AUT study finds confusion and lack of trust surrounding KiwiSaver

Investor information on KiwiSaver funds lacks readability and fails to provide clear options, according to a study published by AUT University.

In the study conducted by associate professor Aaron Gilbert and Dr Ayesha Scott, half of participants surveyed said the KiwiSaver product disclosure statements (PDS) did not contain enough information to make an informed investment decision, and that they would not use the PDS to make a decision on KiwiSaver.

The study identifies an overabundance of finance jargon and organisation by topic as the two key issues, and suggests that the document could undergo a number of improvements. Additionally, a number of people surveyed said they were unclear about why KiwiSaver exists at all, and claimed the disclosure statements emphasised risk levels without explaining the benefits.

“We were a little shocked by the lack of trust and myths around KiwiSaver,” says Gilbert. “Our participants knew KiwiSaver was important, but they did not always know why. There is an appetite for information they can trust…investors want to make good decisions, but have no idea how to go about that or where they can find independent information.”

The study outlines the following points for regulators to consider as they look into the effectiveness of the current PDS system.

1. Information on KiwiSaver funds should not be presented by fund providers, but in a standalone document prepared by an independent body. Common and provider-specific information is currently intertwined, making it difficult to differentiate between providers
2. There should be a standard glossary of terms to aid in the understanding of jargon
3. There should be a short quiz at the beginning to narrow down the most appropriate type of fund for the investor
4. Information should be presented by fund type, not by topic (risk exposure, fees, etc.). The current model prevents an easy comparison between fund types
5. Disclosure information should be offered in two parts; general information common to all providers, and fund-specific information
6. Formatting should take accessibility into greater account

“Our recommendations vary in how easy and how quick they are to implement, but we certainly feel that the format needs to be changed,” Dr Ayesha Scott told NZ Adviser. “At the moment, the documents are very geared towards people comparing a range of fund types within a provider.”

“If information is hard to understand or a decision is hard to make, people are going to disengage with the process altogether,” Scott continues. “Some of our participants had tried to actively engage in the decision making process and knew that they were perhaps not in the right fund for them, but they found it difficult to digest all this information, so they ended up doing nothing. There needs to be greater clarity.”