No shift on KiwiSaver balance gender gap

New KiwiSaver analysis for 2023 shows the 25% gap between men and women’s balances did not improve over the year.

The average KiwiSaver balance at Dec 31 2023 was $31,823, an increase of 16.2% ($4,444) from the previous year, shows research by Melville Jessup Weaver (MJW) for Te Ara Ahunga Ora Retirement. The increase reflects the strong recovery the financial markets experienced over 2023.

The average balance for men grew 16.2% (by $5,109) and 16.6% (by $14,147) for women. However, the gap between the average balances of men ($36,605) and women ($29,291) remained at 25% ($7,314).

Te Ara Ahunga Ora policy lead Dr Michelle Reyers says the results are disappointing and highlights the importance of closing gender pay gaps and the impact they have for KiwiSaver balances and retirement. She says it's good to see the gap didn’t widen as it did in 2022 from 20% to 25%. 

Men and women in their 40s and 50s continued to display the widest breach. On average, women in their 40s had approximately 32% ($11,000) less KiwiSaver than men, while women in their 50s had about 36% ($17,000) less.

This likely reflects the combined impact of the gender pay gap, time out of paid work, and the higher percentage of women than men that work part-time, says the report.

Overall less than 10% of KiwiSaver members had balances over $80,000 and there were more males than females in this category across almost all age brackets. Only 17% of women aged 51-65 had more than $80,000 compared to 26% of men.

Many members continued to have low KiwiSaver balances, with 38% having less than $10,000 compared to 41% in 2022.

“We know that the cost-of-living pressures many are facing will be contributing to this. However, lower KiwiSaver balances have a significant impact, particularly on women who need to fund their retirement for longer,” says Reyers.

This latest analysis follows research released by Te Ara Ahunga Ora and Auckland University of Technology in April, which also highlighted how the gender pay gap affected KiwiSaver contributions.

Despite men and women both contributing at the same average rate of 3.7%, the gender pay gap resulted in large differences between the average dollar amounts contributed by both employee and employer.

Reyers says its data collection and analysis is used to shape future policy decisions.  In June, Retirement Commissioner Jane Wrightson will release a paper outlining policy options for the government to explore to improve the scheme.

The MWJ report covers 98% or more than three million KiwiSaver members with funds under management of $104.21 billion as at December 2023.

National Capital: Women should back themselves on investment

Women can narrow the $61 billion KiwiSaver retirement gap through playing to their investment strengths, says financial advice firm National Capital.

In its fifth quarterly report on KiwiSaver, National Capital says women, on average earn 25% less salary than men. This, combined with a less growth-oriented investment strategy favoured by women, means the KiwiSaver gender gap at retirement could reach as much as $61b.

While major systemic change is needed to close the wage gap, focusing on investments that aim for higher growth would give women more money at retirement, says the report.

It cites analysis by US fund manager Fidelity, that showed over a 10-year period, women out performed men by 40 basis points. However they also under rated their ability as investors compared to men.

A range of studies in the recent past have shown women achieve better investment results than men. In  2022,  Wells Fargo found that women only take around 82% of the risk men take, yet still earn higher risk-adjusted returns over time.

Women are less prone to jump funds in times of volatility. US insurance and financial services company Nationwide research found that in times of volatility, only 8% of women pulled money from their retirement accounts, compared to 15% of men. Meanwhile a study by the University of California, Berkeley found that women trade less with men trading 45% more often resulting in a 2.65% reduction in returns compared to a 1.72% reduction for women.

These are all strengths that women should use, says Fernandes. “We’re saying women should trust in their ability more.”

National Capital looked at the average female New Zealander within the cohort aged 41-45, with an average 30% salary gap.

This translates to a comparative advantage of approximately $50,000 in KiwiSaver funds for men within the same age bracket at age 65.

This assumes a 33% tax rate, and is a long term expected return for various risk profiles ranging from 2.36% per annum for conservative to 7.10% for very aggressive, 2% inflation, 2% salary growth and 1% KiwiSaver fees.

Analyst Ravi Chandola says, comparing the differential of a 40-year old woman investing in an aggressive versus conservative category fund, she would be better off by $60,000.

On its overall rating of KiwiSaver funds, little has changed since its report for December quarter 2023.

National Capital assesses diversified KiwiSaver funds’ value for money on six criteria each adding up to 100: performance after fees (25 points), value for fees (15 points), fund management capability (20 points), provider stability (10 points), portfolio composition and processes (20 points), and ethical investing (10 points).

On performance, average one year returns to the March 2024 quarter ranged from 7.21% for conservative funds to 19.87% for high growth funds. All funds yielded positive one year returns to the March 2024 quarter. The highest one year performance was Generate’s KiwiSaver focused growth fund at 25.44%, while the lowest was OneAnswer KiwiSaver’s conservative fund, returning 5.88%.

