National’s KiwiSaver splitting: innovation or complication?

National MP Andrew Bayly does not think allowing New Zealanders to split their KiwiSaver savings over multiple providers would be too tricky to administer.

Instead it would provide consumer choice and provide a source of funding for infrastructure development among other things, he says, of the new policy, which would allow KiwiSaver members to split contributions across up to three schemes.

But providers aren’t convinced and wonder whether such a change would add too much extra administration cost to members and the system as a whole.

Simplicity CEO Sam Stubbs says the devil will be in the details.

“If it lowers fees via competition – great. But if it’s an excuse to increase fees because of complexity, not great. So hard to know at this stage but more choice is desirable.”

Ruper Carlyon, founder and CEO of another boutique KiwiSaver provider Koura Wealth says it’s an interesting proposal.

“It would be a good thing for us because people might be more willing to diversify towards smaller players in the market with some of their KiwiSaver. If it builds trust and further develops the product, it’s a step forward.”

But he has reservations around complexity, how it would work and whether it would require a rebuild of systems at the Government end.

“The big difference between New Zealand and international markets is that we have the IRD as the central repository for all things KiwiSaver. And so when you sign up to a new provider, what would you do? Do you say you want your balance transferred,  you don't want your balance transferred or  you want X per cent transferred. Or for first-home withdrawal where would employee and employer contributions go?”

Kernel Wealth CEO Dean Anderson says one of New Zealand’s strengths is the simplicity of our systems – from a simple tax regime to a simple KiwiSaver structure administered centrally through IRD.

Both Carlyon and Anderson refer to the UK and Australia which are now dealing with the problem of investors having pockets of superannuation scattered across the market place.

“Often balances get forgotten, or aren’t regularly reviewed and you tend to see self-managed results are worse than simply getting the asset mix right and keeping costs low,” says Anderson.

Carlyon says over the past five to 10 years, both countries are going through a massive effort to consolidate pension schemes.

Both question how greater administrative complexity would result in lower fees. The upshot for Anderson is that he is indifferent to the policy, as 95% of the market will see little value and it might even add more confusion. He is skeptical on whether it will foster higher innovation, greater innovation or lower fees.

Likewise Mike Heath, general manager of InvestNow which already allows members to spread their KiwiSaver across a choice of 40 funds from 15 providers.

He says while he applauds National for identifying a long-known issue with the KiwiSaver system, much of the complexity, expense and risk would fall on the IRD. Members of more than one scheme would also lose the benefit of consolidated KiwiSaver reporting where all costs and investment returns can be viewed in context.

“The National Party emphasis on ‘flexibility and choice’ in KiwiSaver is on the money,” he says. “But the proposed policy is more likely to introduce confusion and expense when cost-effective solutions already exist.”

Sophisticated investors

Bayly, who is National’s Commerce and Consumer Affairs spokesperson, doesn't think the policy would require major changes to IRD systems. “What we’re thinking at this stage is that you would go to your employer and say you want to split your contributions and they feed it through to the IRD.

“The idea of the IRD’s new BTP [business transformation programme] is that it has full visibility around everything. They’ve now got the systems to do it. There might be some administration costs, but we don't think it's substantial and we can work through in absolute detail with them.”

He says National would probably put restrictions on the proposal. “We wouldn’t want people with a balance of $15,000 spreading their KiwiSaver unnecessarily. Obviously it’s directed at sophisticated people with larger balances and we’re talking for the next five to 10 years. “

As well as InvestNow, Kiwis can also self-select KiwiSaver funds from Consilium and Craigs Investment Partners, while Sharesies announced in May that it will allow members of its forthcoming KiwiSaver scheme to choose between six base funds.

“That’s a market solution to the existing situation,” says Bayly, “and that’s great. But people may want to choose their own options. We are going to do as much as we can to encourage KiwiSaver investors and fund managers to participate in alternative forms of investment such as expansion capital, VC, infrastructure. As balances grow people can make the choice for themselves.

Funding new infrastructure

“If you’ve got several hundred thousand, you might want to target your money in certain areas. You might have a social conscience or want to get into infrastructure.”

Bayly says only a few KiwiSaver providers have built the expertise to do alternative investments.

“Many of the larger ones for instance, like the banks, are basically passive managers. And then you’ve got the likes of say Booster, which extensively invests in wine, Sam Stubbs into housing, and Milford which has built an M&A team. So some of them have taken on the capability to do it.”

