KiwiSaver

Government confirmation that changes will be made to the KiwiSaver scheme in the May 19 Budget have prompted fears more uncertainty will undermine savings efforts.

The Government is believed to be considering cuts to the $20 a week Government subsidy which costs the taxpayer $662 million a year.

Prime Minister John Key and Finance Minister Bill English both confirmed changes would be made as the Government attempts to deal with the budget deficit.

“We are dealing with a series of events which have led to a very large deficit,” English said.

“There will be some changes announced in the Budget along with a lot of other steps.”

Labour finance spokesman David Cunliffe criticised the Government, saying they had previously billed the Budget as providing a boost to savings and investments.

“Unfortunately for all Kiwis, the rhetoric doesn’t really match reality.”

“For National to have any credibility on savings, English will have to announce other savings measures in Budget 2011, such as indexing savings for tax inflation or a lower rate of tax for savings incomes,” he said.

CTU economist Bill Rosenberg also criticised the possible subsidy cut, saying the $20 a week member tax credit had played a key part in encouraging people to put their savings into KiwiSaver.

Strongly performing shares helped offset natural disasters and economic uncertainty enabling KiwiSaver funds to post strong returns for the March quarter, according to the Morningstar KiwiSaver Performance Survey.

“The strong returns from sharemarkets resulted in KiwiSaver funds with higher exposures to growth assets (shares and property) outperforming those with more invested in income assets (cash and fixed income) over the March quarter,” said Morningstar co-head of research Chris Douglas.

Morningstar also said the KiwiSaver assets on its database had grown from $954.10 million at June 30, 2008 to $8.07 billion at March 31, 2011, “a phenomenal growth rate for the New Zealand funds management industry.”

Morningstar said the best performing multi-sector funds in the March quarter were ASB KiwiSaver, Fidelity KiwiSaver, Grosvenor KiwiSaver and the Westpac KiwiSaver.

Continuing the trend from 2010, single-sector equities and multi-sector growth and aggressive options were the best performers over the first three months of 2011.

Morningstar said that while three-year figures provide a clearer indicator of fund manager performance, the volatility of the period between April 1, 2008 and 31 March, 2011, meant clear patterns were hard to discern.

However, Morningstar did single out the Fisher Funds Growth KiwiSaver as the best multi-sector fund performer over three years, saying the fund was “streaks ahead of peers over a three year period.”

Among the single-sector options, global share funds were the best performers over the March quarter, with the Fidelity KiwiSaver Options Kiwi the best performer over the quarter and the past three years. Strong performances were also recorded for the SIL KiwiSaver International, SIL KiwiSaver Australasian and Grosvenor International Share.

Within the KiwiSaver sector as a whole, OnePath and ASB remained the dominant players with 45% of KiwiSaver assets between them.

KiwiSaver’s ability to raise overall savings and deepen capital markets is being hampered by “unfocused Government subsidies,” according to the OECD Economic Survey of New Zealand.

In a wide ranging report on New Zealand, the OECD highlighted a number of reforms to KiwiSaver including changes to subsidies and the enrolment system as ways to boost the nation’s savings.

“A reform to KiwiSaver that would generate higher national savings by raising Government saving is to remove subsidies, especially to high-income members who are most likely to have shifted their savings from other sources. Participation could be further expanded by broadening the automatic enrolment programme to all employees, rather than just new hires,” the report said.

The OECD claimed some measures taken in the 2010-11 Budget introduced reforms to encourage greater savings and growth, but called for additional tax reform.

“Further tax reforms – either by aligning top corporate, capital and labour income tax rates at lower levels or adopting a dual income tax approach – could further stimulate growth and savings.”

NZ Funds Management has become the first KiwiSaver manager to have its KiwiSaver scheme portfolios researched by a third-party research house, and has called on all KiwiSaver schemes to undergo a qualitative review.

Three portfolios in the NZ Funds KiwiSaver scheme earned recommendations from Australian research house Lonsec, with Income Strategy receiving a ‘Highly Recommended’ rating and ‘Recommended’ ratings for the Inflation Strategy and Growth Strategy.

“To have one of Australasia’s leading research organisations review our scheme’s portfolios is a significant achievement for us and is a credit to our KiwiSaver scheme investment management team,” said NZ Funds chief investment officer Michael Lang.

He also said he believed every KiwiSaver fund should be qualitatively reviewed.

“It should be compulsory for all KiwiSaver scheme portfolios to be qualitatively reviewed. The alternative, a quantitative review process, is based solely on numbers and does not take investment process into account so it is insufficient to determine whether a KiwiSaver scheme portfolio is likely to meet clients’ needs.”

Lonsec conducted a series of meetings with NZ Funds over an extended period, and in its report Lonsec said it observed “a strong investor focused culture, supplemented by extensive research, and a strong corporate governance and compliance regime.”

Its reports also noted NZ Funds management has “competitive advantages over its peers in people, process and product design.”

Lang said the reports are also designed to be used by advisers to assist them in helping clients choose the most appropriate KiwiSaver scheme for their needs.

“We are optimistic that in future having comprehensive qualitative research will become the minimum standard for managers and advisers offering or promoting KiwiSaver to the New Zealand public,” he said.