KEY POINTS:
Plenty has been said about the pros and cons of joining KiwiSaver. But few people are thinking far beyond putting their signature to the documentation. What about portfolio diversification, and how KiwiSaver fits in with any other investments you might have?
If KiwiSaver is your only investment, a "balanced" fund - a mix of shares, fixed interest and so on - could make sense. But such a middle-of-the-road investment might skew an already well-diversified portfolio.
However, for the short term at least, it's going to make more sense to balance other investments around KiwiSaver funds, rather than vice versa. Few "exotic" KiwiSaver funds are yet available to invest in, says Binu Paul, general manager of fund research company FundSource.
For those without a financial adviser, just getting a complete list of the funds available is a monumental task. When I contacted the Ministry of Economic Development, Inland Revenue, the Government Actuary and the Retirement Commissioner, none of them could supply a list of the individual KiwiSaver funds on the market; the only option was to visit each and every provider's website.
To see how difficult it is for an individual investor to find the best funds to invest in, I clicked from kiwisaver.govt.nz to provider Fidelity Life's website and from there to "KiwiSaver" and then "Fidelity KiwiSaver Scheme Fact Sheet" before I found a list of the company's funds. FidelityLife's own website search found no documents matching its "Options Kiwi" fund. Imagine doing this for every provider.
For the record, I did eventually track down details about Options Kiwi, which it turns out invests in cash, fixed interest and options contracts - which might be of interest to a sophisticated investor with a medium term timeframe and a high risk profile.
The Retirement Commissioner expects to publish a list of funds with descriptive information on fees and returns on its sorted.org.nz website in the next few weeks, and in about a year's time FundSource will have qualitative rankings for all of the funds published on its website.
It's a bit of a Catch-22. You could wait. But every week you wait, that's $20 of government subsidy down the drain.
The answer may be to choose a provider and fund for now, and wait and see what's available in a couple of years. But choose a provider carefully, one that matches your needs, says Philip Holland, financial planner at Harmer Parr in Tauranga. Holland, his wife, and three young children are investing with different providers with schemes that fit their individual needs: employee, non-earner contributing the minimum $20 a week and children who will open an account, but not contribute for now.
Although virtually all the funds now available are vanilla flavoured, there is no reason under the legislation why this has to be so, says Gavin Quigan, manager of the insurance and superannuation unit at the MED.
"Outside the default schemes, there are currently no restrictions on the investment fund offerings that trustees of KiwiSaver schemes can offer, other than the requirements specified in the Trustee Act relating to trustees' responsibilities to invest with 'care, diligence and skill' that a prudent person of business would exercise in managing the affairs of others."
"Speculative high-risk investment fund offerings" might not meet the prudent-person test, he adds.
In countries such as Australia and Britain, pension fund options are many and varied. The website Trustnet.com, for example, lists 5965 pension funds that British investors can choose from, including some that invest in single economies or even commodities alone. The potential benefit to investors with nerves of steel of choosing more obscure funds can be seen in the returns some have earned. The number one performer over five years, the Skandia ML Latin American Investment Trust, returned 473.7 per cent. Four of the top 10 were Latin American funds and the other six were emerging-markets funds.
Such a comparison is mostly academic. In Australia and Britain, experience shows that few investors choose anything but the middle-of-the-road funds.
Peter Hensley, a financial planner and author of the book Peter J's Guide to KiwiSaver, says ING has "had the foresight to think further down the track by providing a range of seven sector-specific funds which will prove attractive for the smarter investor once both the scheme and the markets gain traction".
Todd Blythe, client account manager at Harmer Parr, says "other slightly more exotic funds include Asteron's Socially Responsible Investment Share Fund and Fisher Funds' Growth KiwiSaver Scheme".
Hensley believes that for wealthy people, KiwiSaver investments are "a bit on the side" and are unlikely to have a bearing on their overall investment strategy. "This is because these people are unlikely to be PAYE taxpayers and will be joining a scheme as self-employed individuals purely to gain access to the free money on offer from the government in the form of tax credits."
Having said that, high-income employees who join KiwiSaver must contribute a minimum of 4 per cent, which, along with an employer contribution and the tax incentives, may build up to a sizeable sum in a short time.
* Diana Clement is an Auckland-based personal finance and investment writer.
