Regulation not strangulation for KiwiSaver please

by David Chaplin

An industry body argues the biggest risk to KiwiSaver is over-zealous regulation, rather than fund manager behaviour.

WSNZ chief executive Bruce Kerr says the industry body was monitoring “how sweeping the changes will be”.
Under proposed changes announced by Commerce Minister Simon Power late in April, all KiwiSaver providers would have to adhere to the same rules applied to default schemes – in particular the requirements for more regular reporting and stronger trustee oversight.

Kerr said while the organisation supported the broad thrust of proposed KiwiSaver changes but it was opposed to “regulation that simply adds compliance cost for no member value”.

“We believe there is currently no systemic problem with KiwiSaver. In fact in our view, the biggest risk KiwiSaver faces is that overly zealous regulation is rolled out without adequate and effective engagement with all stakeholders to ensure those changes will be optimal.”

He said, for example, many existing employer superannuation schemes and master trusts continued to operate effectively under current regulatory arrangements and could face unnecessary disruption if the proposed new regime was extended to incorporate them.

While Power has excluded non-retail KiwiSaver schemes and other employer-based savings schemes from the proposed changes, he said that decision could be revisited later.

According to Kerr, the Ministry of Economic Development (MED) has indicated the KiwiSaver changes will be included in a new piece of legislation expected to be drafted by August.

“Initially, we thought the changes would be part of the Securities law review.”

WSNZ, which has about 130 representing about 90% of the industry, was also drafting a “high level policy” document for presentation at its conference to be held at the end of August in Christchurch.

Kerr said the policy was unlikely to include a view on the banning of commissions on KiwiSaver products.
“But we’re certainly starting to have conversations about [commissions],” he said.

David is editor of ASSET Magazine.

KiwiSaver returns plateau after four quarters of gains

KiwiSaver funds provided positive returns for the fourth straight quarter, though the growth is running out of steam and ongoing fears of a debt crisis in the euro zone may be partly to blame, according to Mercer (NZ) Limited.

The median return for the most conservative Default Funds was 2% in the three months ended March 31, according to Mercer’s KiwiSaver survey.

The median for conservative funds was 2.1%, balanced funds chalked up 2.9% and growth funds managed 3.3%. 

“While KiwiSaver funds have posted positive returns over the last four quarters, performance has reached a plateau and we’re not seeing the same level of growth achieved over the last six months,” said Mark Lewington, head of Mercer New Zealand. 

While growth in global markets and better-than-expected corporate earnings have underpinned returns, “growing concerns over possible sovereign debt defaults in the euro zone could threaten the run of positive returns,” he said.

“The volatility is far from over.”

Some US$3.7 trillion was wiped off the value of global equity markets last week, according to Bloomberg, on fears Greece’s debt crisis would spread. Equity markets rallied again in Asia today after governments in the euro zone agreed to lend as much as 750 billion euros to member states drowning under their debt burdens. 

Fidelity Life’s Aggressive fund turned in the best result, with a 6.3% return in the first quarter, while Fisher Funds Growth Fund recorded the fattest return for the 12 months through March, at 50.8%.  

Growth in funds under management for the top seven default funds grew by almost $1 billion between June 2009 and March 31, bringing the total held between them to $2.2 billion.

Funds flow into boutiques picks up

by Paul McBeth

Investors are becoming more active in their portfolios, with boutique fund managers such as Milford Asset Management, Craigs Investment Partners and Fisher Funds boosting their cash flows through the first three months of the year.
New Zealand’s managed funds grew $313 million in the first three months of the year as strong support for KiwiSaver and unit trusts, including cash portfolio investment entities (PIEs), underpinned the sector’s performance. Net funds under management topped $20 billion in the March quarter KiwiSaver funds surged $525 million while unit trusts showed a net positive flow of $55 million, according to managed fund researcher FundSource. Group investment funds (GIFs) had the largest decline with a net outflow of $159 million for the quarter.
“It’s a big positive on the performance side contributing to funds under management, and we can see money flowing into boutique funds,” said TJ Singh, acting business manager at FundSource. “They’ve done quite well at receiving money, as they are more active and different from KiwiSaver.”
Singh said Pathfinder’s commodity fund reported an inflow of $2.5 million, and it was a positive to see investors looking to take a more active role in allocating their funds.
The return of Paul Glass after a year’s gardening leave was a big plus to the sector, and Singh said he was excited by Glass’ comments that he wants Devon Funds Management to have the country’s largest investment team. Singh was also watching the Andrew Bascand-led investment team at Harbour Asset Management closely as well.
The diversified sector had the biggest net inflow of $404 million in the March quarter, which was underpinned by the net inflow from KiwiSaver funds, with default schemes automatically putting the money into the diversified sector, Singh said. The mortgage sector declined $152 million over the period.
As the wider economy continues to recovery after its worst recession in 18 years, Singh expects funds management will pick up as the country’s capital markets resume normality, and people’s optimism about investing returns.
Paul is a staff writer for Good Returns based in Wellington.

Let’s stick with carrots for KiwiSaver

The suggestion that more New Zealanders will move to Australia now that its superannuation contribution rate will rise to 12% is another absurd example of the pathetic politics of envy common to this country.
Whether Australia’s superannuation contribution rate is the current 9% or 12% (which it will slowly edge up to by 2019) is neither here nor there to most people.
New Zealanders move to Australia because they can make more money; the weather’s generally better (if you don’t mind the mix of drought and floods), and; the people are alright once you get to know them.
But New Zealand’s financial services industry looks across the Tasman and salivates about Australia’s compulsory superannuation system because it knows that if compulsion were introduced here it would feed them forever.
When those who stand to gain commercially from compulsory KiwiSaver start couching their arguments in terms of the national interest, be very suspicious.
While it has undoubtedly built up a significant pool of capital, Australia’s compulsory superannuation system is not without its problems – it’s complex, prone to constant tinkering and, as Sydney Morning Herald writer, Michael West points out, needs constant attention to prevent gouging at all levels.
By contrast, KiwiSaver is administratively simple, wonderfully flexible and should impose less costs on members. With well over one million New Zealanders already signed up to KiwiSaver, it seems incentives are doing the trick.
It is true that contribution rates are low compared to Australia. Under the KiwiSaver rules, only the 2% employer contribution is tax-free (to get that employees must also contribute 2% of their gross wage or salary). However, members are free to contribute up to 8% of their income to KiwiSaver, which combined with the employer contribution quickly bumps up the savings rate to 10%.
The only problem with this strategy is that you still need to pay income tax on that 8%. Rather than compulsion, perhaps a better way to ramp up KiwiSaver accumulation rates would be to allow those extra contributions to be tax-free: more carrots, less stick.

David Chaplin