The option to withdraw KiwiSaver fund to buy a first home should be retained but other changes made if default funds are changed to “life stages” settings, Mercer says.
Mercer, one of the default providers, has about $800 million under management in KiwiSaver and Mercer’s New Zealand boss Martin Lewington said the first-home option has been used by only about 1% of its members so far.
But he said home ownership was important for New Zealanders and KiwiSaver members should still be able to use it for that purpose.
“We know New Zealanders want to buy their own home; it’s part of the New Zealand psyche even if it is getting expensive.”
Lewington said Mercer also supported switching the default funds to “life stages” or “whole of life” settings, meaning investors’ asset allocation was automatically adjusted as they aged.
“What we’ve observed in the USA and the UK is whole of life offerings have a higher probability of delivering much a better outcome than a set and forget conservative option.”
The problem, he said, was that many prospective first-home buyers were in their 20s and 30s, meaning their default setting under a “life stages” approach would be very aggressive.
But if they were going to pull their money out in a few years they would need to focus on capital preservation.
Mercer’s suggested solution is to include a question for members asking whether they think they will buy a house within the next 10 years.
“You’d be put within a relatively conservative fund for 10 years then your risk profile and amount of exposure to growth assets would be increased and then gradually decline again along the whole of life path as you get closer to retirement.”