A little risk would pay off for KiwiSaver

The NZ Herald Editorial today is on KiwiSaver. It looks at number of aspects starting with the deferral of auto-enrolment:

A boost to New Zealand's savings culture has been put on hold with the Budget announcement that automatic enrolment in KiwiSaver in 2014-15 is no longer possible .... The deferral is unfortunate. Auto enrolment, which would place all employees, not just the newly hired, in KiwiSaver, has been strongly recommended by the OECD. Now, it will not be considered until there are sufficient surpluses to pay for it.

I mentioned this in my Budget blogpost yesterday and I feel it will keep cropping over the next wee while. The poor personal savings rate of New Zealanders is of real concern to the Credit Rating Agencies and I can't help but feel that the government has missed a trick in deferring auto-enrolment in its quest for a budget surplus.

The KiwiSaver default-provider arrangements have proved even more a bone of contention, and more damaging to the creation of a significant national savings pool that would propel economic growth. This is because they are not working in the best interests of young and young-ish KiwiSaver members .... Within those default schemes, their money is, by default, put into conservative funds. These are comprised mainly of low-risk, low-return assets, such as fixed interest .... But it makes no sense now for 25-year-olds with 40 years of KiwiSaver ahead of them to be in a conservative fund. History shows that, over time, growth assets provide by far the better returns, whatever the short-term fluctuations.

Four or so years ago when first signing up to KiwiSaver I was going to let my money go to one of the default scheme providers and not worry about it. Luckily enough my father, who is much more financially literate than I am, advised me to put it into a growth fund. When the market went down it lost money, but it was also able to buy plenty of shares at these low rates and when the market rebounded it made back what it lost and them some to the point where it now has a lot more in it than I have invested.

A lot of other young New Zealanders will not be as lucky as I was so it is fantastic to see the Herald arguing for a change in the default-provider scheme to more pro-growth funds.