Jess
Kia ora, my name is Jess from the Communications and Delivery team here at the FMA and you're joining me for another episode of Jess Learns to Invest. Are you feeling unsure about your money lately? With rising costs, market ups and downs and conflicting messages online, you are not alone. Today we're going to be talking about common questions people are asking about their long-term savings, in particular KiwiSaver. Here to talk to us all about KiwiSaver today is Chief Executive of Consumer NZ, John Duffy. Welcome John.
Jon
Kia ora.
Jess
Thank you for joining me today. To kick off, before we get into KiwiSaver, could you talk a little bit about Consumer NZ and what you guys do?
Jon
Sure. Well, we've been around for ages. We're nearly 70 years old and we kind of, we used to be part of the government, but now we are an incorporated society. So we're basically a membership organization. So people subscribe to us most commonly to get our advice, which is behind a paywall on our website, but also to subscribe to our magazine, which is We've been producing for many, many years and is still out there and you can still buy on the supermarket shelves. And basically we're a research organization. So we identify issues or problems that New Zealand consumers might be having. We investigate those through various different research avenues like doing surveying or other types of market research, testing products. So we We buy products from Briscoes and take them apart and put them back together and work out what kind of quality they are. And then make recommendations to help people make purchasing decisions from what's the best air fryer through to how you should go about approaching KiwiSaver or other types of products like insurance or telco. We also run Power Switch, which is an electricity price recommendation site. So if you are worried about the high cost of power at the moment, which many of us are, jump onto PowerSwitch and we can tell you whether you can save some money by switching to another company.
Jess
Awesome. And today we're going to talk all about KiwiSaver, especially with the state of the world at the moment and people stressing about money and costs. KiwiSaver is quite an important one and often one that people think about when they're looking to cut costs as well. So to kick off, I'm keen to know what you guys are hearing on your end when it comes to KiwiSaver.
Jon
I guess we're seeing some tension. So people are really struggling out there. Household incomes are really struggling to meet the demands on them from high prices at the supermarket, energy costs, as I mentioned, but also things like insurance. We really need insurance in a country that's prone to lots of natural hazards and insurance costs are really forcing people to make some really quite difficult decisions. So when it comes to something like KiwiSaver, when you're looking at your overall household income, it can be really tempting to effectively borrow from your future self and go, look, I need this money right now to make ends meet. And there's absolutely no shame in that. But what we're seeing is people being forced to do that And that is detrimental to their longer term interests. So every time you make a hardship withdrawal or you suspend payments into KiwiSaver, there's an exponential effect on the total amount of savings that you have when eventually you retire. So we're quite concerned about that, pressure on household incomes, putting people into really difficult positions, which has long-term detriments for them.
Jess
And it's hard when you're living in the moment too, and it's hard to see that long-term. It's sort of, I need it now. I'm in a situation now.
Jon
Absolutely. And what we're hearing anecdotally from KiwiSaver providers, so we get out and we meet industry and we talk to them about what's going on, talk them through surveying that we're doing to sometimes tell them that they're not doing a very good job or congratulate them when they are. They're seeing increased hardship withdrawals or suspension of payments, they're worried about it as well. Obviously, the more money you have invested with them, the higher the fee return for them. So there's a commercial interest in that. But equally, the trend that's been identified to us is that once someone has done a hardship withdrawal or suspended payments once, they're more likely to do it again. And so it becomes a more acceptable or regular pattern of overall financial management for them, as opposed to people who have never done it and have done their very best to treat their nest egg as sacrosanct. The Kiwi Saver nest egg is sacrosanct and just not touch it.
Jess
Not touch it, yeah.
Jon
So that's concerning the industry and it worries us as well.
Jess
And what usually triggers people to get in touch with you guys with their Kiwi Saver?
Jon
It's quite perplexing. Like it can be really difficult for people to even know where to start. Maybe they've just fallen into a default scheme and they're perhaps looking at their returns going, hey, I wonder if I can do better. And that's usually the journey that we see. Or perhaps the interview summaries come through and they go, jeez, I paid a lot of fees last year. I wonder if there's a better deal out there for me. And so we try and set out to the best of our ability data so that people can make a comparison and equally understand a little bit about where their funds are invested because not all KiwiSaver providers invest in the same types of investments and it may not necessarily be a match with people's values but the main reason people are getting in touch with us is they want either better returns or lower fees.
