ANZ warns of $14 billion Kiwisaver savings time bomb

The country’s largest Kiwisaver funds manger warns of a $14 billion retirement savings time bomb linked to default funds.

ANZ Wealth wants the government to change the rules around default scheme enrollment to stop investors from being short-changed.

Under current default settings, ANZ Wealth estimates about 191,000 Kiwisavers could potentially face a shortfall of $72,000 each in their final account balance when they turn 65.

That compares to the final balance they could arrive at in a more actively managed or "life stages" investment strategy, where Kiwisavers progress through various funds where risk is matched to their age.

About 30% of Kiwisaver memebers are predominantly invested in conservative Kiwisaver funds.

ANZ Wealth managing director John Body said investors were being short-changed and the shortfall was a “ticking time bomb” inside Kiwisaver.

“Over the medium to longer term – and this is what the vast majority of retirement savings plans are designed for – conservative funds can seriously disadvantage the saver.”

This problem with conservative funds was missed during recent debates around retirement savings, he said.

ANZ wants to see investment options for default Kiwisaver funds should be reset to better reflect the age and investment horizons of investors, so they progress from growth to more defensive funds.

Mr Body and ANZ Wealth's general manager investment management Simon Botherway will meet with the Minister of Finance and Minister of Revenue to present their research today.

It was hoped other default Kiwisaver scheme providers would support their call to extend the life changes strategy to all the default schemes.

“We’re calling for a simple adjustment to the government-prescribed default investment fund settings that are permitted under the contracts for the six government-appointed default providers," said Mr Body.

“If we do nothing, it will cost New Zealand billions of dollars and seriously compromise the standard of living for a generation of retirees.”

Conservative funds were more appropriate for short-term savers due to their lower risk profile.

“Our research demonstrates that over the long term, investors are likely to be significantly better off through the life stages approach than with the current default ‘conservative option,” said Mr Body.