KEY POINTS:
If 30 or more options are available, as in KiwiSaver, we tend to procrastinate
Give a human being two choices and he or she will probably make a decision. If, however, 30 or more are on offer - and there are that many KiwiSaver providers - we're likely to stick our heads in the sand.
To many investors choice causes anxiety, paralysis, or even regret.
Just consider the classic supermarket experiment that compared consumers' buying behaviour when offered 24 jams to try, or just six. Although the table of 24 products was more of a magnet to customers, when forced to make a decision, those offered the more limited choice were 10 times more likely to buy.
The problem is that procrastination can be costly when it comes to investing, and that's especially the case with KiwiSaver, thanks to the government subsidies. Investors who want to, but haven't joined KiwiSaver, are losing a minimum of $87 in government subsidies for every month they delay.
From next week, if they're employed, they'll also be missing out on a 1 per cent employer contribution. Who knows if the $1000 government kick-start will be around forever, either?
The irony is that investors who want to join KiwiSaver don't actually need to make a choice. They can simply let the Government choose a default provider for them. In the first six months of KiwiSaver 33 per cent of people did just that and 56 per cent actively chose their own provider.
For anyone with a conservative disposition, the advantage of default providers AMP, ASB, AXA, ING, Mercer and Tower is that they have had to jump through more hoops with government agencies to be appointed than other providers.
If investors want to take an active role in choosing, some of the questions they need to ask are:
Are you saving for retirement, the mortgage subsidy or mortgage diversion?
Will you make regular or intermittent payments? Payment holidays are allowed with all schemes.
What are the fees? If they exceed the government fee subsidy, your money's growth may be inhibited. What's more, it may take a year or more to really understand how much you're being charged because the ticket is clipped in many different ways, which aren't obvious in providers' marketing materials.
Are there transfer or exit fees if you want to change later?
How safe is the provider? Does it have a credit rating?
It's a good idea to understand your own risk profile before investing. ConsumerSaver.org.nz, published by Consumer, has a risk quiz, as do Sorted.org.nz and many of the KiwiSaver providers' websites. The website myrisktolerance.com, although not specifically related to KiwiSaver, allows investors to take a more in-depth look at their risk tolerance.
Another website, Smartkiwisaver.co.nz, has interactive scheme performance and comparison graphs as well as fee comparisons, but isn't free to use.
Other sources of information include the Government's KiwiSaver.govt.nz website, which lists the providers and their contact details. The Retirement Commissioner's website, Sorted.org.nz, has a quick KiwiSaver calculator, a decision guide and a fees calculator.
If, however, you have specific needs such as the ability to make annual, not monthly payments, mortgage diversion and an aggressive investment approach, then the only way to make a choice is to visit each and every provider's site, which can be time-consuming indeed.
The most comprehensive KiwiSaver comparison online is at ConsumerSaver.org.nz, although it doesn't cover all questions.
Weekend Herald columnist Mary Holm's book, KiwiSaver Max, due out in June, surveys all existing KiwiSaver funds and provides investors with comparison tables.
Ultimately the style of fund an investor chooses will be more important than the provider.
According to FundSource, which surveyed 10 KiwiSaver providers, the single most popular KiwiSaver fund was the ASB KiwiSaver conservative fund. Such conservative funds are likely to provide the smallest relative retirement pots of money. Balanced, growth or aggressive funds are likely to grow more over time.
Most providers' funds are vanilla flavoured. But some buck the trend, such as:
ABN Amro Craigs kiwiSTART Personalised, which allows investors to self-select individual equities rather than investing in funds.
Asteron KiwiSaver, which has a socially responsible investment share fund.
Westpac's Capital Protection Plan, which is designed to protect initial capital contributions while having the potential to access share returns.
Those investing for the long term are more likely to see their money grow at a greater rate in a growth-style fund. But unfortunately few investors seek independent advice or find that out for themselves.
"Tens of thousands of people have been automatically enrolled by their employer and have been placed in very conservative default funds," says Fenton Peterken, financial planner at the Capricorn Group.
"This will be to their detriment over the long term, but at least they will get the employer and government contributions."
Steven Giannoulis, ING's general manager of marketing and investor services, says
you need to take into account time as well as your tolerance to risk and to more or less ignore current market conditions because you're investing for the long term.
It may make sense for younger investors to choose a high-growth option if they have many years before retirement - moving gradually to a more conservative option as retirement nears.
Life stages type funds such as those provided by ING, AMP or Southland Building Society may be the answer for such investors.
With most providers it's possible to switch without any exit fee and, as a result, says Philip Macalister, a publisher who chaired the recent Conferenz KiwiSaver conference in Auckland, they can simply choose more or less any fund for now.
Peterken warns people against choosing unproven providers.
"A lot of providers only started up last year and therefore have no track record and, more worryingly, may not even be around when people reach 65."
The ConsumerSaver website lists providers' credit ratings.
For children, the decisions are different. Because younger children don't get the ongoing government subsidy, many commentators are suggesting that they take the $1000 free kick-start and simply sit on it in a fund. In this case it's important to choose a low-fee fund that doesn't charge anything over and above the annual fee subsidy provided by the Government and one that doesn't require a regular monthly or annual investment.
Come teenage years it might be educational to get children to save a small amount on a regular basis and watch their fund grow. And after three years of saving they can withdraw the money to put towards a first home. At age 18, the Government starts paying a tax credit and it might then be time to change providers.
