Financial literacy and education is the key to making smart decisions when it comes to retirement savings and planning, however the fund providers entrusted to manage our retirement savings are falling short in their commitments to this.
The Financial Markets Authority has fired a warning shot at default KiwiSaver providers, calling their efforts at addressing financial literacy “disappointing”. There are 9 KiwiSaver providers with default scheme status, and these schemes benefit financially from having been allocated this default status. However, as a part of this, they do have responsibilities such as improving the financial literacy of their KiwiSaver members, and it appears they are falling short.
From small beginnings, KiwiSaver is now big business, generating $350million in fees over the last year. With 30 KiwiSaver providers, that’s more than $10million on average that each provider is earning from manging our country’s retirement savings. With this level of money being generated, and a responsibility to address financial literacy, one might think we’d all be experts on the matter.
Nothing could be further from the truth. For the last six months or so we’ve been working with a range of companies across New Zealand, providing free staff presentations focused on a few key points of financial literacy and education around KiwiSaver.
The work we do with companies and their employees shows us on a daily basis the huge role of education in helping people to make smarter financial decisions. A simple show of hands tells us that the vast majority of people are now enrolled in KiwiSaver which is a great start.
However, the next few questions which ask for a show of hands from people who know which provider their KiwiSaver is with, and what type of fund they are invested in, tends to result in a minimal raising of hands. This tells us that people are either not taking their retirement savings seriously, or that they just don’t know the effect that inaction or poor decision making can have on their eventual retirement. We suspect it’s a combination of both, but that it mainly comes down to a lack of education.
Through our presentations, we provide employees with some key information and basic financial principles that help to paint a clear picture about why it’s so important to take an interest in KiwiSaver and other forms of retirement savings, and what’s potentially at stake. It usually hits home when we show people just how much they can be missing out on – for someone under 30, they could be set to gain up to $500,000 more in their KiwiSaver account by retirement age just by getting out of a default fund and investing into more appropriate fund types. That’s a huge number – who wouldn’t want half a million dollars more to spend at retirement?
Not surprisingly, following these presentations we find the majority of people are very engaged and interested to find out just what type of fund they should be in! And just like that, we’ve given people some basic education, improved their financial literacy, and have empowered them to make smarter financial decisions that will see them better off financially.
It’s not really that hard, yet KiwiSaver fund providers seem to struggle and are being warned about their disappointing efforts, despite generating $350million dollars’ worth of fees last year. Go figure.
If you’d like some help with KiwiSaver, or if you are interested to hold a staff presentation, please get in contact we’d love to help – 0800 890 121 or email@example.com
Disclaimer – Rachel Strevens is an Authorised Financial Adviser (AFA) and Director of Ilumony Ltd, a company providing financial services and advice. A copy of her disclosure statement is available free of charge on request from firstname.lastname@example.org
Information provided in this article is of a general nature only, and is not intended to be personalised financial advice.