KiwiSaver, New Zealand's largest saving scheme, stands on the verge of a potential transformation. The National Party's new KiwiSaver policy proposes allowing individual Kiwis to split their KiwiSaver retirement funds across multiple providers. The proposal has ignited a discourse that could reshape how Kiwis navigate their financial futures.
As KiwiSaver continues to play a pivotal role in shaping the economic well-being of individual Kiwis, the question arises: What are the benefits and drawbacks of having more than one KiwiSaver provider?
What’s the proposed change in the KiwiSaver rules?
Current Rules: Single-Provider Structure
The KiwiSaver scheme has a single-provider structure. Participants must consolidate their savings with one provider, simplifying administrative processes but potentially limiting investment options.
Proposed Rules: Multiple-Providers Structure
KiwiSaver participants could choose multiple providers for a more diversified investment strategy. This could enable investors to align portfolios with financial goals and values, potentially increasing returns.
Benefits of the proposed changes
Access to Strong Performers
Under National's new proposed policy, individuals could now access multiple KiwiSaver providers simultaneously. This would allow individuals to tap into stronger-performing funds with distinct market segments. The arrangement would enable individuals to align their KiwiSaver balance with providers that have excelled in specific areas, enabling them to access higher-performing funds, leading to the potential for more significant growth in the long run.
Diversification
Distributing contributions across providers further helps with diversification, mitigating the risk associated with relying solely on one provider's performance.
Competiton-driven Fees
Diversifying contributions among several KiwiSaver providers has the potential to create a competitive landscape that could significantly impact the fees charged. Enticing KiwiSaver investors to deposit their funds with a provider whose investing values align with theirs but also holds the most competitive fee structure, ultimately benefiting individuals in the long run.
It could encourage healthy market competition, resulting in higher investment returns and lower fees. This would prioritise investors' financial well-being and provide them with more flexibility and diversification options within the KiwiSaver landscape.
Drawbacks of the proposed changes
Complexity Concerns
Introducing multiple KiwiSaver providers adds complexity. The abundance of options can overload investors with choices, potentially making decision-making complicated. Moreover, while promoting individualised approaches, the diverse provider offerings can overwhelm those less experienced in investment intricacies.
The complex web of investments across providers also challenges consolidated reporting and performance tracking. The fragmented nature of reporting can hinder investors' ability to assess their financial standing comprehensively, posing a potential obstacle to well-informed decisions.
Different KiwiSaver providers have varying fee structures that may erode potential gains. It's crucial to compare costs to maintain diversification benefits. This could cause fragmented performance when investments are spread across multiple providers, resulting in uneven returns.
Administrative Costs
Someone will need to pay the additional administrative costs caused by making this change. This could either be higher costs for the IRD, which comes from our taxes or higher costs for the KiwiSaver providers, which they may pass on to investors.
A Solution Already Exists
Certain KiwiSaver providers already allow knowledgeable investors to diversify across different managers. The likes of InvestNow and AMP have multiple managers listed within their KiwiSaver portfolio. Other providers, such as Craigs, even allow investors to pick and choose specific investments within their KiwiSaver accounts.
So is it good or bad?
Deciding whether to diversify investments across multiple KiwiSaver providers or focus on one is a complex matter with various considerations. The promise of enhanced flexibility grants investors the freedom to align their portfolios precisely with their distinct financial aspirations and preferences. This shift empowers individuals to shape their investment journey according to their unique needs, fostering a more engaged and purposeful approach to retirement planning.
However, this spectrum of choice also ushers in complexities, especially for those unfamiliar with the intricacies of investment options. The trade-off between flexibility and complexity necessitates a balance between catering to varied needs and ensuring accessibility for all, regardless of their level of dedication to their KiwiSaver situation.
Determining whether to contribute to multiple KiwiSaver providers is a decision that ultimately hinges on an individual's financial situation and personal preferences.
