KiwiSaver members with money sitting in the wrong fund could be leaving as much as $8000 on the table over seven years, a digital advice provider says.
KiwiSaver is a voluntary savings scheme that helps people save for their retirement. After three years, it also allows members to withdraw most of their savings to buy a first home. A 2020 FMA KiwiSaver report shows in the year to June 2020, KiwiSaver members 65 and over withdrew $1.3 billion to fund their retirement. And $1.19 billion was withdrawn for first home deposits - up by a quarter compared to the previous year.
Joe Taylor, founder of digital advice service BetterSaver, says by ensuring they're in the right fund, KiwiSaver members - including those relying on KiwiSaver to buy a first home - can potentially be thousands of dollars better off.
"It's important to be in the right fund for your situation... if you're in the wrong fund, you're leaving money on the table," Taylor said.
Using a pre-selected panel of KiwiSaver providers including Aon, Booster, Pathfinder, Fisher Funds, Generate and Milford Asset Management, BetterSaver is an online platform KiwiSaver members can use to get recommended fund options based on their savings goals, attitude to risk and ethical views. If members switch, providers pay a fee equivalent to $2.50 for each $1000 invested.
Having analysed Morningstar data, including provider fees, volatility and returns over seven years, Taylor's findings show $10,000 invested in the top-performing growth fund in 2013 would now be worth $21,719.
But if that same amount was invested in the lowest-performing conservative fund, it would be worth just $13,885 - $7834 less.
"While each fund has a different risk profile, placing your money into a conservative fund instead of a growth fund means you've missed out on $8000 in returns in just seven years," Taylor said.
"This is the extra money that could be put towards your first home or supporting long-term retirement plans."
The opposite is also true - unless they move to a more conservative fund, members who are planning to buy a house (or retire) in the short-term could potentially lose money.
"If you're in a growth fund and you're planning to buy a house (or retire) in the next 12 months you're carrying more risk than you probably should be and you're potentially going to lose money," Taylor added.
KiwiSaver members with money sitting in a default KiwiSaver fund are urged to choose a fund before December 1, when the asset mix of the default fund will change from 'conservative' to 'balanced' (MBIE confirms due to COVID-19, the date has moved from July 1).
For those who want to access their money soon, leaving it in a default fund may not be the best option. And those who have time on their side may find their KiwiSaver savings aren't working as hard as they could be.
"For those wanting to buy a home, default funds may mean their money isn't working properly for them [and] could mean missing out on valuable returns that make or break winning a home at auction," Taylor added.
Milford Asset Management head of KiwiSaver and distribution Murray Harris said it's important that people interact with their KiwiSaver provider. They can start by knowing who their provider is and doing some research on their website.
"First and foremost, look at who is running your money... their background, how long they've been in the industry and what their experience is managing various asset classes - cash, bonds, shares and property."
KiwiSaver provider commentary and fund reports, including the top companies they invested in are helpful sources of information. The KiwiSaver MorningStar Annual Report allows members to compare the past returns of their fund against other provider funds in the same risk category (e.g. conservative, balanced, growth or aggressive).
"Always look at a minimum three-year (preferably five-year) track record of the ranking of the performance of your fund (or provider), not just the last year," Harris added.
Once members are in the right fund, taking ten minutes a year to check that's still the case is good practice, particularly if plans to buy a first home change, and as retirement moves closer.