Many Kiwisaver providers have introduced "Mirror" funds to the market in an effort to help Kiwisaver members have more flexibility and control over their savings. But what are Mirror funds and why are they beneficial?
Recently the Financial Services Council (FSC) released a research report stating that more than half of New Zealanders (56%) and the majority of Kiwi women (69%) do not feel financially prepared for retirement. In other words, at the current rate of contribution, most people are not expected to make it to a dignified and fully funded retirement (even though Kiwisaver funds have crossed the $100 billion mark). The FSC's solution is to highlight the need for increasing contribution rates. Which is true. In my opinion, it's also a bit insensitive given the current state of the economy and high cost of living. Asking people to increase contributions into Kiwisaver is a tough ask given that the money is locked in. Kiwisaver basically grows in two ways: (1) regular contributions and (2) performance. Contributions are made through the Kiwisaver member, their employer and the Government. The only real control an individual has to increase contributions is to increase their own rate of contribution. We cannot rely on employers or the Government to increase contributions. And performance is also not something the individual can control. This is where a Mirror Fund comes in. It is designed to mirror the performance of a Kiwisaver scheme but without locking in the money. The contributions remain accessible without having to ask anyone for permission. For example: if your Kiwisaver fund achieved 5% performance growth, so will your Mirror Fund. Consider them twins. They are identical in asset allocation and investment strategy. The major benefit of Kiwisaver is that the employer and the Government both make contributions. Beyond that, Kiwisaver has little real benefit. So if you are wanting to increase your contributions beyond the minimum 3%, consider a Mirror Fund. This way you can increase your savings rate (eg: an extra 3%) but the money is accessible should you have a financial emergency. If you need personal guidance feel free to reach out to me any time. Click here to contact me. Paul de Klerk (FSP110367) is an investment and retirement planning specialist. He works for the Financial Advice Provider (FSP) known as De Klerk Business Services Ltd (FSP1005978). For a disclosure statement visit www.pauldeklerk.co.nz/disclosure. Nothing in this article is meant to be interpreted as personal financial advice. For personal advice contact your financial adviser. If you do not have a financial adviser feel free to contact me any time. 
Paul de Klerk
Comments are closed.
|