The government has been reviewing KiwiSaver recently, and is making some great changes to the scheme that are set to take place from June next year.
1 - Changes to Default KiwiSaver Funds
Like many of us, if you didn’t specifically choose a provider for yourself when you first signed up for KiwiSaver, Inland Revenue allocates you to one of nine default KiwiSaver providers.
This is to get you started, until you decide how you want to invest your contributions. The problem is, most of us haven’t touched it since, because we didn’t know we were supposed to.
By the way
Provider = the company that looks after your money. Each provider has a number of funds (usually 3-5).
Fund = Where the provider pools all their client’s KiwiSaver money, and invests it in various different places (eg shares, property, term deposits, bonds).
Going forward, those who join KiwiSaver and don’t specify a fund type will be put into a ‘balanced fund’. This will be more advantageous for people who don’t engage with KiwiSaver for a long time and may otherwise miss out on thousands of investment dollars.
“By the time they’re 65, it’s estimated they will have around $56,000 more than if they were in a conservative fund” – Retirement Commissioner Jane Wrightston.
This doesn’t mean to say you don’t need to review your fund type.
Your fund type should match your risk profile, and take into consideration the time you’ve got until you’re likely to withdraw your funds.
Which fund type you decide to go into depends entirely on your circumstances and stage in life:
A younger person may be more comfortable with risk, as they don’t plan to withdraw their KiwiSaver money until they’re 65 (They’re in it for the long haul).
At the same time, they may need that money soon for their first home, and therefore might not be willing to risk it in a high growth fund.
A person nearing retirement may want to go into a conservative fund as they don’t want to risk their investment returns suddenly dropping before they make a withdrawal.
2 - The move away from oil and gas
Another great change coming to KiwiSaver, is the total ban in default funds investing in fossil fuels – Benefiting the planet and savers alike.
Recent data shows there was around $64 million invested in fossil fuel companies from default KiwiSaver members who hadn’t made an active decision about where to invest their money.
Barry Coates from Mindful Money has said moving away from fossil fuels is not only good for climate stability, but should help boost returns: “There’s increasing evidence that fossil fuels are not good investments”.
If you’re not sure what’s happening with your KiwiSaver, or would like to know a bit more about it, click below and chat to one of our team.