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Financial advisers want KiwiSaver to get SMarT

A group of four financial advice businesses wants the Government to consider implementing behavioural finance techniques to boost KiwiSaver returns.

Wednesday, August 28th 2019, 6:00AM 2 Comments

Jonathan Parsons, of Spratt Financial, Ali Bazzaz, of One50 Group, Joseph Darby, of Milestone Direct and Clive Fernandes of National Capital are lending their support to a Victoria University report as part of a submission to the Retirement Commissioner’s 2019 review of retirement Income Policies.

They want to make it easier to implement economist Richard Thaler’s Save More Tomorrow (SMarT) plan.

It works by getting people to commit to using their future pay rises to increase their retirement savings contributions. Contributions rise each year until they reach a pre-determined maximum savings rate.

The usefulness of this approach is also being considered in Massey University research.

The report asks the Government to make changes to the KiwiSaver KS2 form to allow employees to indicate how much they want their contributions to increase each year, and to what maximum. It also asks the Government to research how the plan would work in a New Zealand context by running a trial in the public sector.

The researchers noted in their report that at the moment, employees should be able to commit to future savings increases but it would require extra administrative effort.

Fernandes said the SMarT plan had been estimated to increase annual savings in the United States by US$7.4 billion ($11.6 billion).

He said New Zealand was a few years behind some of the rest of the world in implementing behavioural finance techniques. “We will get there, it’s just a question of when. I think it would make a huge difference to KiwiSaver.”

He said it was important that employers, who would have a significant role to play in implementing the system, could see that it would benefit their employees.

Tags: KiwiSaver

« KiwiSaver providers question loss-making assumptionsWhich KiwiSaver funds will weather the currency war? »

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Comments from our readers

On 28 August 2019 at 9:04 am smitty said:
All for encouragement to put the pay rises to KS, or to perhaps, your mortgage. It doesn't acknowledge one important factor though. Incomes Vs expenses are being squeezed every year, and if someone is looking forward to an extra $30 in their pay packet every year, it will be a hard sell to save this in a locked away KS scheme to 65. Just saying.
On 28 August 2019 at 1:54 pm Clive.Fernandes said:
I believe just telling Kiwis they need to save more is not enough. The government
needs to encourage behavioural nudges which have shown to help people save
more, almost unconsciously.

The link to the full working paper can be found here - http://researcharchive.vuw.ac.nz/handle/10063/8245

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