How do you choose a KiwiSaver fund, anyway?

There it was, a difference of $17,000. That’s no spare change.

My colleague here at Sorted – who, you may remember, didn’t cave in to spaving and scored that bargain blazer – had just come aboard here and fired up our KiwiSaver fees calculator.

Eight months earlier, she had been moving to a new bank and was asked if she wanted to transfer her KiwiSaver, too. Seemed like good customer service – a helpful question at the time.  It was convenient to keep all her accounts together and be able to see her KiwiSaver balance right there. Who wouldn’t think that was a good idea?

But that’s where the $17,000 difference came in – she was unknowingly moving from her passively managed fund to an active one, which typically carries more fees because you're paying someone to look after your money. And what the fees calculator told her was that in the years until her retirement she would end up paying $17,000 more.

‘I wouldn’t have known that at all,’ she explains. I’m guessing her bank adviser probably didn’t either.

Should you switch funds?

It’s easy to switch, but it won’t always be right for you. There are two ways of switching with KiwiSaver: staying with your provider but moving to one of their other funds, or moving to a new provider entirely.

But there definitely are some really bad reasons to switch:

• Someone recommends a new fund to you, but the recommendation comes from someone who is rewarded if you transfer. Make sure to ask questions about this.
• You’ve read or heard that another fund has been bringing in higher returns than yours – especially if they’re just short-term returns. If you’re chasing a rate, you’re basically chasing something that’s already gone.

People switch for all sorts of reasons

There are lots of other criteria you could use to choose a KiwiSaver fund, such as a familiar brand or the convenience of your local bank. You might hear of a high-performing fund over Christmas drinks or around the barbecue with friends this Saturday.

But what should you base your decision on?

Here at Sorted we recommend picking a KiwiSaver fund that:

• Has the right level of risk for you
• Charges a reasonable amount of fees
• Comes with good service and communications
• Has performed consistently well (although that’s no guarantee it will continue to do so)

Introducing the KiwiSaver fund finder

Next week we’ll have something new for you that will go a long way to help. For the past six months here at Sorted we’ve been designing an online tool that can easily sift through the hundreds of KiwiSaver funds out there. It’s been designed for smartphones and tablets, too.

Thanks to new data that’s available, the KiwiSaver fund finder will help you zero-in on a fund that works best for you. The finder will make it easier to identify those funds with the level of risk that suits you, with reasonable fees, solid past returns, and from providers that offer more services and communication options. You’ll also be able to take a good look at the fund you’re in now and compare it with others.

There are currently hundreds of thousands of us who are in a default KiwiSaver fund – one of those government-selected funds that new KiwiSaver members are put into if they don’t choose their own fund. With the KiwiSaver fund finder, we’ll all have the opportunity to make a more informed choice about where our savings get invested.

Fire it up!