ANZ scales up, drops membership fees

ANZ New Zealand Investments has dropped its annual membership fee from all its managed KiwiSaver schemes.

ANZ Investments will remove the $18 annual membership fee from its ANZ KiwiSaver Scheme, ANZ Default KiwiSaver Scheme and its OneAnswer KiwiSaver Scheme.

It will also reduce management fees of its Conservative Funds (excluding the Default Fund) and Conservative Balanced Funds by 0.22% and 0.15% respectively.

Under the new structure, a person with $20,000 invested in the ANZ KiwiSaver Scheme Conservative Fund would have their fees reduced from $192 to $130 a year.

"These fees will ensure a simpler fee structure and provide greater value for money for our more than 650,000 KiwiSaver members, said ANZ’s acting managing director of funds management Stewart Taylor.

“We regularly review fees as we achieve greater economies of scale. This latest change particularly benefits members with lower balances or those just starting out,” Taylor says.

ANZ Investments has reduced the total fund fee for the ANZ KiwiSaver Scheme by approximately 25% since 2009.

In 2019 it removed the $24 membership fee for members aged under 18 and reduced it to $18 (from $24) for all other members.

The membership fee for over 65s was removed in 2020.

“Through its active management approach, ANZ Investments has delivered strong returns over the long run for our members and this with the reduction in fees is another step to helping our members grow their retirement savings,” Taylor says.

ANZ Investments is the largest private-sector funds management and KiwiSaver provider in the country with more than 650,000 customers and $35 billion under management.

KiwiSaver funds soar, non-contributors still a worry

More than 1.2 million KiwiSaver members did not invest in the scheme in the year to March 31, showing that while KiwiSaver has hit new heights in funds under management, there are big opportunities for providers and advisers.

The Financial Markets Authority (FMA) has just released its KiwiSaver Annual Report for the year ended March 2021, which shows total funds under management reached $81.6 billion, or double the $40.8 billion held in 2017 (see table below).

Overall membership increased 2.1% to 3,090,631 and the number of members who contributed to their accounts increased 3.9% to 1,883,118.

However, those in the scheme not contributing totalled 1,207,513, or 37%, and fees collected by providers cracked the $650 million mark.

Compared to last year, where KiwiSaver made an $820 million loss due to a market downturn around Covid-19 concerns, this year's results show a sharp rise with investment returns skyrocketing to $13.2 billion – a staggering 1708% increase.

FMA director of investment management Paul Gregory says the last year was momentous for KiwiSaver, with unprecedented growth after weathering market difficulties.

Combined fees revenue was $650.3 million, up 20.7% from last year while funds under management increased by 31.7% to $81.6 billion.

Gregory says the rate of growth in fee revenue was a function of the percentage-based investment management fees that providers take as a cut of their members’ balances, not a sign that fees charged were increasing.

“Our focus on value for money over several years has been based on providers generally not passing on the benefits of KiwiSaver’s growing scale."

But Gregory says there are some encouraging signs with several managers reducing their investment management percentage fees to increase the value provided to their investors.

"Over time we are looking to see this approach to value for money to continue, so the current trend of KiwiSaver managers as a whole earning strongly increasing income from fees should slow and stabilise.”

He says that trend was evident with fixed fees, or administration fees, which decreased by 4.8% to almost $80.8 million, as a number of KiwiSaver schemes reduced them or changed their structure.

“This is appropriate, as these fees were only intended to help providers cover costs in KiwiSaver’s early stages,” Gregory says.

Gregory says the year also saw significant shifts in the FMA's regulatory focus for KiwiSaver providers with two important pieces of guidance for fund managers being released – one focused on the accurate labelling of funds' ethical and responsible investment claims, the second focusing on value for money.

“Reflecting on our guidance and the Government’s changes to the default providers coming into effect in December, we believe both will improve outcomes for investors, impacts which will play out over the long term.”

The report shows only a small minority of investors are choosing funds explicitly labelled as responsible or ethical, however, a broad range of research shows that many investors are increasingly expecting that their provider will be taking a responsible approach to investing their money.

FMA’s research has shown that 31 of 37 schemes claim that they consider aspects of responsible, ethical or ESG investment in their decision-making.

KiwiSaver Annual Report by the numbers:

Total membership: 3,090,631 up 2.1%

Average (mean) balance: $26,410 up 29%

Total funds under management: $81.6 billion up 31.7%

Investment returns: $13.2 billion up 1708%

Members contributing: 1,883,118 up 3.9%

Members not contributing: 1,207,513

Members in default funds: 356,021 down 6.6%

Total member withdrawals: $3.05 billion up 7%

First home buyer withdrawals: $1.4 billion up 18.8%

Combined fees revenue: $650.3 million up 20.7%

Members salary/wages contributions: $4.8 billion up 16.3%

Government contributions: $891 million up 6.1%

Employers contributions: $2.7 billion up 19.5%

Experts ponder compulsory KiwiSaver

The number may be daunting – more than $1 million for a couple to retire comfortably – but many Kiwis won't have anything close to that in their KiwiSaver accounts by retirement age.

