The average New Zealander could be losing up to hundreds of thousands of dollars by not managing their KiwiSaver accounts properly, according to leading financial consultancy firm KPMG.
Even worse, young people - those who stand to benefit most from KiwiSaver - are not learning from the financial literacy shortcomings of preceding generations and stand to lose the most, according to John Kensington, KPMG's Head of Financial Services.
He is aiming his comments at the overwhelming majority of New Zealanders who - given the opportunity to take advantage of a semi-compulsory savings scheme leading to an easier retirement - have largely ignored that opportunity.
"About 70 per cent of all KiwiSaver accounts go to the default fund - the conservative fund," he said. "If you don't nominate which of the conservative, balanced and growth funds you want your money in - or spread them across those funds - it automatically goes into the default, conservative fund."
It was an indictment that 70 per cent of all KiwiSaver accounts ended up in the default fund because of the inertia of the beneficiary, he says: "It's an indictment on the government and the financial services industry, sure, and New Zealanders themselves.
"The average Kiwi is financially illiterate, I'm afraid. KiwiSaver is great in that it is forcing them to do something that will benefit them - but so many don't understand it and don't understand they are turning their backs on what could be a large amount of money."
The key for younger KiwiSavers (with 40 years of saving ahead of them and no need to withdraw their funds, as older people have) is directing KiwiSaver contributions into growth funds, designed to bring greater rewards than conservative funds.
The conservative fund deals mostly in cash and fixed interest investments like bonds, perfect for older age groups close to retirement age for whom capital protection is important and who do not want higher-risk investments. It is also suitable for those investors likely to withdraw KiwiSaver funds for a first home deposit.
The growth funds can far out-perform conservative funds over the full term of a retirement plan: "A conservative fund will never go backwards; it will earn at a much lower rate over 40 years of a person's life," Kensington says. "But a high-growth fund, while it can endure more of a rollercoaster ride, has the potential to earn significantly more over the same period - and that's what a lot of people do not understand.
"For young people, and they are the main point of a retirement plan, it could be worth hundreds of thousands of dollars."
The quarter in the three months to September underlined the point, the first time since 2011 that most KiwiSaver funds lost ground as the world watched China's economy falter with concern.
Conservative KiwiSaver funds produced an average return of 0.20 per cent. Growth funds (which have most of their money invested in shares) were the weakest performers, dropping by 4.47 per cent.
However, once the view is broadened to performance over five years, conservative funds grew by 6.2 per cent per annum on average while growth funds grew by almost 10 per cent over the same timeframe.
To illustrate the impact*, take the example of a 25-year-old male earning $50,000 a year with both he and his employer contributing 3 per cent to a cash (default) fund returning an at market return. In 40 years, when he retires, that will swell to $134,000. However, if the same person went into a growth fund earning an at market return, the same account would contain $303,000.
Kensington says another reason for the disproportionate amount of people in conservative funds could be lingering distrust after the global financial crisis and the collapse of finance companies in New Zealand, driving investors back to banks and other safer landing pads for their money.
"But it is mostly financial illiteracy," he said. "Before KiwiSaver, most Kiwis' typical investment mandate was the family home, a rental property, often supplemented by what I call the three Bs and an O - the bach, boat and BMW, plus an overseas holiday.
"KiwiSaver is great but the way it invisibly accumulates funds on behalf of the account holder is both a strength and a weakness. Young people don't see the money they invest and, to a lesser extent, what that money is doing for them - not in the same way they see the rent coming out of their bank account every month.
"So they can't see it and they know they can't get it until they are 65 unless they can use it for a first house - so they tend not to value it very highly.
"We need to take New Zealanders on a journey that sees them become more financially literate at the basic level and better educated financially to the point where they are confident and comfortable about having a more balanced portfolio.
"The rewards will be a nation that can provide for itself in its retirement and has a readily-available source of capital for our New Zealand-owned businesses, both start-ups and more established entities."
*The Kiwisaver comparative calculations between a cash (default) fund and a growth fund were calculated using ANZ Bank online Kiwisaver calculators assuming a 25 year old male , earning $50,000, with both he and his employer contributing 3 per cent , with no voluntary contributions, no current balance , and no contribution breaks. In addition all of the assumptions in the calculation model were left unaltered and the retirement age was set at 65
• Information in this article is general in nature and is not intended as advice. It may not be relevant to individual circumstances. Before making any investment or financial planning decision, you should consult a professional adviser.