On fees, Simplicity maintained its position of lowest fee provider across growth, balanced and conservative categories. The average fees varied across categories; high growth had the highest average fees of 1.12%, while conservative had the lowest at 0.61%.

While a growing number of providers have been phasing out fixed monthly membership fees, 12 of the 24 providers researched still included membership fees in their product disclosure statements.
On ethical investing Booster KiwiSaver’s Socially Responsible funds scored the highest across high growth, growth and balanced funds. Simplicity’s conservative fund scored the highest in the conservative category with a rating of 8.23 out of 10.

Overall, the managers maintained how they invest ethically with an unchanged average of 6.11 from last quarter. This score indicates having some exclusions, so overall managers seem to be paying attention to ethical investment, the report says. Other high scorers include Fisher Funds TWO, Fisher Funds KiwiSaver plan, Nikko AM, Pathfinder, MAS and Simplicity.

Superlife’s passive funds varied widely on ethical ratings, securing second rank in the balanced category with 8.7 out of 10 but 2.15, 2.44 and 1.97 respectively for the high growth, growth and balanced funds.


Aurora KiwiSaver targets private assets that support business growth

Aurora Capital, which has allocated 3% to private corporate debt for its KiwiSaver conservative and growth funds, is also interested in investing in startup companies.

Sean Henaghan, chief investment officer with Christchurch-based Aurora, says a new mandate with Queenstown-based private credit manager Private Capital Group (PCG) is just the first cab off the rank when it comes to private asset allocation.

The $260 million Aurora KiwiSaver scheme could ultimately have a private asset weighting as high as 7-8% although corporate debt would make up no more than 4%.

Property-backed assets aren’t of interest, instead he’s targeting investment that grows New Zealand business.

“I want to look at venture capital especially in university research and climate innovation. I'm talking to Aussie funds but most have little NZ allocation. I want to support domestic New Zealand.”

Henaghan, a Kiwi who spends 75% of his time in Sydney, has spent 20 years in Australia and witnessed how beneficial illiquid assets have been there.

“The funds that have thrived in Australia are those with big illiquid exposures. Basically the industry funds are the megafunds.” An example is the hospitality industry pension scheme HostPlus with a 50% allocation for unlisted assets.

Henaghan was previously with AMP Capital Australia and ran the Future Directions Options which looked to compete with the industry funds.

“We were daily unit priced so if ever more than 20% of our fund became illiquid, i.e. took longer than 30 days to liquidate, we'd get suspended. We made sure that never happened but we used to run 14% illiquid assets.”

Hence he has a mindset that is different to the NZ conventional wisdom on how much liquidity to hold in case members move funds.

“It's a risk factor you manage like any other in respect to your portfolio. You need to make sure you don't take too much but schemes are growing, there’s positive cash flow, and people can't touch their money for 25 to 30 years. Yes, they can move between providers, but that's a low number.”

Growing demand

There has been a growing appetite for debt amongst global funds driven by regulated changes to capital requirements for banks.

The 2019 RBNZ capital review required the four largest banks to gradually increase capital requirements to 18% of risk weighted assets, (16% for smaller banks), over seven years from 2022 onwards. This has affected the sub-investment grade end of the market  (everything below triple B).

However NZ corporate lending, which is mostly to small and medium enterprises (SMEs) has been too small to attract global corporate debt funds which typically want $100-200m transactions instead of $5-25m.

In 2019 PGC entered the market to fill the gap, setting up its corporate wholesale PIE fund in 2022 in response to the Reserve Bank review.

The total business lending market – excluding property and agriculture – is estimated by the RBNZ to be worth about NZ$124 billion. PGC co-founder John Ferrara estimates the sub investment grade part of the market is about $20b and growing at 3-5% per year.

It has a great macro tailwind, says Henaghan, which also did due diligence on Australian private credit providers but found none had enough NZ exposure. Meanwhile the NZ-based private debt funds Aurora looked at were property-backed only.

Henaghan met PCG co-founder Paul Caman in Sydney based on a recommendation by Vicki Hyde-Smith, head of fixed income at Macquarie Australia.

He was impressed by the PCG team’s knowledge and experience, 25-years for Carman and 20 years for Ferrara. Clients included MyFiduciary, Harbour, Forsyth Barr and JBWere, iwi, family offices and high net worth individuals.

PCG’s Diversified New Zealand Private Debt Fund PIE targets the OCR plus 4%, net fees, with 100% of assets structured on a floating rate. Now worth $30m, it is forecast to reach $50 million by the end of June and $100m by the end of the year.

