Bayly, fund managers on KiwiSaver for tenancy bonds

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originally  intended purpose of KiwiSaver as a retirement scheme, he says that would be the case if the money could be withdrawn and not paid back.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.”

KiwiSaver gender gap widens further, average balances drop

The gender gap for average KiwiSaver balances widened five per cent from 2021 to 2022, increasing from 20 to 25 per cent.

New data from the Te Ara Ahunga Ora Retirement Commission shows gender gaps in every age category widened with larger gaps opening in younger age groups, up 7% to 23% for 18-25 year olds and up 8% to 27% for 31-35 year olds.

Melville Jessup Weaver (MJW) actuaries was commissioned to collect KiwiSaver demographic data as at December 2022 to update data first collected as at December 2021.Data was gathered from more than three million KiwiSaver members and represents approximately 94% of the total KiwiSaver member base.

Te Ara Ahunga Ora Director, Policy and Research, Dr Suzy Morrissey says the research builds a picture of the challenges women face to grow their KiwiSaver balances.

“Analysis of the widening gap does not appear to be explained by fund choice, withdrawal, or suspension behaviour of women compared to men.”

She says the widening of the gap at younger ages is particularly concerning because of compounding interest.

“Money invested earlier will have time to grow, but if women’s balances are lower than men’s in younger life, they will likely remain lower,” says Dr Morrisey.

Analysis was also done to understand the impact of significant hardship withdrawals, first home purchase withdrawals, and savings suspensions using additional from Inland Revenue. Withdrawals and suspensions did not explain the differences – more men were on suspensions and had withdrawn more money. It was noted that data does not capture those who have left paid work and no longer contribute (not a savings suspension).

The report shows that the average KiwiSaver balance as at 31 December 2022 was $27,379, a drop of 5.7% from 2021, reflecting poor financial market conditions over the 2022 year. Balances dropped across all ages, and both genders were impacted.

For males, the average balance fell 3.2% (to $31,496).

For females, the average balance fell 7.1% (to $25,144).

More men in growth funds

The research has also investigated member balances across age and gender by fund type for the first time. It found that more than one third of all funds under management are assets invested in growth funds, this allocation decreases with age.

Men have more assets invested in growth funds, while women have more assets invested in conservative funds. This difference is smaller at younger ages and more pronounced for those nearing age 65, and over 65.

Analysis suggests that women are not necessarily more risk averse, as both men and women tend to be invested in lower risk funds if they have small balances and have more growth assets if they have larger balances. Women’s lower balances (on average) may lead them to be less risk-seeking.

The widest gaps of average balances are still between men and women in their 40s and 50s, which likely reflects the combined impact of the gender pay gap, time out of paid work, and the higher percentage of women than men that work part-time.

On average women in their 40s have approximately $10,000 (or 34%) less KiwiSaver than men; and on average women in their 50s have approximately $14,500 (or 37%) less KiwiSaver than men.

Other findings:

41% of KiwiSaver members have a balance of less than $10,000

  • 60% of which are
  • 35 and younger, a quarter of those over the age of 35 have balances under $10,000
  • 1 in 5 of those aged 51–65 have less than $10,000.

38% of KiwiSaver funds are invested in growth funds

  • for the under 50s, this is around half of investment balances, decreasing to 30% for those aged 50–65 and less than 20% of investment balances for those over 65.

Women have more assets invested in conservative portfolios, while men have more assets invested in growth portfolios.

  • this difference is small at younger ages and more pronounced at older ages.
  • this does not necessarily reflect different risk profiles; it could relate to balance size, as those with lower balances may be invested in lower risk funds.

The 2022 Review of Retirement Income Policy found that 40% of people aged 65 and over have virtually no other income besides NZ Super and another 20% only have that, and a little more.


National Capital hits $100m for KiwiSaver advice

Digital financial adviser National Capital has hit $100 million in KiwiSaver funds under advice.

National Capital founder Clive Fernandes says with the KiwiSaver total approaching the $100 billion mark ($971 billion in Q1 according to the Reserve Bank), a huge proportion of New Zealanders are still not getting any advice on their KiwiSaver accounts.

He thinks while advising on KiwiSaver has not historically been a viable business model for independent and small firm advisers, the advance of digital tools means this may no longer be the case.

National Capital has built its business giving digital or robo advice through its inhouse-built platform. It has spent close to a $1million building and refining its system and now has a development team of four programmers and designers.

Fernandes, who was 20 years in the IT industry prior to starting National Capital, is also involved in the development side. He started the Auckland-based firm four and a half years ago when it became one of the first financial advice companies to get a digital advice exemption from the Financial Markets Authority. In 2021 it was acquired by Auckland-based financial planning company Saturn Advice.

Fernandes says National Capital now has close to 2000 clients, with an average account balance of $50,000. Over the past two years there has been growth in six figure balances and, in the demographic approaching retirement age, $1 million accounts.