Jess
And it can be harder when you're contributing every single week and you see balances drop. Could you talk a little bit about why that happens?
Jon
Well, you're making an investment, right? And investments go up and down. And where people And again, I must preempt this by saying I'm not a financial advisor. I'm not actually that great with numbers. But what I see, what we do see is people panicking when there's a short-term drop in the market and they see their balance decline or plateau and they look to make a change to try and avoid what they perceive as losses. But actually markets fluctuate and it's the longer term trend that you really need to be paying attention to. So the 10 year plus trend. And typically with what we've seen across all providers, some are better than others, so it's definitely worth looking around. But across all providers, there is generally a trend upwards in balances across that longer term.
Jess
Yeah. And with the cost of living pressures at the moment, I'm sure people are considering whether they can afford to keep contributing. Do you have any tips for people that are feeling like that? And as we say, it's that long-term saving. Is it better to sort of change your contribution rather than pulling out altogether?
Jon
That would be always our preferred position. So at least you're putting something in because remember, every little bit that you put in, that's compounding over time and providing a higher return for you at the end or a higher balance for you at the end. So if we understand personal circumstances sometimes mean you need the money to make ends meet day-to-day. And we would never advise, if you really need that money not to use it. It's a little bit about exploring the alternatives. So, some of the danger the industry is pointing out to us is that people kind of go, oh, actually there's some money there, it's my money, and I wouldn't mind accessing it, even though there might be other alternatives that they could exercise that would mean that KiwiSaver balance just gets left over there and when you turn 65 or whatever the age is that has been untouched over the period you've been saving and it'll be that much healthier for leaving it alone if you can.
Jess
Yeah, absolutely. And you talked earlier about once you make a hardship withdrawal, sometimes you notice this trend of people doing it again. Do you find people overestimate how much they got to manage their KiwiSaver?
Jon
The number of people who, or the percentage of people who are just on a default scheme have just gone, hey, this is too much life admin for me to be bothered engaging with. I'll just pay money into the default scheme that I've been put on. That concerns us as well because it really does pay to engage with what can be 10s if not hundreds of thousands of dollars by the end, engage with it because you could be leaving money on the table if you It's simply on a default scheme and it's just ticking away.
Jess
And coming back to people stopping contributing altogether, when markets are down and money is tight, obviously stresses are higher, we make decisions when we're emotional. Why is it harder to come back from a decision that you make sort of in the moment? If you do pull out of your KiwiSaver, how does it impact someone sort of long term?
Jon
Sometimes you can make the decision to maybe change your fund type, maybe go from growth to conservative or the other way around because you see the fund drop.
Jess
Yes, yeah.
Jon
But unfortunately, you'll lock in those losses if you make a change or you switch to a whole other provider. That provider has to start again from scratch with your money. You'll lock in the losses that you've incurred. Whereas if you ride it out over the longer term, often those losses will be recouped one of the advantages when markets drop is fund managers can buy shares or stocks that potentially will increase in value at low prices. So actually market dips can be followed by quite reasonable gains. Yes, yeah, But you have to be in for the long haul to realise those gains.
Jess
Yeah, because I was going to say we noticed that with COVID, right? Like there was a big drop and then that kind of started to recover. that we've seen over the years that there is a trend in it, often does come back. It's sort of just riding it out.
Jon
That's right.
Jess
And why are we so wired to panic? Because as I say, we have seen these trends over the years and they do tend to bounce back, but we're so wired, I feel like, to just absolutely panic when we're in that situation.
Jon
I think it's human nature to be loss averse, right? Nobody wants to see their balance going in the wrong direction. And I think naturally people will tolerate a little bit of volatility and then it gets to the point where they go, whoa, I can't see this trend reversing and my balance is going to go to zero. Again, this isn't financial advice, but that is highly unlikely unless there's some sort of catastrophic economic situation that is highly unlikely. So you pay your fees to engage your fund provider to do this professionally. often it's better to leave it to them. However, there are circumstances where your personal situation might have changed.
Jess
Absolutely, yeah.
Jon
And in those circumstances, it's our recommendation to seek out. either budgetary advisory services, mentoring, or if you're able to go to a licensed financial advisor and draw up a plan with that person. You can talk to them about what your longer term plans are, you know, that kind of lifestyle you kind of dream for yourself in your retirement and work out how much you might need and therefore what decisions you need to make now to make sure you're on the best path to achieve those outcomes.
