By Amanda Morrall
KiwiSaver sceptics delight in minimising the returns that the national savings scheme can reasonably expect to deliver when you factor in fees, tax and inflation.
The performance of Fidelity Life's Option Kiwi Fund won't sit well with the discontented.
Since inception, the cash-based options fund has served up an annual before-tax, after-managment fee return of 11.59% . Default funds by comparison, which on average out performed all other funds, delivered just over 4% over the same time.
To be sure, performance of this kind is the exception not the norm in KiwiSaver and the level of risk that goes with it is not for the faint of heart. (Those super charged returns were made selling options on US 10-year government bonds.) As an aggressive fund, it's at the top of the scale for volatility and you'd be mad piling all your retirements eggs in this basket. (For a loose guide on risk tolerance visit sorted.org.nz) .
Regardless, it does go to show that despite claims to the opposite, KiwiSaver as a retirement savings tool, is not ineffectual.
As evidence of that, almost 80% of Fidelity Life's senior managers are invested in their own, points out CEO Milton Jennings.
"It was a pleasing result for us. We found out through that period that this investment strategy worked very well. We almost had the returns of an equity fund with the [low] volatility of a fixed-interest fund."
Jennings dismisses the arguments against KiwiSaver (to read more on the argument against see our interview with Bruce Sheppard) and holds it up as a savings vehicle that could ultimately end up saving a nation of unrestrained spenders from itself.
"Looking back our parents were very good savers, we're average and our kids are hopeless - because there hasn't been that savings culture,'' he said.
"That's why I think KiwiSaver is a such fantastic product for a country such as ours which has such high debt levels, probably some of the worst in the world.''
Although some suggest the savings crisis in New Zealand has been blown out of proportion, the issue has become a focal point for National heading into the upcoming election. Savings and investments has already been labelled the theme of the May 19 Budget.
While the savings issue looks set to become a political football, Jennings suggested 30 to 50 year-olds who want to be properly prepared for retirement will do well with KiwiSaver. Despite the heavy burden of financial obligations facing this demographic, he said it made good sense to make retirement savings a priority, even if only 2% of income every month.
"I'm a firm believer that savings is a habit and the earlier you get into a savings habit the better...We have to turn ourselves into a savings culture.''
While other retail managed funds might offer flexibility, Jenning said the advantage of KiwiSaver was that it had comparatively low fees and a lock-down component. (To read more about fees and expenses click here.)
"It protects you from yourself so you don't end up using your money for a holiday or something.''
As for the protections afforded the national savings scheme itself, Jennings, for his part, expressed confidence in its long-term viability.
"You can't compare KiwiSaver to a finance company. Its funds are locked in a trust and protected by independent trustees. It's completely different from a finance company structure where managers have the power to invest wherever they like. KiwiSaver fund managers can't borrow money and start leveraging. It doesn't work that way.''
For most of those satisified with the security of the scheme, the bigger question is what fund to be in and how much exposure to 'growth' assets.
Those closer to the 50 side of the equation would normally expect to be scaling back their level of risk, said Jennings.
"Modern theory has it that in your 30 and 40s you should have a higher risk profile and be putting your investments into growth assets, equity and mortgages and then as you go through your 50s, start reducing your risk profile, going into more of a balanced fund; 50% growth and 50% income.
"Then into your 60s back into a conservative type of investment. So you're protecting that capital that you want to build up all those years. Because if you get a global credit crunch crisis when you're 62 or 63, you don't want to see a drop in your balance.''
Because most of Fidelity Life's KiwiSavers come into the scheme through a financial adviser, those kind of discussions would also take into account a range of other factors, such as personal circumstances, other assets and lifestyle expectations, he noted.
Jennings said he was hopeful new advisory regulations would help to restore public confidence in the sector so that people would seek out good guidance in order to plan more holisitcally for their retirements.
"I think the licensing of finance advisers is a very positive move. It'll raise the professionalism of the whole industry and it'll raise the respect those advisers will have on the market.
The whole industry has taken a hammering with finance companies and there's also been a number of funds that have closed up.''
In general terms, Jennings said it was important to remind people that KiwiSaver was a long-term investment and that they shouldn't be checking their balance sheet every week and switching managers on the basis of every quartlery performance report.
"This year's winner is usually next year's loser. If you are choosing a provider, choose someone with a long-term track record. Make sure that track record is still with that manager and that stick with them."
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