying estimates of their retirement savings based on calculators that can be more providerpromoting than educational.

Members are often told to check their expected final total on retirement, based on their current contributions and fund choice.

The idea is that they can make adjustments as needed, increasing contributions or switching funds. But there’s a problem: Noone can agree on what the future might look like.

Take a 25-year-old woman earning $50,000 as an example. Assume she is in a growth fund, has no previous savings, contributes 3 per cent of her income for the rest of her working life, her employer matches that, and she has no plans to take a break from saving, or to withdraw any money for a first home.

Bank of New Zealand says she’ll have $343,929 at retirement, while ANZ estimates $332,000.

ASB think it’s more like $207,957 and Westpac $217,030. Fisher Funds predicts $261,690 on a ‘‘glide path’’ setting, in which her risk allocation is automatically tweaked over her lifetime.

ASB finance lecturer Ayesha Scott said the difference was not surprising.

‘‘Providers are giving members what they want, in terms of a projected amount at retirement,’’ she said.

‘‘It comes back to comparability between providers, as opposed to comparability within the different products one provider offers.’’

Providers would take a different view on what was reasonable to expect in terms of wage growth, inflation and investment returns.

‘‘If all KiwiSaver providers use the same assumptions, and then give a range of possibilities rather than a particular number, members could compare their KiwiSaver to others available,’’ Scott said.

‘‘We call this range a ‘confidence interval’ around an estimate – both the maximum and minimum of what the outcome could be, given the assumptions.

‘‘Providing the range also helps illustrate that returns are not guaranteed – past performance is no indicator of future performance – and if fees are taken into account too, then again comparisons are made simpler.’’

Jonathan Beale, general manager of wealth at ASB, said some calculators seemed to operate as advertising tools, while others were educational.

‘‘They’re helpful if they are clear about what they are trying to do. If they’re just selling something they should say that.’’

Beale said that although noone could accurately predict future balances, it was useful for savers to be shown the effects of inflation and tax.

He said calculators that assumed people would stay in riskier funds, rather than becoming more conservative as they aged, would over-state outcomes.