Retirement policy: Call to start over

New Zealand is spending billions of dollars on KiwiSaver with no clear indication that it is leaving anyone better off, two retirement policy commentators say.

Michael Chamberlain, an Auckland actuary and investment adviser, and Michael Littlewood, co-founder of the University of Auckland’s Retirement policy and Research Centre, have released a new report, outlining “133 questions New Zealand needs answered” about retirement policy.

It follows their 2016 report, which criticised the Retirement Commmissioner's review, calling it an "evidence-free zone".

Chamberlain said little had changed, and New Zealand still lacked basic evidence to inform retirement policy.

He and Littlewood argued that greater economic growth needed to be kept central to discussion of every aspect of public policy, including retirement income.

There needed to be a longitudinal study of households, they said, to find out what they were doing with their financial lives.

Chamberlain and Littlewood said KiwiSaver was the answer to a problem New Zealand did not have.

“New Zealand has spent over $10 billion on KiwiSaver in subsidies and we don’t know if it’s good, bad or indifferent,” Chamberlain said.

He said the indications were that KiwiSaver had not improved New Zealand’s overall savings level.

“We know in Australia compulsory super hasn’t increased the overall level so there shouldn’t be surprise about that outcome in New Zealand.

"Given the predictable reduction of occupational superannuation schemes at KiwiSaver’s hands, some may even be saving less in total than previously, but we don’t know."

He said there were a number of financial advisers who argued KiwiSaver should be made compulsory but there was no evidence anywhere in the world that it worked.

A decision should be made as a country on the future of KiwiSaver, he said. Chamberlain said he was in favour of removing the lock-in aspect of the scheme and the incentives involved from Government.

More than 20 per cent of member balances could be attributed to taxpayer subsidies, Chamberlain and Littlewood said.

"Where is the evidence that these large sums have actually changed New Zealanders’ overall financial behaviour?Citing the number of members or the amount now invested in KiwiSaver doesn’t answer that question. Encouraging those numbers to grow won’t answer it either. Asking New Zealanders whether they think KiwiSaver is a good idea or whether they think they should be saving more is even less helpful."

Chamberlain said governments also had to stop making ad hoc decisions about superannuation and the age it was offered, without evidence about what the outcome of the decision would be.

“We shouldn’t simply change the age because someone thinks we should to make it more affordable. If we change the age, are we more likely to achieve its purpose?”

The pair also said moves to improve disclosure and communication with investors had not been a success.

"Knowing what financial service providers are actually doing and how financial products might suit consumers should be at the heart of regulatory supervision. New Zealand has tried to fix this, but we need to return to the beginning."

They said the new, shorter PDS documents required under the Financial Markets Conduct Act were still not being read.

"Even if read, it is highly unlikely that an investor can gain a complete picture of the investment on offer and the true risks they will be exposed to. One goal of the new regime was to make it easier to compare products and, to an extent, it achieves that. It is easier to compare fees and some features, such as contributions, withdrawal provisions etc. However, it does not make it easy to understand investment strategy and philosophy, except at a high level and in some cases, not even at a high level."

They also said the "risk indicator" measure was unhelpful – a view shared by some fund managers.

"It uses investment returns, to calculate the risk indicator, that are different from those advised to savers in their fund updates," Chamberlain and Littlewood said.

"Finally, it is based solely on recent historical volatility and is unrelated to the actual returns earned by the fund. The risk indicator tries to simplify the issue but ends up as a simplistic label."

You can see the review here.

Out of the frying pan into the fire?

Over the lifecycle of a KiwiSaver investment switches will be required at key investor milestones but these can be clunky. Michael Lang talks about the alternatives

By now many New Zealanders have successfully navigated their way out of the default scheme they were randomly allocated to, into more growth-orientated schemes. The move has been a good one, with investors accumulating at least an additional $800 million over the past three years, based on NZ Funds’ estimates. But will it be a case of out of the frying pan and into the fire?

Growth-orientated schemes can be a double-edged sword; while their returns are higher than income-orientated schemes over the long-run, they can deliver significant losses over the short term. In some cases shares, the primary driver of growth schemes, can take more than a decade to recover from a slump. And the recovery times assume investors do not panic and switch to cash, and do not make any withdrawals from their scheme until it has fully recovered.

This is bad news for New Zealanders approaching retirement. To get the most out of their scheme, most New Zealanders will need to make at least two KiwiSaver switch decisions in their lifetime, more if they use KiwiSaver for their first home purchase.

The first switch is likely to be out of a default scheme into a growth scheme. This increases the value of their account at retirement. A second switch decision should then be made thirty or forty years later as they approach retirement. This is a switch out of a growth into a more balanced scheme (that is a mix of income and growth assets). This switch helps preserve the capital sum they have accumulated and prepares the assets for the regular withdrawals that will fund their retirement.


