by Susan Edmunds
Commerce and Consumer Affairs Minister Kris Faafoi is seeking feedback from KiwiSaver providers on the introduction of the new information.
“We want people to have access to clear, easy-to-understand information that shows how their current savings are tracking towards retirement. Statements will show people an estimate of the savings they will have built-up by age 65 and the weekly retirement income that sum would provide over 25 years.
“How quickly these changes can be made to annual statements will be determined as part of the consultation we are undertaking with providers, but it is my expectation the requirements will be introduced without delay."
Former IFA president and financial adviser Nigel Tate said it was not a bad idea but the industry had seen projections before. "Consumers have been disappointed as a result of over-projected rates, so maybe but only if the rates were an average of a minimum of the past five years' returns of that client's scheme."
Conservative rates would also be needed to gauge the decumulation phase.
IFA chief executive Fred Dodds said it would be a test to see if clients cared, would inquire, how effective providers' tools were and whether they would use them.
It might also test bank advice staff, he said.
"If the questions are searching, the 350 to 400 AFAs in the banks will be busy."
He said it would also be interesting to see how many calls non-aligned advisers received because not all KiwiSaver members are with big providers.
"Hopefully the media and commentators concentrate on the 'his is a good idea'to actually get people thinking about retirement and not charge off into an undoubted criticism of fees."
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What would we need to make assumptions about in a projection model: for starters
1. future inflation
2. wage increases
3. future contribution rate by employee
4. future contribution rate by employer
5. future contribution by Governemnt
6. assumed rate of return investment - need separate assumption for each fund a provider offers because of different asset allocations
7. Number of years till drawdown begins
8. Asset allocation during decumulation phase.
Then factor in that projections use smooth parameters - the expected means; how do you factor in volatility?
Then how do you stop assumption arbitrage by different providers for marketing advantage?
Presumably Government would have to intervene to declare standard assumptions. How good would they be at that?
People have to understand that a projection is not a forecast of what will happen. A projection is a what a model says will happen if we assume A, B C D E and F. If any of those assumptions proves to be wrong, then all bets are off.