KiwiSaver

Mercer, the only default KiwiSaver provider without a distribution network, has reduced fees on its funds.

It says the reduction is “in response to consumer demand for competitive pricing” and warns investors could be missing the point by focusing on the level of fees alone.

Mercer’s New Zealand boss, Martin Lewington, says a lack of transparency in the system and the inability for consumers to make direct comparisons between products is the real issue around costs.

“Mercer’s member research found that 86% of members rated competitive fees as an important or very important fund feature.”

Its changes include a reduction of more than 25% in the Mercer Superannuation Trust (MST) KiwiSaver product from $3.85 per member per month to $2.85.

Other changes included reductions in fees to its Cash Option, Active Balanced Option, and Membership fee, as well reducing the admin fee (to 0.15%) and Trustee fee (to 0.03%).

“Fees are necessary in most retirement income savings systems and it is true they can impact retirement savings.

“However, this is only one part of the picture: there is a broader problem in New Zealand with fees, which is not necessarily their size, but the lack of standardisation in relation to KiwiSaver, which makes it very difficult for consumers to compare apples with apples,” he said.

Mercer advocates the introduction of standardised fee disclosure and believes it will make product comparisons easier for researchers, advisors and consumers.

“We want to see greater transparency and visibility around the composition of fees, so that New Zealanders can make educated decisions regarding their retirement nest-egg.

“You only need to look as far as the labelling of fees by providers to see that it is inconsistent. For example some providers appear to load their admin fee into their investment fee while others quote their expected returns net of tax, investment fees and other expenses,” he said.

Lewington argues that it’s in the industry’s interests to make KiwiSaver easier to understand and standardisation is also needed around unit pricing.

Mercer has chosen to calculate unit prices net of tax and fees on a daily basis.

Family members will no longer be able to sign children up to KiwiSaver after refinements are made to the KiwiSaver scheme in the forthcoming tax bill.

Currently anyone can sign-up a child under 18 to the retirement savings scheme, and once the child is working and earning an income, he or she has to contribute unless choosing to take a contribution holiday.

However the tax bill to be presented to parliament before Christmas will introduce a new set of rules which will restrict sign-ups for those under 16 to legal guardians and 16 – 17 year olds will have to sign jointly with a legal guardian to give permission for the KiwiSaver membership to go ahead.

Those without a legal guardian will have to sign forms giving their permission.

Revenue Minister Peter Dunne says the changes are being proposed to stop family members from locking youths into KiwiSaver which they may not want to contribute to later in life.

The main incentive which has encouraged family members to sign their children up to KiwiSaver is the $1000 kick-start payment received by all those who sign up, which many perceive as free money.

Inland Revenue says most members under 18 years are not contributing to their accounts.

For the 2008/09 year, 6% of the more than 180,000 members who are children contributed through Inland Revenue to their accounts at a total value of $2 million.

 Inland Revenue says this means there are likely large numbers of accounts being managed by providers containing nothing more than the $1,000 kick-start payment which means money is whittled away by fees before a contribution is even made.

Of the contributing children, almost all are contributing through salary or wage deductions.

The changes to KiwiSaver are expected in July next year.

 

With returns of 15.2% in the quarter and 20.3% in the past 12 months, Fisher Funds was the best performer in the two growth categories. The annual median growth fund return was 1.2% with a quarterly return of 10.8%, according to the survey.

“In the last six months balanced and growth funds have pegged back approximately half the losses experienced through the global financial crisis,” New Zealand head Martin Lewington said in a statement. “This return to positive growth territory is good news for investors, particularly those with a long-term horizon who can afford to ride out the short-term volatility.”

The best performing default fund in the quarter and the over the past 12 months was the Mercer KiwiSaver Conservative Fund at 6.5% and 3.2% respectively. The median return was 4% and 5.9% respectively. The best performing conservative funds were the Mercer Conservative Fund for the quarter at 7.3% and the AXA Conservative Fund over the past 12 months at 8.5% compared to a median of 5% and 4.8%.

The best balanced fund in the quarter was the Mercer Active Balanced Fund at 10.9% and the Mercer Moderate Fund which returned 7.4% in the past 12 months. The median was 7.8% and 3.1%.

Lewington said KiwiSaver funds under management were growing at an “unprecedented rate” with the six default funds surging 36% in the past quarter to $1.64 billion. Almost 1.2 million New Zealanders were enrolled in KiwiSaver at September 30, with some $4.25 billion under management.

Stronger returns in the past quarter encouraged a shift to growth assets among providers, he said.

“Multi-strategy funds, even at the conservative end of the spectrum, have tilted their allocations towards the growth assets,” he said.

 

Legislation allowing New Zealanders returning home from Australia to bring their retirement savings with them will be introduced to Parliament in about two weeks, Finance Minister Bill English says.

Providing the necessary law changes are made in Australia, it is envisaged the new arrangements will take effect in the second half of next year.

Currently, Kiwis who work in Australia must contribute to an Australian complying superannuation fund. However, the savings are locked into the Australian scheme until the saver reaches retirement age.

English signed an agreement with Australian Treasurer Wayne Swan in July, which paved the way for the new super portability scheme.

It will allow retirement savings from certain Australian superannuation funds to be transferred into New Zealand KiwSaver funds – and vice versa. New Zealanders bringing their savings home must put them into a KiwiSaver fund.

Australia’s Tax Office has estimated that it holds about A$13 billion ($16.6 billion) in “lost accounts” in the Australian superannuation system.

“We expect that much of this money could belong to New Zealanders who have returned home and these new rules will allow these funds to be brought back to New Zealand,”  English says.

Participation in the super portability scheme will be voluntary.

The government will include the changes in the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver and Remedial Matters) Bill, expected to be introduced to Parliament in mid November.

Key facts about the Super portability changes

• The transfer of retirement savings between the two countries will be exempt from entry and exit taxes. Under current tax laws, transferring savings from Australia to New Zealand may be regarded as a taxable dividend. The proposed legislation will ensure this does not happen.
• KiwiSaver members moving from New Zealand to Australia will be able to retain any member tax credits if they transfer to an Australian scheme.
• KiwiSaver members will not be able to withdraw money transferred from Australia to help them buy their first home, but they can use the interest earned on those savings for this purpose.
• Retirement savings transferred from Australia into a New Zealand KiwiSaver scheme can be withdrawn when members reach the age of 60 as long as they have retired – as set out under Australian scheme rules. KiwiSaver savings transferred to Australian schemes can be withdrawn when members reach 65 – as per New Zealand KiwiSaver rules.