KiwiSaver, New Zealand's retirement savings scheme, has experienced improved performance in recent months. However, experts at KiwiSaver advice firm National Capital highlight that many individuals have already made impulsive fund switches since the pandemic, and a significant number of Kiwis are not contributing enough to their KiwiSaver accounts. In their recent Value for Money Report, National Capital sheds light on the impact of economic volatility during the Covid-19 pandemic and urges investors to make informed decisions while seeking professional advice.
Increase in KiwiSaver Fund Switching:
National Capital's report reveals that less experienced KiwiSaver investors, particularly those aged 26-35, made five times more fund switches in 2020 compared to the previous year. Surprisingly, 70% of those who switched moved towards more conservative options. Unfortunately, these shifts to lower-risk funds amounted to $1.2 billion, with only $121 million returning to higher-risk funds, meaning over $1 billion of Kiwi money is missing out on the market rebound.
The Importance of Informed Decision-Making:
While fund switching can be a wise strategy, National Capital emphasizes that it should be done with the right reasons and proper advice. Over the past four years, KiwiSaver fund switches have nearly doubled, reaching a record high of 450,000 in 2020. While some switches may have been well-advised and tactical, many were not, potentially leading to unfavorable outcomes in the long run.
Comparing KiwiSaver Funds:
National Capital's comprehensive analysis of KiwiSaver funds offers valuable insights for investors. Their data is utilized to create KiwiSaver comparison tables, enabling individuals to compare different funds easily. Notable mentions from the report include Booster's Socially Responsible High Growth fund, which received an impressive score of 9.75 for ethical investing. Additionally, Superlife's Ethica fund in the balanced category, along with Nikko, Juno, Pathfinder, and Simplicity, were highly regarded by National Capital for their ethical investment options.
Considering Investment Decisions:
Given the potential recession and concerns about the cost of living, National Capital advises individuals to carefully consider their investment decisions and seek expert advice. The report reveals that the initial KiwiSaver contribution index stands at 4.30%, lower than the optimal level of 6.3%. This under-contribution poses challenges for Kiwis' retirement prospects.
Case Study and Retirement Prospects:
National Capital presents a hypothetical case study of a 40-year-old Kiwi who contributes 4% to their KiwiSaver, has an average balance of $33,000, and earns a salary of $70,000. According to the report's estimation, this individual would accumulate a nest egg of $320,000 by the age of 65. Now while that sounds like a decent amount of money, it is about $80,000 short of the $400,000 that it is said retiring Kiwis would need as a lump sum to receive a normal weekly income at retirement. (That lump sum estimate was based on a Massey University retirement expenditure guidelines survey).
Summary and high performing KiwiSaver funds:
According to the Value for Money Report, individuals aged 18 to 24 exhibited the highest contribution rate to KiwiSaver, averaging at 5.34%. On the other hand, those aged 35-44 had the lowest contribution rate, with an average of 4.22% of their income.
During the first quarter of this year, KiwiSaver funds generated approximately $3.6 billion in returns for investors. National Capital highlighted that overall, KiwiSaver funds performed better in this quarter, boasting an average weighted return of 4.21% compared to 2.10% in the October - December 2022 quarter. This improvement can be attributed to the enhanced performance of growth assets.
The report specifically noted that growth funds contributed around $1.6 billion, delivering an average return of 5.13%. In contrast, the previous quarter saw an average return of 2.82%. The Juno Growth Fund stood out with the best quarterly performance, achieving an impressive return of 8.17%.
In other developments, Fisher Funds aligned itself with numerous other providers by eliminating performance fees from its diversified KiwiSaver funds, as noted by National Capital. Simplicity retained its position as the provider with the lowest fees across growth, balanced, and conservative categories, as highlighted in the report.
Average fees varied significantly across different categories, with high growth funds carrying the highest average fees at 1.12%, while conservative funds had the lowest average fees at 0.61%.
Conclusion and how to make the most of your KiwiSaver:
National Capital's Value for Money Report provides valuable insights into optimizing KiwiSaver returns. By making informed decisions, seeking professional advice, and considering ethical investment options, KiwiSaver investors can maximize their savings potential. Additionally, it is crucial for individuals to contribute adequately to ensure a secure retirement. For more KiwiSaver information and to get some tips on how to get the most from your KiwiSaver click through below.