Jess
That's probably a good tip as well for people that are thinking, oh, should I pull out all together? Is maybe talk to someone, get some advice first and yeah, and go from there.
Jon
Yeah, absolutely. I mean, if you can find a reasonable alternative to KiwiSaver that will build your wealth in the same way, all power to you. I mean, we don't have a compulsory retirement scheme here in New Zealand. Other countries do. I think that's kind of a live debate out there in policy circles about whether we should have a compulsory scheme. But if there are alternatives and people feel that they can still achieve the same outcomes but not through KiwiSaver, I actually think that's fine from a societal perspective. where I think we run into trouble is where we have people who are not doing anything to contribute to their future well-being.
Jess
Yeah, and that's a concern.
Jon
That is a concern and there's a particular concern if people don't see the value in doing it. That means that kind of the responsibility for caring for those people are spread across society in their retirement and it could mean that people can't have the quality of life that they want to in their retirement because they haven't made good decisions now.
Jess
And I was keen to know if at Consumer NZ you guys have seen or heard of any trends of people reacting to headlines because obviously headlines are scary at the moment. Do you find that people do react quickly when news is coming out?
Jon
And I think the industry is probably a better place to talk about what's happening right at the coalface. So we often get contacted by people when things have gone wrong.
Jess
Right, yes.
Jon
And they want to know why. And as we track it back, we go, well, you made a decision to jump out of this fund. right at the bottom, when the value of the value had hit hit rock bottom, and you locked in those losses, and that's why that's happened, and people might go, Well, that's not fair, you know, that's not why I signed up to KiwiSaver, but... That is the investment ride. And people can control that to an extent by selecting funds that might be more conservative if they do, they want to minimize volatility to the greatest extent that they can. my observation would be that a conservative fund may achieve some of that for them. Yeah.
Jess
And talking a little bit about fund choice now, do you guys find that it's quite common for people to not know what fund they're in? I hate to admit that I am probably one of those people. I'm a set and forget kind of person. I'm busy. Yeah. And yeah, right now I probably couldn't tell you what fund I'm in myself, but is that quite common?
Jon
Well, shame on you. I know, not shame on you. I think there's a significant number of people who've just defaulted into a scheme, been put onto a default fund. and have never really engaged with it. They kind of know in the back of their head, oh, that's ticking away in the background, there's a percentage of my paycheck that's going into that thing, she'll be right. Kind of kind of that's the attitude, isn't it? Absolutely. That's true. And I think that's why the scheme has been set up. So at least there's something going on in the background. But if you did take the time just to get a little bit more active and go, you might be quite early in your career, you might have quite a low balance as a result, you might put it on to quite an aggressive setting to grow that as quickly as you can. And then, it's quite a common pattern for people to then move to a more medium growth or conservative fund as their balance grows, gets to a certain level, so they kind of protect that balance to a greater extent. Other people might be quite happy with the volatility and just sit with a high growth fund and may be 10s if not hundreds of thousands of dollars better off in their retirement because they've managed it that way. It's really incumbent on people to engage because your your risk appetite, your values and your future goals all play into this. So it's not a one-size-fits-all type situation.
Jess
And especially when you're playing that long game, it's quite hard to look at every day. I find it's.
Jon
I think it's actually dangerous to look at every day. It's not good for your mental health.
Jess
No, I was going to say.
Jon
Particularly with the volatility that we're seeing at the moment, people might have seen their Kiwis over balances just plateau and you think, I'm paying X percentages of my salary in every couple of weeks, but it's not growing, which means it's losing money. Just be patient. In theory, if your fund's been managed well, those losses will rebound.
Jess
And how should people think about when they're going to need the money? So if they are looking to change which fund they're in, what sort of questions should they be asking themselves?
Jon
Well, they should be doing a little bit of research and there's plenty of stuff out there. So they can come to consumer.org.nz. There's lots of tips and things to think about without crossing the line and providing direct personalized financial advice. Because again, I'll stress that point. If you can get personalized advice, that is the best thing to do because someone who's trained in providing professional financial advice will be able to go ask you all of those broader questions about, I guess, your hopes and dreams, but also your current situation. and try and draw a line between where you are now and where you want to be.
Jess
It's more personalized. It's not a one-size-fits-all.
Jon
Absolutely. And that's some of the danger we see with some of the advice that's out there through influences and things like that, where you get kind of broad brush general advice and you might go away and act on that, but that might be completely wrong for you.
Jess
Yeah.
