KiwiSaver

Sharesies is planning to lure more of the nearly 600,000 people who use its trading platform into its KiwiSaver offering by allowing them to self-select up to half their portfolios.

Sharesies co-founder and chief executive Leighton Roberts says his team started thinking about developing a KiwiSaver option about six months after the firm's 2016 launch but the KiwiSaver launch didn't happen until late last year when the company received its licence.

“It was always not if, but when,” Roberts says. “We want to be the biggest wealth development platform in New Zealand and Australia. Superannuation makes up a huge part of people's wealth and, in our view, it should make up more,” he says.

The lack of adequate retirement savings represents a big macro risk for New Zealand and market research shows that engagement with KiwiSaver is lacking.

“A lot of people are in the wrong funds and they don't know that it's an investment – they think it's a savings vehicle because of the name. But for a lot of people, particularly younger people, KiwiSaver is the biggest asset they have,” Roberts says.

Sharesies members tend to skew under 40, making them a likely target for the company's KiwiSaver plans.

It currently offers three passive funds, conservative, balanced and growth, which are managed by NZX's Smartshares, a more aggressive growth fund managed by Pie Funds and a conservation-oriented option managed by Pathfinder.

Roberts says Sharesies will be putting “guardrails” around its self-selection offering when it launches.

The Sharesies KiwiSaver schemes currently have 1,800 members and between 27,000 and 28,000 on its waiting list.

As to how many Sharesies members the KiwiSaver plans might attract, Roberts says he really doesn't know and doesn't want to put limits on it, although the banks manage to attract between 20% and 40% of their customers into their KiwiSaver plans.

Currently, Sharesies is attracting more than 30 new customers a day and Roberts says his focus is on increasing that to 40 a day.

Sharesies registered Sharesies Investment Management in August 2021 and during the year ended March this year invested seed funding of $1.35 million.

That vehicle recorded a net loss of $433,956 for the latest year, leaving it with equity of $918,599 and actual cash of $878,382.

The Startup Advisors Council wants the Government to remove barriers impeding KiwiSavers from investing in local startups.

The recommendation is one of 25 in the council’s UpStarts 2023 report, which was commissioned by the Government to find ways to boost the sector.

Reserve Bank data shows that of the total $97b held in KiwiSaver funds at March this year, 0.18% was invested in unlisted shares.

This compares to the US where a 2022 endowments study found long-term endowment managers typically allocate 30% of funds to private equity and venture capital, and 28% allocations to public equities.

Research by international consultancy Startup Genome, which informed the report, found New Zealand has around 2,400 startups with 58% in Auckland, 15% in Wellington, and 8% in Christchurch. The research suggests the ideal number per million people is around 1,000.

It says New Zealand currently invests $400m a year in startups. The advisory council wants to double the number of startups over the next seven years and estimates it will take another $2b in new funding and then sustained investment of $800m+ per annum.

The report says, “This gap suggests that New Zealanders are being deprived access to a significant growth asset class.”

It identified three main barriers to  KiwiSaver providers investing in startups through private equity.

The first is the requirement for daily liquidity to allow KiwiSaver members to switch funds at any time.

The second is a requirement for daily valuation. The report says to support daily liquidity KiwiSaver managers need to be able to mark illiquid assets to market regularly. “Those managers who are investing in the sector have developed the capability to do this between the quarterly reporting cycle of the venture fund managers, but others have not.”

The third is a regulatory focus on low fees as investing in venture funds or directly into private equity increases overall fees and creates a short-term drag on returns.

The advisory council also said it had observed that the level of understanding of how venture capital and private equity worked – the drawdown profile, risk/return profile, J-curve effect – was “surprisingly” immature.

“Our view is that New Zealanders should all be able to access the dynamic, high-growth investment opportunity that investment in UpStarts represents, and that these ‘blockers’ should be removed to enable capital the opportunity to flow.”

The report proposes four measures to reduce the barriers. It asks the Government to guarantee the short-term liquidity of any investments in an eligible New Zealand venture fund.

“So if a member withdraws, transfers, or triggers a fund to move outside its internally approved allocations to the venture class, the Government would stand-in as a buyer and subsequently seek to sell that interest to another fund. This would eliminate liquidity as a barrier to investment in venture funds.”

It also asks the Government to consider moving from daily liquidity to 90-day liquidity to reduce potential short-term switching volatility and provide more operating certainty for KiwiSaver funds invested in illiquid assets.

“90-day liquidity would be more consistent with how the wider savings industry operates globally.”

On fees, the advisory proposes that the fee reporting regime be refined to break out the underlying asset classes that KiwiSaver managers are investing in.

“The reporting could be done in a way that celebrates investments in New Zealand illiquid assets – infrastructure, private equity, venture capital – that help grow New Zealand.”

