Age-defined KiwiSaver plan criticised
Ongoing problems collecting the ages and addresses of new KiwiSaver members could scupper an industry proposal to sort savers into age groups, says one of the scheme's largest fund managers.
Default provider AMP has skewered the IRD over the "problematic data" it supplies to KiwiSaver providers in a submission to the Ministry of Business, Innovation and Employment.
The ministry is reviewing the system of six default providers who currently take undecided, auto-enrolled members and put their money in conservative funds that are heavily weighted to bonds and cash.
People can switch at any time. However, many do not, so some big providers want a new system where undecided people are put in to a risk profile based on their age.
But default schemes often could not contact their undecided and automatically enrolled members because of incorrect addresses, and sometimes had their ages wrong, said AMP.
Problems with IRD data would be a "fundamental weakness" with any scheme that put people in so-called 'life-steps' funds by default according to age, it said.
AMP said the IRD should take more responsibility for supplying accurate details.
"The continued provision of inaccurate default member address and contact data provided by Inland Revenue ... challenges default scheme providers' ability to communicate with members," it said.
"Providers have had some success in tracking members however this has been a costly exercise."
In a life stages system, inaccurate ages could see people placed in wildly inappropriate funds, for example a volatile share fund for a cautious elderly worker.
Kiwibank also cited problems with IRD data in a submission calling for default funds to be scrapped.
The New Zealand-owned bank wants the Government to ditch the default schemes and instead require all new members to make an active choice.
That would encourage people to take more interest in investing their savings and assessing their risk profile, Kiwibank said.
Employers would hand out information packs and a list of funds to new employees - who are auto-enrolled in KiwiSaver when they change jobs - and could take a role in educating them, said the bank.
Employers would be more active than the IRD about ensuring new members gave correct contact information.
"This will decrease the problem that is currently facing default providers as to the incredibly high volume of 'lost' members," it said.
In 2010, it was estimated that up to 200,000 people in default KiwiSaver schemes could not be contacted by their providers because of problems with Inland Revenue records.
'Lost' savers may not receive the letter telling them who their KiwiSaver provider is or the annual statement on their KiwiSaver balance, or the annual report explaining the returns of their fund.
New employees have eight weeks to opt out after being automatically enrolled. If they do not manage to opt out through no fault of their own, they can ask for an extension.
LIFE STEPS BY DEFAULT - where the big players stand
Commission for Financial Literacy and Retirement Income