PGC was able to comply with Aurora’s exclusions to maintain its KiwiSaver funds’ sustainability focus.

The fund being a PIE helped with liquidity, says Henaghan. But also, most of the loans are over 2-2.5 years and regularly recycled. “It's not like a private equity fund where you could be locked in for 12 years. This is why it's the perfect foray into unlisted space.”

Having a young client base also helped. Aurora KiwiSaver has a first home buyer fund which will have a very small allocation because it is still growing. But with most of the others, members won’t touch their funds for up to 40 years, says Henaghan.

A fixed asset with equity returns

Because most of the debt is sub-investment grade, Henaghan sees it as a return-seeking class as opposed to a defensive asset class and so Aurora’s 3% allocation has come out of equities.

“However, it's lower risk than equities,” he says. “People have this issue that because it's high yield debt, it's really risky. It is but it's further up the capital structure. There's also risk in equities and a growth fund will have 80% equities.”

Ferrara says NZ investors are used to a focus on equities and bonds. “Our asset class is different; we’re an income focused product. There’s no capital appreciation. We receive cash interest payments anywhere between every 30 to 90 days and the loans are prepaid ahead of the stated maturity.”

He says PGC lending is senior in the capital structure, ranking ahead of equity and other creditors.

Security interests are formally registered via legal contracts so, if a business sees a reduction in performance and an implied reduction in enterprise value, equity value is eroded before debt. Equity therefore represents a protective valuation moat around

PGC’s debt interest, which is a feature of all business loans, he says. “At loan inception that equity cushion can be up to 50%. This protects our principal and interest claims.”

QuayStreet and Generate prominent in Morningstar’s latest KiwiSaver results

KiwiSaver assets increased, owing significantly to market movements, to end the March quarter at $108.6 billion, up $4 billion from the end of last year.

The overall tone for the quarter was cautious optimism, while inflation was a concern, global growth prospects improved, and global equity markets delivered strong returns, particularly for unhedged holdings due to the weaker NZ dollar, says Morningstar director global fund data Greg Bunkall.

The five biggest providers, ANZ, Fisher, ASB, Milford and AMP accounted for 68% of assets and 69% of the $849m generated in fees. The average annual fee was around 0.78%.

Average asset allocation was 40.7% income and 59.3% growth, compared to 42.9% income and 57.1% growth for the previous quarter.

ANZ retained its usual position as the biggest provider with $20.4 billion in assets but at 18.8%, its market share declined from 19.5% the previous quarter. Fisher at second place with ($16.67b) stayed the same with 15.4% market share over the last two quarters. Nipping at Fisher’s heels, ASB was again third ($16.64b) but closed the gap, increasing its market share to 15.3% up from 15.1% at the end of 2023.

In fourth place Westpac ($10.7b) also slipped to 9.9% from 10.2% at the end of December, while Milford in fifth place ($8.5b) increased market share to 7.9% from 7.5% the previous quarter.

All multisector KiwiSaver funds produced positive returns for the period, with funds containing risk assets performing best. Returns for multi sector funds ranged from 2% for conservative funds to 8.8% for aggressive.

Of the default options, Booster ($563.6m) had the best returns for the quarter (5.5%) and the year (14%), while Westpac, the biggest default provider with $754.1 million, reported the lowest returns (4.4%) and (11.1%) for the same respective periods.

QuayStreet continued to perform well across many time periods in the conservative and balanced categories, Milford had consistently high performance with moderate, balanced and growth categories over the long term (five to 10 years), but has struggled to place in the top spots over shorter time spans. Generate had strong numbers across many time periods.

In the conservative category Fisher Funds topped returns for the quarter (2.6%), the one year (9.6%) and five year period (3.9%). Milford had the best returns for the 10 year period with 5.8%.

In the moderate category Generate topped the quarter (4.1%), the one year (11.2%) and the 10 year period (6%).

For balanced it was QuayStreet’s socially responsible fund which topped the quarter (7.5%) and the one year period (16.7%), while QuayStreet’s balanced fund had the highest returns for the three year period (7.6%). Milford’s balanced fund had the highest returns for the five year (8.1%) and 10 year (8.8%) period.

In the growth category, QuayStreet topped the quarter (9.3%) and the three year (9.6%) period. Generate growth fund was top for the one year period (20.3%), while Milfford active growth took top place for the five year (10.6%) and 10-year (10.4%).

In the aggressive category it was Generate focused growth fund at number one (11.4%) for the quarter and the year (25.4%), with Milford topping the five year period (8.6%) and Booster socially responsible high growth topping the 10-year returns (10.2%).

Over 10 years investors in the aggressive category have had average returns of 9.1%, followed by growth (8.4%), balanced (6.8%), moderate (4.8%), and conservative (4.3%).