Finally it asks the government to provide guidance on asset allocation as is done by the Australian Prudential Regulatory Authority (APRA).

“Providing similar guidance to the New Zealand KiwiSaver industry will help build confidence in allocating capital to illiquid assets.”

Speaking at a conference where the report was released, Minister of Research, Science and Innovation Ayesha Verrall said the Government would take time to “carefully consider” the recommendations. Meanwhile Act said of the 25 recommendations, removing KiwiSaver barriers was the only one it would support. While National finance spokesman Andrew

Bayly has already said he would look at removing KiwiSaver barriers.

The Startup Advisors Council was set up last year by Verrall. Movac founder Phil McCaw is the Chair, and the Deputy Chair is Suse Reynolds who also chairs the Angel Investors Association. Other members are Marian Johnson, founder of the Ministry of Awesome; Grant Straker, founder of AI translation platform Straker Translations; Mike Carden, founder of Sonar 6; Imche Veiga, CEO of Outset Ventures; and Carl Jones, managing partner of WNT Ventures.

The Startup Advisors Council wants the Government to remove barriers impeding KiwiSavers from investing in local startups.

The recommendation is one of 25 in the council’s UpStarts 2023 report, which was commissioned by the Government to find ways to boost the sector.

Reserve Bank data shows that of the total $97b held in KiwiSaver funds at March this year, 0.18% was invested in unlisted shares.

This compares to the US where a 2022 endowments study found long-term endowment managers typically allocate 30% of funds to private equity and venture capital, and 28% allocations to public equities.

Research by international consultancy Startup Genome found New Zealand has around 2,400 startups with 58% in Auckland, 15% in Wellington, and 8% in Christchurch. The research suggests the ideal number per million people is around 1,000.

The report says New Zealand currently invests $400m a year in startups. It wants to double the number of startups over the next seven years and which it estimates will take another $2b in new funding sources and then sustained investment of $800m+ per annum after that.

The report says, “This gap suggests that New Zealanders are being deprived access to a significant growth asset class.”

It identified three main barriers to KiwiSaver providers investing in PE investment.

The first is the requirement for daily liquidity to allow KiwiSaver members to switch funds at any time, requiring managers.

Then the requirement for daily valuation. The report says to support daily liquidity means KiwiSaver managers need to be able to mark illiquid assets to market regularly. “Those managers who are investing in the sector have developed the capability to do this between the quarterly reporting cycle of the venture fund managers, but others have not.”

The third is regulatory focus on low fees is another barrier as investing in venture funds or directly into private equity increases overall fees and creates a short-term drag on returns .

The Council also said it had observed that the level of understanding of how venture capital and private equity worked – the drawdown profile, risk/return profile, the J-curve effect – was “surprisingly” immature.

“Our view is that New Zealanders should all be able to access the dynamic, high-growth investment opportunity that investment in UpStarts represents, and that these ‘blockers’ should be removed to enable capital the opportunity to flow.”

The report proposes four measures to reduce the barriers. It asks the Government to guarantee the short-term liquidity of any investments in an eligible New Zealand venture fund.

“So if a member withdraws, transfers, or triggers a fund to move outside its internal approved allocations to the venture class, the Government would stand-in as a buyer and subsequently seek to sell that interest to another fund. This would eliminate liquidity as a barrier to investment in venture funds.”

It also asks the Government to consider moving from daily liquidity to 90-day liquidity to reduce potential short-term switching volatility and provide more operating certainty for KiwiSaver funds invested in illiquid assets.

“90-day liquidity would be more consistent with how the wider savings industry operates globally.”

On fees, the Council proposes that the fee reporting regime be refined to break out the underlying asset classes that KiwiSaver managers are investing in.

“The reporting could be done in a way that celebrates investments in New Zealand illiquid assets – infrastructure, private equity, venture capital – that help grow New Zealand.

Finally it asks the government to provide guidance on asset allocation as is done by the Australian Prudential Regulatory Authority (APRA).

“Providing similar guidance to the New Zealand KiwiSaver industry will help build confidence in allocating capital to illiquid assets.”

Speaking at a conference where the report was released, Minister of Research, Science and Innovation Ayesha Verrall said the Government would take time to “carefully consider” the recommendations. Meanwhile Act said of the 25 recommendations, removing KiwiSaver barriers was the only one it would support. While National finance spokesman Andrew Bayly has already said he would look at removing KiwiSaver barriers.

The Startup Advisors Council was set up last year by Verrall. Movac founder Phil McCaw is the Chair, and the Deputy Chair is Suse Reynolds who also chairs the Angel Investors Association. Other members are Marian Straker, founder of the Ministry of Awesome; Grant Straker, founder of AI translation platform Straker Translations; Mike Carden, founder of Sonar 6; Imche Veiga, CEO of Outset Ventures; and Carl Jones, managing partner of WNT Ventures.

