“Flag Kiwisaver? There Is A Better Way”
by John Rofe
KiwiSaver is a fantastic product in its concept and execution but like all financial offerings it cannot be all things
to all people. Unfortunately it is being billed as just that.
It comes back to a lack of understanding of what is needed by retirees. Its architects look upon us as having reached a
destination where we can employ the cash sum from KiwiSaver to meet all our needs. As we all know, retirement is just a
step in life’s journey, and what we need is continuity of an inflation-proofed income stream that is sufficient to meet
our needs, give us something to come and go on, to support family members in their hour of need and leave something
behind for loved ones. Saving is not just about retirement, it is about wealth creation for a better lifestyle.
While they are critical of failed finance houses because they haven’t performed, the Government has itself broken one of
the cardinal rules of investment practice. There should always be a risk analysis available to investors so that the
test of whether there was “informed consent” is able to be met.
The main risks inherent in KiwiSaver seem to me to be as follows:
Absence of a guarantee of repayment for funds invested. This means that funds can go bust.
The product does not encourage spread of risk but requires investors to choose a fund that contains a basket of risks –
some good some bad. But with little ability to evaluate them.
The very portability clauses of KiwiSaver encourage short term competition between fund managers. Poorly performing
funds, after wise investors have left them, will be more prone to failure. Studies have shown that for best performance,
investments are held long term.
People are being asked to make value judgements of fund managers and in some instances may be steered towards funds of
“convenience” by employers.
Remember, the longer the term of an investment, the greater the potential for risk.
If the (tax paid) rate of return sinks below the rate of inflation, then the saving can have a negative “real return”
despite contributions adding to the numerical value of savings.
Normally we buy assets when they are cheap. Under KiwiSaver its members will be contributing the whole time.
What happens if money is needed for a purpose that is not approved by the fund?
At present, the Government is highly supportive of KiwiSaver, but future governments may not be – particularly given
the increase to the retirement population. The incentives of membership may not be as flash then.
KiwiSaver was launched at a time when people were being reminded of the 1987 crash and fearful of the impact of the
sub-prime loans fall-out on investments in Finance company debentures. Many who could invest in debentures, shares or
property and be self-reliant are being discouraged by negative publicity as well as the hype and hoopla of KiwiSaver
advertising.
So these are the reasons why I wrote the book “Flag KiwiSaver? There is a better way”. Many people could do better to
manage their own savings. If they do so, they should be prepared to do their own research. After all, there are plenty
of people to help them. The book also contains research that will bring a gleam to the eye of investors, but that was
not the point. It just proves that if you need to do something, you can.
For me there is a better way than KiwiSaver. But everyone should be allowed to make their own choice. Suggestions that
it could be made compulsory worry me.
John Rofe – is an internationally certified and experienced management consult who retired from full time work at 57yrs,
on medical advice.
The book may be seen at www.publishme.co.nz then click on New Releases.
Available now in libraries.
To view the book cover click here (pdf)
********************