KiwiSavers 'likely to opt for higher-risk options'
By KRIS HALL - The Dominion Post | Friday, 09 May 2008
Conservative funds will be ditched for higher-risk options as KiwiSavers adopt a more hands-on approach to investing in the scheme, say major providers.
To date, the bulk of $800 million poured into KiwiSaver accounts has settled in low-risk and default funds offered by banking and insurance groups as investors look to cash in on government incentives.
But providers say investor behaviour is "about to change" and anticipate a shift into self-selected funds as Kiwis look to boost their returns by diversifying investments and balancing risk.
"It's fair to say most Kiwis are not making active choices about how exactly that money is being invested across the plethora of funds available to them, but that is about to change," said ASB Group Investments head of wholesale distribution Greg McAllister.
"Customers will soon start making decisions about where they want to position their fund from a risk-profile point of view and we'll see that money moving around the various fund options within the providers, more so than between providers."
The six default schemes and Westpac have been the most successful benefactors of the KiwiSaver world, snaring more than a third of the 600,000 sign-ups through auto-enrolment.
A further 272,000 have opted in via a provider, with many drawn to the bank and insurance players' strong branding.
"The 25 per cent [sign-up] surge in March-April shows that the bank brands stand us very well," Mr McAllister said. "ASB has around 100,000 savers and $110 million funds under management. About 60 to 70 per cent of that is sitting in our default fund."
Such success is mirrored by other major providers, all of which predict a shift in numbers from conservative to balanced and growth options once savers "catch a glimpse of their ballooning balances".
Mercer New Zealand head Bernie O'Brien says many customers had chosen default schemes because they simply did not understand the options, but admits providers face a sterner test retaining numbers as member understanding and engagement grows.
Tower Investments chief executive Sam Stubbs said: "Kiwis are not averse to diversifying portfolios and balancing risk.
"At the moment it's a numbers game, but I fully expect a greater proportion of customers to adopt a more active approach to decision making."
Total member contributions since the scheme's inception exceeded $336 million at the end of April, with a further $452 million thrown in by the Crown by way of $1000 kick-starts and fee subsidies.
DLA Phillips Fox partner Sue Brown says the large number of people opting for conservative choices was a natural part of the settling-in phase of KiwiSaver.
"The next phase will be a greater understanding and engagement by members. However, KiwiSaver wouldn't be unique if the majority of members stay with the default option.
"Choice of scheme was only introduced in Australia in 2005, and still the vast majority stick with the default option."
But provider Gareth Morgan, whose scheme manages more than $40 million for 21,000 KiwiSavers, says the banking and insurance "cartels" should do more to inform Kiwis of their investment choices.
"Knowledge of the public as to who their provider is is minimal, absolutely minimal," he said.
"This is a real concern. You might as well put your financial future in the hands of an investment company whose name you pull out of a hat.
"We're going through a sucker period.
"One only hopes the New Zealand public will, at some stage, steer clear of the avaricious clutches of these types of providers, think seriously about what's happening to their money and switch to competitive providers."
AT A GLANCE: ASB Group Investments: More than $110 million invested and more than 100,000 members, 60 per cent to 70 per cent in default scheme. AMP Services: $90 million to $100 million invested, about 40 per cent in default scheme. More than 67,000 members and about half in default scheme. ING: More than $43.5 million in default and more than $60 million in SIL active scheme, more than 100,000 members. Mercer: More than $55 million invested and more than 30,000 in the default scheme. Tower Investments: $100 million invested and 47,000 members, of which 35,000 in default scheme. Westpac: More than $61.5 million and more than 54,000 members in scheme. Gareth Morgan KiwiSaver: more than $40 million and more than 21,000 members in scheme. AXA: did not reveal figures.
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