A lack of independent advice for people entering KiwiSaver is a problem but will come right over time, says the chief executive of the Financial Services Council.
In its recently released annual review the FSC has reiterated its call for a more favourable tax treatment of savings investments.
It said one of its priorities was to make savers aware of how the tax system worked and the effect it had on their KiwiSaver balances.
The FSC has presented a package of options that it says would allow the Government to lower the tax on KiwiSaver so it is level with property investments.
This could be done by eliminating the hundreds of millions of dollars Government pays in tax incentives to KiwiSavers and redirecting the money.
The FSC says compound interest returns are severely hampered over a saver’s lifetime by tax.
Chief executive Peter Neilson said: “Lower taxes on savings in KiwiSaver funds would have a benefit for the economy too, dampening the attractiveness of investments in rental properties and the overheated property market and instead turning the light on to lifting productivity, wages, export competitiveness with a lower dollar and building a more robust national savings pool to fund greater investment in New Zealand enterprises and infrastructure. It may also serve to keep younger New Zealanders as contributing taxpayers at home rather than going to Australia where they could expect to receive double New Zealand’s average retirement income.”
People were missing out on advice when they signed up to KiwiSaver, he said. “In an ideal world, people thinking about joining KiwiSaver would get advice from a financial adviser upfront… at the moment most advisers tend to avoid dealing with KiwiSaver because there isn’t fee income that’s commensurate with the time spent giving advice.”
He said that meant too many people did not realise that they were not in the right kind of fund for their circumstances.
The FSC estimates that if someone on the average wage, contributing 6%, stays in a conservative fund for the next 40 years, they will end up with a nest egg at least $150,000 smaller than if they invested in a balanced portfolio, and $250,000 less than being in a growth fund.
Neilson said as balances grew, advisers would be more inclined to advise on KiwiSaver. “Most people’s balances are still too small to be attractive customers for advisers but as they grow that will change and it will cure itself over time.”
He said KiwiSaver was a low risk investment but people would still benefit hugely from having someone offer general advice before they signed up, to ensure they were with the right fund and provider.
Neilson said financial advisers could also offer great value to clients who were thinking about transferring their superannuation fees across the Tasman by pointing out the discrepancies.
Under new Trans-Tasman portability rules, savings can be moved in either direction. But Neilson said advisers need to make sure that their clients adequately understood the tax implications of moving savings to New Zealand.
Australian superannuation is taxed at 15c in the dollar, while most New Zealanders pay 28c on their KiwiSaver accounts. “People need to get advice on whether it’s sensible to bring savings across the Tasman.”