Research shows many Kiwis aren’t reading the Product Disclosure Statement, or PDS, explaining their KiwiSaver scheme. AUT’s associate professor Aaron Gilbert explains his latest research, and outlines how the documents could be more useful.
What is a product disclosure statement, or PDS?
A PDS is a one-stop shop for all the information you’ll likely need to make an informed decision about whether to invest in a financial product like KiwiSaver. The PDS is issued by your KiwiSaver provider – that’s who you have your money invested with.
You’ll find information regarding the types of funds a provider offers, the asset allocation of each fund, what the fund will cost you, including a helpful example, and the risks faced by the fund.
The PDS also explains how to switch funds, when you can withdraw your money and details about member tax credits (the money the government gives you), contribution holidays and other general information.
But it’s not marketing material
The information contained in a PDS is regulated and the format of the information is set. This means all PDS documents are very similar, to help people to read and compare them. The provider can be held responsible for inaccuracies in the document. In this respect they are a valuable source of information for someone making a decision.
But many Kiwis aren’t reading them
In 2017/2018 research completed by myself, Ayesha Scott and Kayla Czar, surveyed 48 people on KiwiSaver product disclosure statements.
We got the following feedback on KiwiSaver PDS from participants in our small survey:
· Hard to read. Based on common readability metrics, the PDS requires a person to have completed high school to understand the document.
· Jargon. There is too much jargon.
· Too much information. Information about withdrawing money, emigrating and other niche situations added little to the PDS, and distracted from the information they needed.
· Old-fashioned documents. The content and format of the PDS is designed for paper, but it’s a digital age. The document could have been made much shorter and better by providing links to additional information rather than jamming it into the PDS.
· Serving the wrong purpose. The PDS compares the different funds offered by a provider. However, the document should first help investors identify the correct type of fund suitable for them, and then be able to compare between providers.
The result was that less than half of the participants would use the PDS to decide about their KiwiSaver account.
How can the PDS be improved?
Based on our study, my co-author and I made some simple recommendations that could improve the PDS and potentially make it more useful to the everyday Kiwi:
· The PDS could be two documents. The first should be a generic document that sets out all the KiwiSaver-specific information that does not differ between providers. It should also contain a simple quiz to help identify the best fund type for a person. The second should provide all the provider-specific information about their scheme. This will make the second document shorter.
· Collect information by fund. Instead of having a risk section and a fees section etc, all relevant information for each fund i.e. Conservative, Balanced etc., should be collected into 1-2 pages maximum. This would make it easier for users to compare fees between providers for the same fund type.
· More use of examples. Participants in our study responded very well to the idea of worked examples for things like fees. Anything that increases understanding should be embraced!
· More standardisation. For example, all providers using the same colours for asset types would help readers to compare funds more easily. Simple but effective.
First published 7 November 2018
Story by Aaron Gilbert
Aaron Gilbert is an Associate Professor in Finance at Auckland University of Technology. He researches in a wide range of areas to do with the financial markets, including law and finance, corporate governance, and KiwiSaver.
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.