He says National wants to get third party providers involved in infrastructure and what better investors than KiwiSaver providers with their long term view.

A general review?

Sharesie’s joint founder and CEO Leighton Roberts says, “Giving more choice and control leads to a greater connection, which is what investors have told us they want, and is reflected in our self-select Kiwisaver scheme to be rolled out  in coming months.

“What National is proposing will benefit some investors, but to drive better outcomes for the significant portion of people who are really concerned about having enough money to retire in comfort, there are other policy changes to consider.

“For a step change, why not do a proper policy review of Kiwisaver that considers access, contributions, tax incentives, and compulsion.”

In a similar vein Anderson says he would rather see an ambitious policy announcement on growing KiwiSaver engagement, enhancing financial literacy in schools and tackling the key issue of raising savings rates overall.

On the topic of a general review Bayly says, KiwiSaver is so important to the fabric of New Zealand now, and we need to make it even more successful. “So, I think there'll be other elements we'll look at in time.

“We’ve already made a couple of announcements on KiwiSaver so this shouldn’t be read as the only thing we will do.”

Last month National said it would allow tertiary students to access the scheme to pay for tenancy bonds.

Bayly wouldn’t say whether there will be any more KiwiSaver announcements coming out before the election.

National floats allowing KiwiSaver splitting

The National Party says if it is elected it will allow KiwiSaver members to split their savings amongst multiple providers.

National has proposed allowing KiwiSaver members to split their savings between multiple schemes.

National’s Commerce and Consumer Affairs spokesperson Andrew Bayly says the move will drive innovation, boost competition and putting downward pressure on fees.

“The money in every KiwiSaver account belongs to the person who saved it – but the current rules mean Kiwis have to have all their KiwiSaver savings with just one provider.

“That restriction is limiting investment choices, and potential returns, for savers.

“As the sector grows and matures, some KiwiSaver providers are looking to diversify their investments into different classes of assets – such as start-ups and Build-to-Rent investments. However, under the current settings, savers who want to access these new investments are forced to shift all their savings to that provider – limiting choice and competition.

“KiwiSaver plays an increasingly important role in the New Zealand investment environment, as generations of savers continue to accumulate assets. But restrictions on savers and fund managers are pushing up fees and limiting investment opportunities.

“Increasing flexibility and choice for KiwiSavers to allocate their savings across multiple providers will encourage innovation, and higher potential returns over their lifetime.

“That’s why National will give KiwiSavers the flexibility to split their savings across multiple providers to provide more choice, improve investment options and competition. Improving competition is the best way to put downward pressure on KiwiSaver fees.

National also plans to roll back the Credit Contracts and Consumer Finance Act (CCCFA) and it will repeal the recent Conduct of Financial Institutions Act (CoFI).

It says CCCFA imposes additional burdens on lenders, making credit more expensive and harder to obtain, even for basic services such as overdrafts and mortgages.

[MORE TO COME]

AMP’s NZ wealth management doubles KiwiSaver net cashflows

The highlight of the otherwise flat first-half results from AMP's New Zealand wealth management business was a more than doubling of net KiwiSaver cashflows.

The NZ business contributed a stable A$17 million net profit to its Australian parent's A$261 million result for the six months ended June.

However, its result in New Zealand dollars eased to $18 million from $19 million in the previous first half.

The parent says distribution revenue was higher and offset the impact of lower assets-under-management (AUM)-based revenue.

“Controllable costs remained stable despite inflation and the business has diversified its revenues through the divestment of a legacy business and the acquisition of enable.me, which delivers non-AUM-based revenue through fee-based coaching programs,” it says.

The latest NZ result compares with the A$15 million result for the second half of 2022.

AUM-based revenue in the latest six months fell to A$44 million in the latest six months from A$47 million in the same six months a year earlier and A$45 million in the second half of 2022.

Despite that fall, average assets under management at June 30 rose to A$10.79 billion from A$10.21 billion a year earlier and the company says that was driven by investment return.

Other revenue rose to A$20 million from A$17 million in the same six months last year and A$16 million in the second half of last year.

The firm's KiwiSaver cashflow improved to A$74 million from A$31 million, which AMP says reflects member growth. KiwiSaver AUM at June 30 were A$5.54 billion, up from A$4.92 billion a year earlier and compared with A$5.25 billion at the end of 2022.

Other AUM dropped slightly to A$5.25 billion from A$5.29 billion and this part of the business suffered a net cash outflow of A$141 million in the latest six months, although that was down from the A$158 million outflow in the previous first half.

