KiwiSaver

Rebounding share markets in the March quarter helped all the multi-sector KiwiSaver funds produce positive returns.

Rebounding share markets in the March quarter helped all the multi-sector KiwiSaver funds produce positive returns and total KiwiSaver assets rose 6.2%, or by $5.4 billion, to $91.9 billion compared with the December quarter, according to Morningstar's latest survey.

While the collapse of the Silicon Valley Bank on March 10 dented confidence globally, the benchmark S&P/NZX 50 Index still gained 3.58% in the latest quarter and the key US index, the S&P 500, was up 5.2%.

ANZ remained KiwiSaver market leader with assets of $18.7 billion but it grew at the slower pace of 5.6% in the latest three months – it lost its default status in December 2021 – but the top six providers retained their 69% share of the market.

Among the six default providers, Kiwi Wealth, which is now owned by Fisher Funds, produced the best quarterly return of 5.7%, followed by Simplicity with 5.4%, but both funds were the worst performers over year ended March with negative 3.5% returns.

The worst performing default fund in the quarter was SuperLife with 3.8% returns but it was the least worst peformer for the year with a negative 2% return.

Simplicity's conservative fund was the best performer among multi-sector funds in the quarter with a 3.7% return but it was the worst performer over a one-year and three-year periods with negative 3.5% and positive 0.3% respectively.

The opposite was true of QuayStreet's income fund which was the worst performer in the quarter with a 2% return but the best one-year performer at 2.7%.

Among balanced funds, Juno's was the best quarterly performer at 6.5%, though it ranked 10th out of 34 funds for the year with a negative 2.3% return.

The InvestNow Castle Point balanced fund was the worst performer with an 0.7% return and a negative 1.8% return for the year, ranking at fifth.

Juno's growth fund was the best performer in that category with an 8.2% return for the quarter, beating the best of the aggressive funds, FANZ Lifestages High Growth with 7.8%, but it ranked 17th out of 26 funds for the year with a negative 4.1% return.

Morningstar said the most appropriate measure of a KiwiSaver scheme's performance is its long-term returns and noted the aggressive category average has delivered annualised returns of 8.4% while the most conservative funds have delivered 4.1% a year.

Online investment platform Sharesies will have a DIY option in its KiwiSaver scheme which it plans to launch this quarter.

The impending KiwiSaver scheme was announced last December and now has a waiting list of 18,000. Sharesies joint CEO Leighton Roberts says the scheme will roll out to select staff and clients from next week.

Once it is available, members will have a choice of five base funds as well as the option to customise their portfolios from a range of individual company shares and exchange traded funds (ETFs).

The initial DIY offering will cover 40 ETFs and 60 individual stocks which will be PIE-wrapped to limit the top tax rate of 28% and allow members to buy fractions of shares. 

Sharesies head of KiwiSaver Matt Macpherson says the ETF range isn’t fully finalised but all ETFs bar one from Salt, will be Smartshares including Smartshares S&P 500, Total World and Total World Bonds.

As the scheme is developed, access to US markets will be added later in the year followed by ASX listings, he says.

Other self-select KiwiSaver schemes which allow members to customise their portfolios with individual stocks and ETFs are available from Consilium and Craigs Investment Partners although their individual equity offerings are not structured as PIEs.

Online investment platform InvestNow also lets KiwiSaver members build their own portfolios from a range of funds not including individual shares.

At least 50% of Sharesies KiwiSaver portfolios will be required to include one of five base funds chosen from among Sharesies Pathfinder Ethical Growth Fund, Sharesies Smartshares Growth Fund, Sharesies Pie Global Growth 2 Fund,

Sharesies Smartshares Balanced Fund and  Sharesies Smartshares Conservative Fund. This extends the partnership Sharesies already has with Pathfinder, PIE and Smartshares which are available on the Sharesies platform.

Sharesies says there will be no additional management or administration fees on top of the fund managers’ own fees. Although self-selected shares and ETFs won’t attract management fees there will be an administration fee of 0.15%, and a transaction fee of 1% for investments up to $1000, and 0.1% for investments of more than $1000.

Guardrails

Would-be members will have to sign up to Sharesies to join the scheme which will be on the Sharesies app and will have to complete an investment plan. Members will be able to update the plan at any time to suit their changing risk profiles, goals, or values.

The KiwiSaver scheme will include built-in limits and tools (guardrails) to promote diversification so investors can manage their risk. As well as having to allocate at least half their KiwiSaver investment to a base fund, members will not be able to allocate more than 5% of their total KiwiSaver investment to any single share or ETF. To assess the risk before locking in their investment plan, members will see a risk indicator from 1 (low risk) to 7 (high risk).

Roberts says just over 10% of current members use the platforms’ autoinvest feature and Sharesies members have proved to be sophisticated in their investment decisions including steering clear of panic selling.

“Kiwis have told us they want to feel more connected to their KiwiSaver investments, and have more control and confidence over how and where they invest,” he says.

New research has revealed the prevalence of employers including KiwiSaver contributions as part of their employees’ total remuneration rather than on top of their earnings.

The Retirement Commission surveyed more than 300 small, medium, and large organisations about the use of a total remuneration approach to KiwiSaver, finding that 45% use the model for at least some employees.  