Jon
And often it's caveated so that it's completely legal to provide that kind of advice because as we know, financial advisors need to be licensed because it is a professional service and so it should be because getting it wrong can have serious consequences for people. And so when we see generalized advice out there, particularly stuff that's coming in from overseas where it's not necessarily subject to New Zealand law or New Zealand law really couldn't practically be enforced against an overseas influencer who's providing investment advice. I think it's good for people to take a broad approach to investment advice and listen to lots of different kind of data points. But there's no substitute for either a financial mentor or professional financial advice here in New Zealand, in New Zealand conditions, subject to New Zealand law and protections, consumer protections, to give you the right answer for you.
Jess
Yeah, the Finfluencer stuff is really interesting. We've been trying to get some comms out at the moment about sort of being cautious when you are looking at money advice online. Have you guys seen an impact of misinformation around money and Kiwi Saver?
Jon
Actually, across the board, across many consumer areas, product safety, health claims, and wealth creation is a big one because people, I'm not saying that all influencers are providing bad advice, but there are influencers out there who are either have an undisclosed corporate sponsor that wants you to do something, have an undisclosed, perhaps not so legal reason for wanting you to channel your money into a particular product or service. So people really need to be really cautious, particularly when you're thinking about more advanced KiwiSaver balances, the sums that could be involved in making a poor investment choice could be catastrophic if the wrong choice is made.
Jess
Because if someone is following a one-size-fits-all approach that they've seen online, are they sort of not getting the most that they can for themselves out of KiwiSaver if they are sort of taking that approach?
Jon
Absolutely. I mean, there is a slim chance that everything lines up and the general advice that an influencer is providing through social media perfectly aligns with your personal circumstances and following that advice will be a really good outcome for you. But that's kind of like finding a needle in a haystack, really. When you think of all the nuances that individuals present with, it's far better to actually sit down with someone and get them to tailor something that's matched to your personal needs.
Jess
And do you have any tips for Kiwis that are looking at money advice online, how they can tell whether it's misinformation or do you have any tips where people can kind of make sure that the...
Jon
It's really difficult. It is, isn't it? It's a broader threat to kind of social cohesion and democracy across the board. It's not just financial advice, but general misinformation out there on all sorts of different things. So my advice is to be cynical and skeptical and be very careful handing out your trust. I like that.
Jess
Yeah, I like that approach.
Jon
Yeah. And going to trusted sources, and I'd like to think that somewhere like Consumer NZ or New Zealand government websites would count as trusted sources for people. Although we know that actually there's, you know, Various respected surveys are indicating that there's declining trust in government sources, which is actually a function of the amount of misinformation out there looking to undermine trust in government sources. And it's a bit of a vicious cycle. So yeah, finding trusted sources, friends and family can be really useful as well. getting recommendations for experts that people you trust have used can be a good way of going about things as well.
Jess
Yeah. And if people do want independent information, as you say, you guys have got some great information on your website. And when can people come to you guys?
Jon
So we have a lot of information that's free to the public. So a lot of high level stuff. And then obviously there's a whole lot of research that we do. We're funded by our members. So If you need to get into the nitty-gritty, for example, recommendations on who's come top in a KiwiSaver survey, who's got the best customer service, who's got the best information, that sort of stuff, that's behind our paywall. So you'd have to join up as a member to get that.
Jess
Awesome. And I feel like talking about KiwiSaver, it's really important to touch on fees. And I know you guys do quite a bit of work around fees. Why do fees matter so much over time?
Jon
Firstly, fees are usually a percentage of your balance. So the bigger your balance gets, the higher the fees. And even, we did some calculation, even a 1% fee on the basic government contribution over the lifespan of a KiwiSaver can end up being 10s of thousands of dollars in fees, right? So it is It is material to what you end up with. So it really pays to shop around and look to lower fees where you can. The main reason to pay attention to fees is they have a material impact on what you end up with when you decide to retire.
Jess
Yeah. And do people genuinely know what fees they're paying?
Jon
No. And the providers that we get better feedback on in terms of customer satisfaction are often the ones who have a lot more transparency. there's providers out there that have steadily lowered fees over time as their overall funds under investment have risen. They've been able to turn around and go, well, we don't need to, we don't need to charge people as much because we're meeting our needs as a business. That's awesome. That works in the public interest and it would be great if more Kiwi server providers acted in that way.
Jess
As you say, cheapest isn't always best, right?
