KiwiSaver calculator promises vary wildly

Tuesday, 4 September 2018

Providers have different views on what is a reasonable to expect from investment returns.

Do you know what sort of future your KiwiSaver savings might give you?

KiwiSaver members are often told to check what final total they are likely to have at the end of their working lives, based on their current contributions and fund choice.

From that, the idea is that they can make adjustments as needed, increasing contributions or switching funds.

But there's a problem: No one can agree on what the future might look like.

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Ayesha Scott says more consistency is needed.

Take a 25-year-old woman earning $50,000 as an example. Assume she is in a growth fund, has no previous savings. contributes 3 per cent of her income for the rest of her working life, her employer matches that, and she has no plans to take a break from saving, or to withdraw any money for a first home.

BNZ says she'll have $343,929 saved at retirement. ANZ estimates $332,000. ASB think it's more like $207,957 and Westpac $217,030. Fisher Funds predicts $261,690 on a 'glide path' setting, in which her risk allocation is automatically tweaked over her lifetime.

ASB finance lecturer Ayesha Scott said the difference was not surprising.

'Providers are giving members what they want, in terms of a projected amount at retirement,' she said.

'It comes back to comparability between providers, as opposed to comparability within the different products one provider offers.'

Providers would take a different view on what was reasonable to expect in terms of wage growth, inflation and investment returns.

'If all KiwiSaver providers use the same assumptions, and then give a range of possibilities rather than a particular number, members could compare their KiwiSaver to others available. We call this range a 'confidence interval' around an estimate – both the maximum and minimum of what the outcome could be, given the assumptions.

'Providing the range also helps illustrate that returns are not guaranteed – past performance is no indicator of future performance – and if fees are taken into account too, then again comparisons are made simpler.'

Jonathan Beale, general manager of wealth at ASB, said some calculators seemed to operate as advertising tools, while others were educational. 'They're helpful if they are clear about what they are trying to do. If they're just selling something they should say that.'

He said, while no one could accurately predict the future, it was useful for savers to be shown that inflation would have an effect and there would be tax to pay. 'It's important that people realised that just because it says they'll have a $1 million balance it may not buy you $1m of stuff.'

Calculators that assumed people would stay in riskier funds through their investing lives, rather than becoming more conservative as they grew older, would over-state final outcomes, he said.

A Milford Asset Management spokesman said people using any online calculator should understand the assumption and limitations involved.