What is the one real problem with KiwiSaver?
A common objection to KiwiSaver is that funds are locked up until retirement. OPINION: KiwiSaver savings have grown to over $70 billion in a decade, without a single failure or fraud. Its been a huge success, and is already much larger than predicted. And its the most trusted financial product in decades. As a KiwiSaver manager, you would expect me to be a fan. But the numbers speak for themselves. And as Im working for a non-profit manager, there is no personal barrow to push here. However, not all finance experts agree. They criticise KiwiSaver, and focus on a few common themes. The first is lack of choice, ie that youre stuck with only one fund manager. Critics say that without more choice, investors suffer. But with over 20 managers and 100-plus funds to choose from, this criticism is weak. More choice is not always better, as anyone buying wine, shoes or shampoo knows. The paradox of choice is psychologically taxing. And in investments, more choice usually means more expense. Those asking for more choice often want as confusing a range of choices as possible. Thats so they can charge fat fees for navigating through the noise. The consequence is more of our money in the pockets of financial advisers and fund managers. The second objection to KiwiSaver is that funds are locked up until retirement. Once again, its weak argument for changing a winning formula. There are over 15 different ways to withdraw KiwiSaver funds early, most significantly in hardship or to buy your first home. LAWRENCE SMITH/Stuff Sam Stubbs: In the real world, every OECD country has a pension scheme which locks up savings before retirement, for a very good reason.  And critics of the locked-up nature of KiwiSaver savings assume perfect information, wide choice and 100 per cent rational behaviours from every investor. Theyre dreaming. In the real world, every OECD country has a pension scheme which locks up savings before retirement, for a very good reason. The whole point is to have a great life in retirement, not to fund life before retirement. The third reason people criticise KiwiSaver is tax, ie that KiwiSaver contributions are from tax-paid earnings, and that gains are taxed within the fund you choose. This is a poor argument too. KiwiSaver gains are taxed at a lower rate than most peoples personal tax rate, generating higher returns than other investments. And the $512 annual Government subsidy, available to everyone between 18 and 65, is effectively free money. And critics usually gloss over the critical issue of investment and advisory fees. KiwiSaver fees were a mammoth $538m in total last year. But theyre still a bargain compared with fees charged for other investments, and any attached advice. A low-cost KiwiSaver fund can have 70 per cent lower fees than an equivalent retail investment fund. Add on financial advisor fees and the costs of investing outside KiwiSaver can quickly exceed the benefits. Rafael Ben-Ari/Chameleons Eye A low-cost KiwiSaver fund can have 70 per cent lower fees than an equivalent retail investment fund. And critics of KiwiSaver overlook another of its best features, the extra level of security. Put simply, Governments simply cannot allow KiwiSaver to fail, whereas other financial schemes do fall over, and too often. Sellers of snake oil love the finance industry, but they find it hard to get into KiwiSaver. For example, a payday lender is currently trying to clothe itself in legitimacy by rebranding as a fintech company. Thankfully they are very unlikely to be allowed to be a KiwiSaver scheme, because regulators and supervisors understand their business for what it really is. Some property syndicators play these games too, giving the impression that 10-15 per cent returns are low risk, simply because its invested in property. But there is no reward without risk, and promised high returns usually come with plenty of downside too. They will find it very hard to sell this story via KiwiSaver, and for good reason. The odd miscreant gets through, with one KiwiSaver manager investing (gambling) in crypto currencies recently. But overall, KiwiSaver is one of the safest long-term places for our savings. The real problem with KiwiSaver is that some still dont have it. This is now discriminating against the poor. Those already in KiwiSaver should worry about this too, because theyll pay higher taxes to fund those without enough saved for retirement. And as KiwiSaver is now a major contributor to first-home deposits, we should all worry about kids without KiwiSaver. Going into adulthood without KiwiSaver is like starting the race two steps behind. The real problem with KiwiSaver now is that its not compulsory. Too many are missing out on a proven winning formula: $70 billion saved, with no frauds or failures, speaks volumes. Its so successful, safe and protected, that every Kiwi should have one.  Sam Stubbs is the chief executive of KiwiSaver fund Simplicity.