Jon
That's true. And also most expensive isn't always a guarantee that you're getting the highest returns it pays to look around.
Jess
And how easy is it for investors to compare fees across providers?
Jon
Well, we set it all out on our website, so people can come to us and get a snapshot of what's available in the market. But it does take quite a lot of work. It's it's not as if this information is out there and readily available to the general public. You have to go from provider to provider and pull your own spreadsheet together and be a bit nerdy about it. And one of the detriments to, one of the problems is that not everyone's got time for that level of life admin, right? But Again, the reminder is over time, we could be talking about 10s of thousands of dollars you could be saving over the lifetime of your plan.
Jess
If someone's listening right now and they're thinking, I want to see what my fees are, how can someone go and look to see what their current provider is charging?
Jon
Well, different providers have different mechanisms for communicating with their clients. So some providers have an app, so you should be able to go into that app and look at what plan you're on, what fees what the fee structure is for that?
Jess
Is there an impact when you do switch? Like as in if people switch all the time, does that kind of impact their KiwiSaver overall or especially with like changing funds as well when people, when you chop and change heaps, does that impact your savings?
Jon
You'd have to talk to someone who's done more analysis than I have on it, but I think switching, I wouldn't be switching every year because it's a long-term investment. But checking in every couple of years and going, what's the fee structures? Have the fees crept up? Are there better offerings in the market? I think that's really healthy. for particularly with smaller providers, you may be able to go back, particularly if your balance is a bit larger and you're in theory more of a valuable customer to that provider. Going back to them and going, hey, I'm just seeing the guys over the road, they're charging, you know, 0.2 percentage less in fees. Can you match that or I'm going over the road? And often that will see you get a discount.
Jess
And they should be quite open with telling you their fees as well, I'd issue.
Jon
Absolutely. They're required to disclose them. It's just how they disclose them that can make things a little bit more opaque.
Jess
And if people are comparing performance, how should they treat fees?
Jon
I think it's really important to look at post-fee performance, to look at how well the fund is going. once kind of all the noise is taken out of it. That also gives you then the ability to go, okay, well, the fund's doing, maybe it's doing okay post fees. How much am I actually paying for this okay or maybe poor or maybe excellent performance? And then you can do a bit of a value assessment to go, well, for the fees that I'm paying, actually is this fund performing where it should be? How are other similar funds performing? And it just makes the comparison a little bit clearer if you've got a baseline that's taking fees out of the equation to compare across funds. That really gets to the nub of how the thing's going.
Jess
Awesome. And to wrap up, is there one thing you'd like listeners to take away? Because there's lots in this episode, lots about KiwiSaver market volatility. What is one thing you want people to remember right now in a time that's quite stressful?
Jon
If you haven't checked your KiwiSaver recently, get in and check it. And don't be a passive investor. Have a look around. And you never know, you could significantly increase your returns on KiwiSaver over the length of your time saving by just making a couple of changes today. And if you've got questions, do a bit of research, come to Consumer NZ. We can start you in the right direction, but you might want to talk to a financial mentor or a financial advisor as well to get yourself set up right to maximize your wealth because it's your retirement, it's your future that you're working on here.
Jess
And it's a good time to Right, with statements, key service statements coming out, that's right.
Jon
Yep, there's well, actually, there's no time like the present, right? Because the sooner you make a change, if it's increasing your returns, the longer you'll benefit from that change.
Jess
And where can people go if they've enjoyed this episode and they want to find out more about you guys over at Consumer NZ?
Jon
The best place is to hop onto our website, consumer.org.nz. There's a whole lot of information that's free to the public. You can learn all about the advocacy work that we do. And if you want to get in behind the paywall or support what we do, the best way of doing that is signing up as a member and you get access to the full scope of all the testing and research that we do. And there's great advice there. on how you can save a bit of money.
Jess
Awesome. Thank you so much for your time today.
Jon
No problem.
Jess
It's really interesting.
Jon
Cool.
Jess
And thank you so much for listening. If you'd like to find out more about Consumer NZ, you can head to their website, www..consumer.org.nz. If you'd like to find out more about the FMA, head to our website, www..fma.govt.nz, and I'll see you next time. The content of this podcast is of a general nature and is not financial advice. The thoughts and opinions of guest speakers are not those of the FM The FMA recommends that our audience seek advice and respect to investing from a regulated financial advisor. The FMA does not accept any responsibility for loss that any person may suffer from following it.