Investment management expense was flat at A$7 million and brokerage and commissions were also flat at A$5 million but marketing and distribution costs rose to A$11 million from A$10 million.

Gross profit fell a notch to A$41 million from A$42 million in the same six months last year.

The parent's results shows AMP Bank and the platforms businesses were profitable in the latest six months but the advice business made an underlying net loss of A$25 million, although that was an improvement of A$5 million from the previous first half.

However, the presentation showed that AMP aligned financial advice practices generate higher annual revenue than the industry average.

Average revenue per practice was up 10.3% and about 50% of practices generate revenue of more than A$1 million compared to about 30% for the broader industry.

KiwiSaver nudges $100b, Generate celebrates

KiwiSaver assets grew 6% – $92 billion to $98 billion –  over the June quarter while all multisector KiwiSaver funds produced positive returns,  reports Morningstar’s quarterly KiwiSaver Survey.

Of 23 providers offering 282 products, average multisector category returns ranged from 1.2% for the conservative category (including default options) to 5.4% for the aggressive category.

Estimated annual fees for the period were $780 million, with a projected annual fee revenue estimate of 0.80% which is the same as last quarter.

There was no change in terms of market share for Q2 this year, although the top three continued to slip. ANZ led with 20.1% of the market (down from 20.6% last June) and more than $19.6 billion AUM. ASB was in second position with market share of 15.2% (down from 16% YOY) and $14.9b in assets. Westpac’s BT held third place with 10.3% market share (down from 10.6%) and $10.1b AUM.

Fisher Funds stayed in fourth place. Its market share increased from 7.8% to 8.4% over the year, while assets grew from $6.4b to $8.2b. Meanwhile in fifth place KiwiWealth, which Fisher acquired last year, lost market share (7.7% June last year to 7.2% June this year) but assets rose from $6.3b to $7b. Milford came in sixth at 6.9% of the market and AUM $6.7b. The six largest KiwiSaver providers accounted for approximately 68% of assets in the database.

In terms of who took in the most fees, ANZ had a decisive lead with fees revenue of $180m, followed by ASB ($88m), Fisher Funds ($79.8m), Milford ($76.5m) and KiwiWealth ($65m).

Top performers for the quarter included Kiwi Wealth Default Conservative fund 2.1% (multisector conservative), Generate Moderate fund 2.7% (multisector moderate), QuayStreet Socially Responsible Investment fund 4.8% (multisector balanced), QuayStreet Growth fund 6.4% (multisector growth), and Generate Focused Growth fund 7.7% (multisector aggressive).

Default options appointed in 2021 had better results compared with the latest quarter: Simplicity Default (9.6%), Booster Default Saver (9.4%), and BNZ Default (9.4%) over the one-year period.

Generate turns 10, tops two

Boutique firm Generate, which launched a decade ago, was able to show 10 year performance for the first time and returned leading returns for two categories. In the last 10 years to 30 June 2023 the Generate Focused Growth fund created annual returns of 9.4% and the Generate Moderate fund returned 5.5% per annum. Meanwhile the Generate Growth fund ranked second to Milford over the same period, returning 8.7% to members p.a.

Generate, which had $4.3b AUM at the end of June 2023 and 4.4% market share, was ninth biggest in the market, having climbed over Booster last year from 10th place. More than 81% of its members are in growth funds, versus the market average 47%, said Generate CEO Henry Tongue. He credited advisers for some of that result.

“Over the years, our nationwide network of advisers has supported New Zealanders in choosing the appropriate KiwiSaver fund for their savings goals and the right contribution rate, meaning that many of our members have chosen growth focused funds, like our Focused Growth Fund.”

Generate, which is an active manager, looks for investments that have a positive impact on communities, such as social housing developments and New Zealand Air Ambulance, via a material shareholding in the parent company.

Since 2020, it has invested over $45 million into social housing New Zealanders with partners including the Salvation Army and Brightlight resulting in 150 homes built.

Milford topped the 10 year returns for the conservative category (Milford Conservative fund 6%), the moderate category (Milford Moderate fund 5.5%), balanced (Milford Balanced 9%) and growth (Milford Active Growth fund 10.9%).

Overall, the Morningstar Q2 Survey found that over 10 years, the aggressive category average has given investors an annualised return of 8.7%, followed by growth (8.3%), balanced (6.6%), moderate (4.6%), and conservative (4.2%).