Helping KiwiSaver members make better financial decisions

15 August 2016

New trial uses behavioural psychology to help KiwiSaver members make better financial decisions

A new initiative from Kiwi Wealth, the Financial Markets Authority (FMA), the Commission for Financial Capability, and the Ministry for Business Innovation and Employment (MBIE) is investigating behavioural interventions to encourage KiwiSaver members to make better financial decisions.

The six-month randomised control trial will test how changes to the design and phrasing of enrolment communications can prompt people to assess and change their fund to suit their retirement expectations. The trial, beginning this week, is expected to include approximately 3000 new entrants to the Kiwi Wealth KiwiSaver Scheme.

Joe Bishop, Kiwi Wealth Head of Retail Wealth and Marketing, said simple changes to how providers spoke with their members could have a big impact on their financial decisions and future retirement income.

“We’ve observed that new KiwiSaver members are most likely to switch from default funds within the first month of enrolling. The actual number of people switching is still quite small however, with only about 5% of members doing so.

“Currently, provider communications to new members is dull, very transactional, and has little emphasis on their future retirement income. With this trial, we’re tweaking our communications so KiwiSaver members are prompted to make decisions now with the end goal in mind, growing their retirement income.

“Improvements to the design of the welcome letter and how words are phrased might seem like simple details, but the science suggests they’re powerful motivators. When you consider there are 2.5 million people enrolled in KiwiSaver, the smallest upswing in people’s engagement with their fund could lead to a massive improvement on Kiwis’ retirement savings.”

In April, the FMA published a cross-government paper which assessed how personal preferences and beliefs can influence financial decision making. It found that people typically have a natural “bias” for the status quo which makes them better at day-to-day money management but less inclined to consider long-term financial planning.

To help people overcome this bias, the paper cited four interventions that have shown to result in effective and measurable behavioural change. Known as the EAST framework, it says communications could be more persuasive if they are:

· Easy – simple language and reducing the perceived hassle with changing funds.
· Attractive – framing communications so that its interesting with a strong call to action to change funds.
· Social – showing that others are changing funds and improving their retirement income.
· Timely – prompt action when people are likely to be most receptive (when they first enrol).

Paul Gregory, FMA Director of External Communications and Investor Capability, says: “The best time to help New Zealanders focus on making good financial decisions is when they’re actually doing it and so this is where providers have an essential role. So, as well as the work government agencies are doing, we look to industry to use these insights positively: in their product design and marketing, disclosure, and in their sales processes for all products including KiwiSaver.”

Kiwi Wealth recently launched an online tool which uses current balance, contribution rates, projected returns and other economic factors to calculate a lump sum and retirement income estimate. It calculates how changes to factors such as fund type and contribution level could affect the growth trajectory of their investment and members can make those changes, most at the click of a button.

ENDS

© Scoop Media