I recently found this story in the New Zealand Herald news about how selecting the wrong fund for your superannuation could mean that you miss out on thousands of dollars of returns over the life of the fund.

Firstly, a bit of background for my none-NZ readers to put you in the picture.

And before you decide that this doesn’t apply to you, if you have a superannuation fund that allows you to manage how your dollars are invested, as we do in Australia, then this story may well be relevant to you.

First off, let me explain that I’m a kiwi who lives most of the time in Brisbane. But since I still have financial interests in New Zealand and still pay tax there, I’m entitled to hold a NZ superannuation account.

The KiwiSaver scheme is a New Zealand voluntary long-term savings scheme which began in 2007 as the Government’s response to the number of kiwis retiring at 65 with no savings to see them through old age.

As in most countries that have it, the Government provided pension, although not currently asset tested, isn’t going to allow for many luxuries if that’s the only income you have for the rest of your life.

So the Government of the day introduced KiwiSaver. Employees can choose to contribute 3%, 4%, or 8% (don’t ask me why they chose these amounts) which are paid, pre-tax, via Inland Revenue, into an approved scheme.

The employer then has to contribute a minimum of 3% to the employees chosen super scheme as well. And to further sweeten the pot, the Government makes a contribution of up to $521 per year as long as certain contribution conditions are met.

I’m giving your the wholly abbreviated version here so if, by chance, you want to know more, click here.

So far so good…..except that unfortunately, many kiwis choose to either not participate in KiwiSaver or use their accumulated funds to help fund a home purchase….then opt out altogether.

This is not going to solve the current problem of the many retirees relying on only the pension for a living in the future. But this article isn’t about that.

There’s another issue that could be costing those of us who choose to remain in KiwiSaver, thousands of dollars just by not making ourselves aware of how our choice of fund could impact our long term returns.

And if you have the option to manage your super fund, irrespective of where you live, this article may affect you and the growth of your retirement nest-egg.


Average earner $5k better off in growth KiwiSaver fund

By: Tamsyn Parker
Money Editor, NZ Herald
3rd July 2017

People who sit in a conservative KiwiSaver fund over their whole working life could be missing out on thousands of dollars in returns.

Figures crunched by Morningstar show an employed person on the median wage would already have $5000 less in their KiwiSaver account by being in a conservative fund compared to a growth fund over the last 10 years.

Around 450,000 people are sitting in default conservative funds and there are concerns many are putting a comfortable retirement at risk by staying in the funds.

People end up in a default fund when they are automatically enrolled in KiwiSaver after switching or starting a new job.

The default funds are conservatively invested with the majority of the money invested into bonds and cash-like investments which over longer periods of time tend to have a lower return than balanced or growth funds which invest more in property and shares.

Conservative funds are typically seen as appropriate for those with less than 10 years until retirement and people saving up to buy their first home.

But savers with more than 10 years to retirement may be limiting how much they can accumulate for their golden years by staying conservative.

Morningstar data shows based on average returns for the sector a worker currently earning the average wage of $55,224 who invested in a conservative fund would have $39,731 as of the end of May after tax.

But if they had invested in a growth fund that same person would potentially have $45,354 based on the average return from the sector.


Projecting the potential returns to the age of 65 shows an even bigger difference.

Using a calculator from a KiwiSaver provider showed the same worker would potentially have $219,182 if they were in a conservative fund or $292,394 if they were a growth fund by age 65 over 40 years of saving.

Chris Douglas, director manager research ratings for Morningstar said those sitting in the conservative category with a long time until retirement were missing out.

“This is only over 10 years. If you extrapolate that over 20, 30 or 40 years of saving you are going to be getting a difference of $20k or more.”

Douglas said one of the biggest obstacles to people moving out of conservative funds was lack of confidence in the financial markets.

“We have still got a relatively low level of financial literacy in New Zealand.”

He urged savers to think about how long they had before they would need access to their money and to get advice.

“There is a lot of places people can go to for advice.”

Donna Nicolof, head of wealth and private banking at the BNZ, said making an active choice on which fund to choose was very simple and only took a couple of minutes.

Both the sorted.org.nz website and providers have questionnaires on them which will help a person figure out what sort of fund they should be in.

Investors can then either switch online with their provider or by contacting their provider directly.

Nicolof said the level of apathy among people concerned her.

“We have got people in conservative funds just starting a new job at 21 or 22.”

While they might be saving for a first home others would not be.

“The risk is they will not have enough money to live off in retirement.”

Nicolof said providers were putting in a lot of effort to get people to make an active choice on their fund but it was difficult to engage people on a decision that would affect their lifestyle such a long time into the future.

But she urged people to make an active choice.

“The earlier you make those choices the better off you will be in the long term.”


My choice, some time ago, was to opt into the High Growth fund for both my KiwiSaver and my Australian super funds.

With almost 15 years to go before I’m entitled to draw on either of these, I know that yes, there will be rises and falls in the markets that will cause my funds to also rise and fall. However, I also believe that these growth funds will provide a far better opportunity to increase my returns over this time-frame.

And ultimately, since I’m already financially independent, the returns from these super funds, however much it turns out to be, will serve as a generous top-up to my existing income. And that’s something to look forward to.

4 thoughts on “Why the wrong choice of retirement fund could be costing you thousands”

  1. Learned a lot about the NZ system I wasn’t aware of. Certainly makes me appreciate the Aussie 9.5%, for all of its faults. I made some fund choices when I first went into my current fund, but they weren’t particularly well-informed at the time. Mr. ETT is in the standard age-based asset mix, which could be moved up another notch. Something else I’ve been meaning to look into for a while. At any rate, neither of us is conservative.

    1. Since I came to Oz and discovered the mandatory 9.5% employer’s super contribution, I have thought that KiwiSaver is a bit of a wet blanket. Better than nothing but compared to the Oz version….. Since I’ve been working here I have always added a further 10% of my pre-tax earnings to my super as well which has given me a pretty good investment even though I’ve only been here a few years. Only 14 more years before I can spend it.

  2. The problem with all of the kiwisaver vehicles (similar to many australian super funds) is high fees. It’s all very well to say you might be better off in a period of high growth but being robbed when the market is down and robbed when it is up is painful. There is not the same options in NZ vs Australia. At least in Oz you can do a SMSF and access low cost vehicles like vanguard. The NZ equivalents (vanguard) are about twice the price in management fees and I have not seen any kiwisaver options where you can access these. If anyone else has I would be delighted to hear of it.

    1. I do agree that there is a lot more choice in Oz when it comes to funds and fund management companies but such is life when you live in a small country. I did look into self managed funds but apparently, you still have to pay a whopping great tax/fee to do that too. As you say, you are going to get robbed whichever way you go. Thanks for stopping by with your comments, Kwoz.

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