Comparing returns

Comparing scheme providers on the basis of their returns is similarly difficult. Returns are not guaranteed and many schemes have little historical data to help guide you.

Our review of 13 managed funds over the last 10 years showed an average return of just 3.66 percent per year. These results on "balanced" funds (net of fees and taxes) are hardly better than inflation. In most cases, investors would have made more from putting it in the bank which has much less risk attached.

Large losses

As for the actual KiwiSaver returns so far, the Sunday Star Times recently published figures showing some KiwiSaver funds have made losses of up to 20 percent. It also said that "only 27 of the 132 KiwiSaver funds are in positive territory six months after they started investing". Not only have many KiwiSaver investors suffered large losses; they've also been charged fees by fund managers for this exceptional investing.

Where the scheme has invested has been an important factor in the level of returns so far. Some 14 scheme providers - including some of the big-name fund managers and default scheme providers - that have invested mostly in property and shares "growth" funds have lost more than 10 percent in the last six months. Conservative funds investing primarily in cash, bonds, and fixed interest have tended to do better (or for some in the current investment climate, lose less) than higher-risk growth funds.

As Robert Oddy, Managing Director of International Financial Planners Limited, says, "One aspect many people fail to understand is that investing involves risk. There's always a risk of a loss. By spreading your investments, you help minimise the impact of any loss that may occur. If you select a fund manager who has a narrow range of investments, then perhaps that's not the best approach".

With only six months of operation under their belts, and with so many scheme providers losing money, comparing providers and funds on their returns at this stage is near impossible.

IRD to the rescue

The silver lining to the dark cloud of KiwiSaver's woes is that IRD's poor administration and delays in forwarding money to scheme providers has actually protected some members from losing money.

While IRD is supposed to hold employee contributions for three months, in some cases this has taken a lot longer. And IRD pays around 5 percent interest while holding this money. So while most schemes have been losing money, those with contributions trapped in IRD have made one of the healthiest profits to be found in KiwiSaver.