The findings show that 25% of employers include employer KiwiSaver contributions as part of total remuneration. A further 20% adopt both approaches, paying some employees earnings plus KiwiSaver, and paying others earnings inclusive of KiwiSaver.

Of the employers which use a total remuneration approach, 66% said it was because the accounting is more simple, 42% because they use contract and casual employees/it is not required, 37% said for transparency, and 21% said because it is cheaper for business. 

Those using a mixed approach gave transparency as the main reason (42%), use of casual and contract employees/not required (40%), and fairness (34%).

Of the employers paying KiwiSaver contributions on top of earnings, 55% said they didn’t know about the total remuneration model or have always used their own model, 45% say their own model is more transparent, and 18% believe ‘earnings plus KiwiSaver’ is more appealing to potential and current employees. However 40% of ‘earnings plus KiwiSaver’ users have considered using the total remuneration model with 88% of them selecting contractual or legal considerations as a reason not to.

Under the KiwiSaver Act, employers must contribute a minimum of 3% of an employee’s gross pay if the employee is a contributing member of KiwiSaver. 

Retirement Commissioner Jane Wrightson says it’s disappointing to see almost half of employers using a total remuneration for at least some of their employees. 

“This is not how KiwiSaver is designed to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages except to the extent that parties otherwise agree. However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining,” she says. 

“The prevalence of a total remuneration approach may explain why some KiwiSaver members have taken a savings suspension and not contributed to the scheme while in paid work. It could also be possible that some employees may not even be aware that this approach is being used, and assume that the employer contributions are on top of their earnings instead of being included.” 

KiwiSaver membership is high, according to the Financial Markets Authority annual KiwiSaver report, with more than three million members (around 96% of the working age population) but ‘non-contribution’ rates are also high, with around 39% of members not currently contributing to their KiwiSaver accounts. There have been around one million non-contributors since at least 2020 before the recent cost of living crisis.

Earlier Retirement Commission research on KiwiSaver non-contributors, found not being in paid work was the main reason for non-contribution (66% of non-contributing members) because they were either studying, parenting or unemployed for some other reason. Seventeen per cent were on saving suspensions and nine per cent were self-employed. Other reasons (8%) included employer-related reasons such as the employer just recently applied for the KiwiSaver scheme, unsuccessful opt-outs, and procrastination/forgetting.

Retirement Commission senior director of policy Dr Suzy Morrissey says it is possible that use of total remuneration could be impacting the decisions of the other 33% of non-contributors but further research would be needed with employees to test whether that is the case.

Guidance to employers when KiwiSaver was introduced said, ‘employees and employers alike have a stake in lifting the saving performance of New Zealand. Increased savings helps employees enjoy a higher standard of living in retirement and also increases the supply of domestic savings that can be invested in New Zealand businesses, helping local businesses grow’. 

But the new research suggests this joint approach to retirement savings is no longer common, says Wrightson, and the removal of the incentive provided by the employer contribution on top of salary or wages goes against the ‘spirit’ of the scheme – potentially putting people off from contribution.

The full report is available here and the policy brief is available here.

A Canterbury law firm specialising in wills and estates is petitioning parliament to enable executors of wills to access funds of up to $25,000 without needing High Court paperwork.

When a person dies with $15,000 or more in their KiwiSaver fund,  executors have to apply to the High Court for probate (of a valid will) or letters of administration (if there is no will or executor) before then can uplift the funds from any financial institution.

Kiwilaw partner Cheryl Simes says the current probate/letters of administration threshold of $15,000 is too low and executors are having to pay thousands of dollars to access funds, especially from KiwiSaver accounts. She is asking for the threshold, which was set in 2009, to be adjusted for inflation to $25,000.

Simes says the threshold applies to any account held with a financial institution, but KiwiSaver tends to catch people out.

“Generally if people have any wealth they may have it in a family trust or joint account. KiwiSaver accounts are always held in a person’s individual name, and often the balance is not very much but more than $15,000.”

Simes says most lawyers charge more than $2,000 and applicants must also pay a High Court fee of $200. Unless the deceased made separate financial provision for their funeral expenses, that $15,000 includes the funeral costs, as well as any debts.

“Getting High Court approval can cost up to $6000 or more in legal fees, especially if there is no will and there are legal complications. When there is no valid will, legal complications can include your loved one’s permanent home being overseas, or next of kin not speaking English, or the surviving spouse or de facto partner needing a compulsory ‘notice of choice of option’ to choose between the law of inheritance and the law of relationship property.”

Simes says she often deals with cases involving young men who statistically are more likely to die through accident (car or work) or suicide. In one case the balance of the KiwiSaver account was $15,013.

She says she is asking for an inflation adjustment to the threshold rather than for the level to be raised as that would mean a policy change.

The Administration [Prescribed Amount] Regulations 2009 which prescribes the actual figure for the purposes of several sections of the Administration Act says financial institutions can’t release anything above the prescribed amount without probate or letter of administration.

“The law of inheritance is being reviewed and big changes are coming but in the meantime this small change could and should be made. It involves a short, simple, regulation.”

“When someone dies, their Kiwisaver should go to their loved ones, not to lawyers.”