Savings time bomb ahead warns ANZ

ANZ New Zealand is calling for a change to the terms and conditions that govern the default KiwiSaver provider schemes to prevent a potential $14 billion retirement savings time bomb, as savers continue to be enrolled in conservative funds through the default scheme investment options

The bank says research by ANZ Wealth and OnePath – the country‟s largest KiwiSaver funds manager - estimates that under the current default settings about 191,0002 New Zealanders could potentially face a shortfall of $72,000 each in their final account balance, when they turn 65. This compares with the final balance an average member could experience after 40 years with an investment strategy that changes as the circumstances of their lives change.

This “life stages” investment strategy – sometimes called the 'Lifetimes Option‟ (see box below) - gradually adjusts an investor’s fund allocation from growth-oriented assets to income-oriented assets, based on each individul’s length of time to the retirement age.

ANZ Wealth Managing Director, John Body, said today that this ticking time bomb inside KiwiSaver was a $14 billion shortfall for current New Zealand savers and would continue to blow out as more people enrolled in the scheme in coming years.

“Our research demonstrates that over the long term, investors are likely to be significantly better off through the life stages approach than with the current default ‘conservative option’,” Body said.

“A life stages approach tends to lift overall performance and moves investors to more defensive investments as they get closer to retirement.”

The ANZ KiwiSaver Scheme and the National Bank KiwiSaver Scheme already use the life stages investment fund selection as the default setting for people who do not select their own investment fund.

However, people who do not actively select their own scheme provider are put into one of six default schemes. Under the current terms and conditions for KiwiSaver default providers, new members are automatically defaulted into 'conservative’ investment funds, if they do not choose their own investment fund.

“Over the medium to longer term – and this is what the vast majority of retirement savings plans are designed for - conservative funds can seriously disadvantage the saver.”

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