So, should KiwiSaver be made compulsory?

Considering 35% of New Zealanders over 60 don't know how much they need to retire comfortably, according to research provided by the Financial Services Council (FSC).

Compulsory KiwiSaver was the main topic of discussion during a recent 'FSC Connect' panel event held during the Level 4 lockdown in Auckland.

On the panel were Craigs IP head of emerging wealth Helen Skinner, Milford Asset Management head of KiwiSaver distribution Murray Harris, Westpac NZ head of investments Nigel Jackson, Trustees Executors chief operating officer Geoff Rimmer, along with FSC chief executive Richard Klipin and FSC content manager Clarissa Hirst.

Murray Harris says Kiwis don't feel well prepared for retirement and talking about money is not really a Kiwi thing.

"And we have a low level of financial literacy…for a no-frills retirement, some people are going to be very scared when they see how much they will need and many will have to continue working when they get to retirement age."

Harris says young people are in the best position to start saving but many don't even think about it until in their 50s.

"We must acknowledge that KiwiSaver has been hugely successful and has been the best financial product and savings product New Zealanders have seen.

"But for the people under financial strain or on lower incomes moving to compulsion could be a stretch for the household budget, especially for people living week to week.

"But it is a discussion that needs to happen. There is an option for compulsory employer contributions with some tax relief from the government," Harris says.

Skinner says New Zealand is following a similar trajectory to pension funds worldwide, particularly around compulsion.

"There's a lot of New Zealanders who have no idea how KiwiSaver works and how much they should be investing.

"It's all around how much do I actually need at the endpoint and working back from that," she says.

Jackson says people do recognise the importance of saving for their retirement but we are not doing enough, especially for the more vulnerable.

"But compulsion is a blunt instrument and is dangerous territory for politicians.

"Obviously, it [KiwiSaver] works better if people are in long term employment and for those on higher incomes."

Rimmer, who has had three decades of experience with the Australian superannuation scheme, says there's already a significant underfunding gap identified by the research.

"The Aussie system has matured over three decades starting at 3% contribution and up to 9% for a while…and over time there will be less and less reliance on the taxpayer."

He says few people think about retirement in their youth, but the more money in a scheme like KiwiSaver means people have more interest in their savings.

"Compulsion on its own is not a good idea," he says.

"There are other levers you can pull to make sure you don't end up with a big difference between the haves and have nots."

MMC picks up another default KiwiSaver provider

Kiwi Wealth has followed BNZ and put administration of its default KiwiSaver Scheme on the MMC platform.

MMC says this is an extension of its services to Kiwi Wealth. It will provide full registry services, as well as unit pricing and fund accounting for Kiwi Wealth’s Managed Funds and KiwiSaver products.

By transitioning these services from an-inhouse operating model to MMC, Kiwi Wealth will achieve a scalable infrastructure to accommodate growth and deliver enhanced investment outcomes to its members and investors, while also taking advantage of economies of scale.

The soon-to-be implemented operating model will support Kiwi Wealth’s requirements as a default KiwiSaver provider, and includes full PIE and other tax calculations, reconciliation and reporting. MMC’s API interface with IRD will improve automation, speed up KiwiSaver transfers and improve the overall member experience.  Kiwi Wealth will also be utilising MMC’s APIs to deliver its industry leading digital investor experience layer. 

“By aligning Kiwi Wealth’s KiwiSaver and Managed Funds operations, we are benefitting from operating synergies, agility and reduced operational risk," Kiwi Wealth chief technology officer Craig Wardsays in a statement. "Through outsourcing our investment administration to a trusted partner, our investment and operational teams will be freed up to focus on what we do best; creating better financial futures for Kiwi by helping people get informed about how they can grow their wealth.”

Kiwi Wealth’s relationship with MMC dates back to 2018, when it first started using MMC’s investment administration services for managed funds.  Once the KiwiSaver transition is completed, Kiwi Wealth expects its remaining products, such as its Private Portfolio Service, will follow. 

MMC’s acquisition of Aegis in December 2019 means it can offer a holistic investment administration solution that spans both fund and wealth administration services. 

In the meantime, by being part of MMC’s investment management community, Kiwi Wealth benefit from streamlined and robust operational services leveraging latest cloud technology. This includes regulatory compliance, complex reporting requirements and AML (Anti Money Laundering) checks.