So far, most KiwiSaver decisions have been DIY. The FMA’s 2015 review of KiwiSaver providers found that only three out of 1000 New Zealanders receive advice when joining KiwiSaver or transferring between schemes. Today, this should be higher given some of the changes the FMA have made, but anecdotally the vast majority of New Zealanders do not receive advice.

Unfortunately, as KiwiSaver balances grow, so do the consequences of making a poor financial decision. And investors need only make one poor investment decision, for example a switch from growth to income in the middle of a share market slump, to ruin a lifetime of investing. This is why target-date or lifecycle funds have taken off in America since the share market collapse in 2009. Since then, the total assets in lifecycle funds have grown from $158 billion to over $1.10 trillion at year-end 2018 according to ICI and Morningstar Inc.

Out of the 30 schemes offered to New Zealanders to meet their retirement objectives, only nine have lifecycle options1. Of these, only one scheme (NZ Funds KiwiSaver Scheme) offers a waterfall asset allocation that ensures clients are rebalanced every twelve months for a lifetime. All other lifecycle schemes in New Zealand use periodic step changes to asset allocation, made popular in the late 1990’s by Donald Luskin and Larry Tint of Wells Fargo Investment Advisors. Overseas, such schemes have waned in popularity due to the fact that significant market movements can leave these clunkier schemes over or underweight an asset class for years at a time. NZ Funds KiwiSaver Scheme’s LifeCycle ‘Waterfall’ glidepath overcomes this obstacle.

Mindful Money wants to boost ethical investment

The founder of a new responsible investment platform wants to get all KiwiSaver members to think about where their money is invested.

Mindful Money, a new charitable social enterprise that wants to help people invest ethically, launched today.

It is a free platform allowing investors to check what is in their KiwiSaver funds and find one that aligns with their values.

Founder Barry Coates said only 1% of KiwiSaver funds had policies to avoid sectors such as gambling, pornography and alcohol.

Only 2% avoided fossil fuels.

“The KiwiSaver scheme has been important to help us all save. Now everyone with a KiwiSaver can also ensure their savings aren’t being used to harm people or destroy our environment.”

When Mindful Money users enter the name of their KiwiSaver fund, they are shown the companies and proportion of their funds that are invested in issues of concern – fossil fuels, weapons, gambling, alcohol, pornography, tobacco, GMOs, palm oil, human rights and animal rights.

Those highlighted concerns are based on a survey done last year by Mindful Money and the Responsible Investment Association.

"The public has a right to know where their hard-earned savings are invested. Two thirds or more of New Zealand investors have said they want to avoid issues of concern like fossil fuels, weapons, human rights violations and animal cruelty. Now they can find out which companies are making profits from their savings," Coates said.

The platform also allows users to find funds that align with their values and to easily switch to a more responsible fund.

There are nine providers and 23 funds that have been verified as meeting the high ethical standards set by Mindful Money. Users on the website can set the criteria they are looking for and find the fund that fits.

“The time has come for a massive shift towards investing responsibly. It is growing rapidly worldwide. Now New Zealanders can feel good about their investments, do good for people and the planet and earn good returns.

"The relevant question isn't why invest ethically, it's why not?”

The following providers are featured on Mindful Money’s platform:
•       Amanah KiwiSaver Plan
•       AMP KiwiSaver Scheme
•       Booster KiwiSaver Scheme
•       Christian KiwiSaver Scheme
•       Kiwi Wealth KiwiSaver Scheme
•       Mercer KiwiSaver Scheme
•       QuayStreet KiwiSaver Scheme
•       Simplicity KiwiSaver Scheme
•       SuperLife KiwiSaver Scheme

Fidelity life continues nib support

Fidelity Life and nib have confirmed joint quoting and application capabilities will continue from July 1.

Nib products will continue to be supported in Fidelity Life’s Apollo and eApp services, while the Fidelity Life-nib paper multi-app will also be maintained. In addition, nib forms and collateral will still be available from Fidelity Life’s Adviser Centre.

Fidelity Life chief distribution officer Adrian Riminton said: “We know advisers value a combined risk and health offer, and we want to keep making it easy for advisers to do business with us. So we’re pleased to offer advisers service continuity during a time of significant change in our industry – ultimately helping them to deliver good customer outcomes.”

Nib New Zealand chief executive Rob Hennin said: “We remain committed to working with advisers both directly and through our joint services with Fidelity Life to help ensure their clients have health cover that protects them and their families.”

Advisers with questions about nib products, and health insurance in general, should contact their nib adviser partner manager.