When getting down to the nitty gritty of finding the right KiwiSaver fund for you, comparing the disclosure statements of the different funds you’ve narrowed your search down to is a good way to go. Thanks to the KiwiSaver (Periodic Disclosure) Regulations introduced by the Government in July 2013, all funds have to regularly report on their schemes in a standardised manner.
We’ve summarised what you should be looking for in a fund’s disclosure statements below. KiwiSaver providers must be open and honest about fund performance, fees, and how your money is invested.
The point of these regulations was to force the reporting of funds into plain English and make it a whole lot easier for you to understand how different KiwiSaver funds are doing – thus helping you make better investment decisions!
Maori? KiwiSaver is still for you!
Source: Te Karere TVNZ
The latest survey results from the Retirement Commission shows Maori are falling behind the rest of the population when it comes to contributing to their KiwiSaver retirement funds. The report showed 50% of Maori weren’t contributing because they were unemployed, compared to 26% of the rest of the population.
But you can still make contributions to your KiwiSaver fund while you’re unemployed. It’s important to save for your future – without KiwiSaver, Maori will be more dependent on the government to get by during retirement.
It is important to measure and understand the net financial benefits of an investment, to do so you need to weigh up the cost of a fund with the investment returns. A fund’s investment return is a factor of consideration when an individual chooses a fund initially and ongoing along with other areas such as investment options, costs etc. Although the historical performance of a fund cannot be relied upon for future performance, it is important to identify consistency of returns.
Appetite for risk will vary depending on the individual. Usually, an individual’s age and relative proximity to retirement will help them determine their investment goals whether it is long term or short term. If you have a long investment horizon you may be prepared to take on more risk and as there is more time to ride out short-term fluctuations in investment returns. If you have a shorter horizon, investing for the short term and security might be prioritised over higher returns. Typically, the higher risk, the higher the return and the lower the risk, the lower the return.
The main things to look for in Kiwisaver funds
Kiwisaver fund performance
Every KiwiSaver provider will have to use the same format to show how well their funds have performed. This will include bar graphs and pie charts for people who don’t like figures, making it easier for customers to make sense of the returns and compare providers.
Make sure you’re comparing apples with apples. For example, a Conservative type fund should not be compared against a Growth fund, as they’re designed for different purposes and have different asset allocations.
The KiwiSaver providers will also have to show real returns after tax, rather than just simple investment returns that don’t show the true picture.
Kiwisaver fees eat into your investment nibble by nibble. Your statement will show the fees charged on your KiwiSaver account, including annual fees, management fees, and other fees.
Some fund managers say you should ignore the fees because “it’s growth that matters”. Higher risk funds are generally more expensive because they require more active management of the fund. The trouble is that there is no guarantee that the fund with the highest fees has the greatest return.
It’s also worth noting that some funds also charge performance fees, which means the better the return, the higher the fees skimmed off your savings. You don’t need to pay a performance fee, so it’s worth looking around before choosing a fund.
A small difference in fees can really add up over time. For a mere 0.51% difference in fees, on an investment balance of $11,500, there’s a difference of $58.65 in annual cost for the fund. See the table below, which shows how a small difference can have a great effect on your retirement fund balance.
|Table: Fee Comparison Across Three Funds|
|Fund A||Fund B||Fund C|
|Growth Asset Allocation||0%||0%||0%|
|Annual Member Fee||$30.00||$24.00||$23.40|
|Total Annual Cost||$73.58||$126.35||$127.37|
|Source: www.canstar.co.nz. These funds represent actual funds, where information was collected during the periods June/July 2016. Based on an average balance of $11,500.|
How your money is invested
KiwiSaver providers have to show their “investment mix” or “asset allocation” in an easy-to-read pie chart in the product disclosure statements (PDS) for their fund options, and in your statement once you’ve signed up for a fund.
They also have to provide a list of the top 10 investments in the fund, which can be helpful. Some KiwiSavers, for example, wouldn’t want to invest in a fund that had major investments in gambling, tobacco, alcohol, or environmentally unsustainable products or practices. They would want to look for a responsible investment fund. Others may actively want more of their money to be invested here in New Zealand.
Kiwisaver reporting requirements
KiwiSaver providers must publish this information in easy-to-read quarterly and annual statements. As well as the matters above, they will also include other useful information for anyone choosing a KiwiSaver fund, such as who the people are who have the most influence on investing decisions (the fund decision makers).
Want the best KiwiSaver for you? Compare – and keep comparing!
Finally, make sure you compare your fund with others every few years.
A good place to start is Canstar’s annual KiwiSaver Star Ratings Report to find our 5-star rated winners. Then read each of the winners’ disclosure statements to see which fund would suit you best. Your current fund might have become less competitive over the past year, or there might be a new provider or fund that you’d prefer to be in. Also check what else is in the market – there are new products released quite often, with Simplicity being the most recent.
One very good reason to keep comparing is that the longer you’re in KiwiSaver, the more important your investment decisions become. In the beginning, KiwiSaver accounts start out with quite a small balance. But after four or five years of saving even the bare minimum, many people may have at least five figures in their savings, which makes it important to understand what’s under the bonnet.