KiwiSaver has been a resounding success with over 2.4 million members, far exceeding the original Treasury forecast of just 680,000 members by June 2014. It is a long term investment which is helping increase the wealth of New Zealanders, but in our view one of the big disappointments is how conservatively many people are investing their long term savings. According to Morningstar 30% of investor’s money is in Conservative Funds and 53% of all KiwiSaver money is invested in income assets (like bonds and cash). This is driven in part because many young members are likely still in their default allocated fund. Perhaps these people would not have been saving otherwise, and any level of savings is a bonus, but that does not mean their current situation cannot be improved.

A young investor’s asset allocation is extremely important. This is because over the long term, growth funds (which hold mostly growth assets, like shares and property) should outperform conservative funds (which hold mostly income assets, like bonds and cash), leaving investors in growth oriented funds with much larger retirement nest-eggs capable of producing more income in retirement.

Let’s look at two hypothetical investors, both 30 years old, with a $20,000 KiwiSaver balance and net salary of $50,000 per year with minimum employer/employee contributions of 3% and annual salary increases and inflation of 2%. It is not unreasonable to assume the growth investor, although it will be a bumpier journey, should achieve net returns that are slightly better than the conservative investor over a long working career. The table below shows the huge impact of this seemingly small difference in investment returns:




Annual Salary   (after tax)

Current KiwiSaver   Balance

Assumed Investment   Return (after fees and tax)

 Lump Sum at age 65 (in today’s dollars)

Growth Investor




6% p.a.


Conservative Investor




4% p.a.



With a much larger lump sum, the growth investor should be able to produce thousands more in retirement income than the conservative investor.

With so much at stake, why is it so difficult to get people to take notice? Unfortunately, there is no simple answer, and there will always be a certain amount of people who never take an interest. There will also be some that cannot stomach the ups and downs of growth investing, which is understandable. But there’s certainly a big opportunity for these young people to easily improve their savings prospects simply by taking notice.


Sean Donovan

KiwiSaver Associate