National Party finance and commerce spokesperson Andrew Bayly, says he did not know if KiwiSaver Scheme managers had been consulted as the initiative was led by housing spokesperson Chris Bishop.

The National election promise will allow under-30-year-olds to use KiwiSaver for tenancy bonds.

Bishop announced the intention to students at Auckland University. Under it students would be able to transfer money from their KiwiSaver to Tenancy Services and return it to their savings when the tenancy ended. They would also be able to transfer the bond to a new tenancy. There is a five year cap.

“The demand came from younger people, and particularly our young Nationals who said that for a lot of people, coming up with a bond is really difficult. And so it was a demand driven policy,” says Bayly.

He says National was concerned that people don’t withdraw money and not return it to KiwiSaver.

“That's why we're going to take that discretion out of the hands of the individual wanting to access it. The money goes straight to the Tenancy Tribunal and gets paid straight back into the KiwiSaver. No doubt it will have some administration costs for KiwiSaver providers, but they're used to withdrawing money out of KiwiSaver. It's not something that they’re not used to doing.

Asked if he thought the policy erodes the originally  intended purpose of KiwiSaver as a retirement scheme, he says that would be the case if the money could be withdrawn and not paid back.
“It can only be used this way once and it will be taken out for short periods of time.”

Kernel Wealth Management CEO Dean Anderson says he wasn’t aware of providers being asked about the policy.

He says while he hasn’t seen the full details to make a fully formed judgment, continual changes to non-critical KiwiSaver settings risk undermining the confidence in the scheme as a whole.

“It makes people question what rules changes may come next, therefore they distrust it – it only takes two minutes reading social media comments to see this.

Sharesies CEO Leighton Roberts acknowledges the difficulty of scraping together a tenancy bond.

“Rent bonds are definitely an affordability problem – but the proposed policy to let under-30s access their KiwiSaver for tenancy bonds isn’t the right solution for New Zealanders.

“KiwiSaver is a scheme to help people save for their future and by relaxing how to access this money will inevitably lead to a lower balance for retirement or buying a house.

“It’s important to note that paying for tenancy bonds isn’t ring fenced to just those under 30s, it’s impacting Kiwis of all ages.”

Simplicity CEO Sam Stubbs says it's a political decision and he doesn’t have a view whether it’s a good or bad idea.

“Clearly the youth wing of the party has said it is and the party is accommodating it. I’ll leave it up to the politicians to decide whether it would be sufficiently attractive to enough people.

“There are people who will say it’s a slippery slope. It’s one of many policies that seek to tap into KiwiSaver to make life easier. We’ve had hardships and first home withdrawals. KiwiSaver was designed as a retirement account. The more it becomes like a general saver account, the more it is deviating from its original purpose. But people shouldn’t confuse it with policies that take money out forever. It’s temporary so it’s more like a savings suspension.”

Financial Services Council CEO Richard Klipin says, it should be of great concern to all Kiwis, however, it is a great way to start a wider conversation on longer term KiwiSaver policy settings, says the Chief Executive of the Financial Services Council Richard Klipin.

“The policy does address a real concern for young Kiwis with the Financial Services Council research showing young Kiwis are feeling the heat of the rising cost of living crisis impacting the country,” Richard Klipin said.

“Our recent financial resilience research found that younger Kiwis are disproportionately affected by cost of living issues. Our recent survey found 64% of respondents, aged 37 or below, worry about money daily, weekly or monthly, more than any other age group.

“At the FSC, we are committed to helping all Kiwis with their financial confidence and wellbeing to ensure more young New Zealanders are financially stable and resilient to make sure they have more and better housing options available to them.

National would have to amend the KiwiSaver Act 2006 which currently allows early withdrawal for five reasons; first home ownership, significant financial hardship, serious illness, life shortening congenital conditions and permanent emigration.

Anderson says he would like to know when politicians will start discussing policy settings that drive engagement and contributions into KiwiSaver.

“We need to be talking about increasing contributions and getting the policy settings in place that leverages the now $100b of capital into driving better outcomes for New Zealand and all Kiwis – not building a mindset of KiwiSaver being a transactions account.”

Bayly says KiwiSaver in general needs to be “looked at”.

“We've got to look at KiwiSaver in general, because the average balance in KiwiSaver is about $28,000. And that means many New Zealanders are not saving sufficiently for retirement. And if you look at the current estimates, it used to say that [for retirement] we needed anywhere between $400 to $800,000. Since then, we've had massive inflation and now it’s more between $500,000 and $1 million.

“For a lot of its education and encouraging people to do it. A lot of people don't pay KiwiSaver for different reasons and we need to make sure that many people are taking advantage of KiwiSaver.”