“Approximately the revenue is about 0.2% per year. That just isn’t enough money for a human adviser to go out there and give advice one client at a time. A small adviser wouldn’t be able to use that model so we need to encourage advisers to use digital tools.”

Fernandes says with $100 billion in KiwiSaver funds the industry doesn’t need to compete for a slice of the pie.

“There is no way one company can advise on all of this. We should be working together to build a knowledge base and offerings to do a better job.”

He says National Capital wants to talk to independent or small firm advisers and is willing to share its digital knowledge to see if there are suitable tools available in the market, or if National Capital could partner with them.

“At the moment it’s nothing specific, more a conversation. Financial advisers should start collaborating to find solutions that smaller advisors can use.”

National Capital is paid by KiwiSaver providers that include advice in their management fees. This includes AMP, ANZ (ANZ and OneAnswer), Booster, Fisher Funds (Fisher Funds and Fisher Funds TWO), Generate, Mercer, Milford, Nikko and Pathfinder.

“It’s similar to the way mortgage and insurance brokers work but we don’t need to move someone to a provider to get paid.”

National Capital also gives advice to clients of providers that don’t include advice in their fees, such as Simplicity.

“They will still get a basic recommendation of what type of fund is suitable and which provider, but not ongoing advice on the recommended fund or updated recommendations.

“Our whole business model is based on the fact that we are giving a lot of automated advice.”

Fernandes says there are a range of issues including people not properly understanding what KiwiSaver is, confusion about the range of providers and funds, and among those closer to retirement age, worry that they don’t have enough in their accounts. “It starts as an educational journey and then we recommend the right fund.”

He says while many of the banks and providers now offer digital tools, most are risk profilers.

“They ask how comfortable you are with volatility which I don't think is how advice should be given. That is not what a real life financial adviser does. They give advice based on the person’s situation, income etc.  This is what the National Capital system does.”

Generate puts $20m into new Icehouse Ventures fund

Generate KiwiSaver has committed $20m to Icehouse Ventures’ Growth Fund II, a $100m venture capital fund to 20 established New Zealand technology companies to expand in global markets.

Generate chief investment officer Sam Goldwater says, Generate was attracted by the unique deal flow and insights of Growth Fund II as a result of Icehouse Ventures’ investments in >300 early-stage startups.

“Having these kinds of relationships, built over time and successive investments, gives Icehouse Ventures privileged access to new deals coming through, which should enhance returns for our KiwiSaver and managed fund customers.”
Icehouse Ventures is New Zealand’s most active Venture Capital group according to the 2023 Technology Investment Network Report. It has invested in approximately half of all early stage technology startups funded in New Zealand over the last six years.

Robbie Paul, CEO of Icehouse Ventures, says Generate’s backing signals the KiwiSaver provider’s evolution into an institutional-grade fund manager.

“Sam and the Generate team have watched us closely since the launch of our first Growth Fund in 2020. A $20m cornerstone investment in Growth Fund II is a wonderful endorsement coming from an investor that serves almost 130,000 Kiwis,” says Paul.

Four months after launching, Growth Fund II is on track to a first close of $50m, a milestone that took 12 months for Growth Fund I. The fund is open to wholesale investors and the minimum investment is $50,000 which is paid over a three year period.

Paul says the high investor demand for Growth Fund II, in defiance of global venture capital trends, underscores Icehouse Ventures’ unique position in the market and high-trust, long-term relationships with many investors.

Icehouse Ventures’ transition into later stage investment has corresponded with its work toward becoming the most data-driven Venture Capital firm in the Asia Pacific. Its five person product team, led by CTO Peter Thomson, analyses and compares data across the firm’s 308 investments over the past decade to make more accurate and informed decisions. 

“The most informative data is built over time. There is a big difference between looking over the books for a month versus tracking a company's progress over many years,” says Paul.

“The super power we are building is based on blending quantitative data sets on metrics like revenue growth with qualitative observations such as the ability of a CEO to communicate an ambitious vision or to attract and retain great talent.”

However, Robbie emphasised deal access is a critical feature in a market that increasingly includes global venture funds.

“When you’re looking at the meteoric revenue growth of the likes of Tracksuit or Hnry, deal access becomes more important than traditional due diligence. That is where our unique relationships, information, and pre-emptive rights have served us well,” says Paul.

Growth Fund I

Growth Fund 1 raised $110m in 2021 from investors including Simplicity, an Iwi, Hobson Wealth, and >500 high net worth investors and family offices from around the world. There have been 32 investments to date including Halter, Hnry, Dawn

Aerospace, Crimson Education, and Mint Innovation. (Recent press related to Fund I companies: Nilo, Vertus Energy, Halter, Dawn, Biolumic, Sharesies, Tracksuit.)

Aggregate annual revenue by the portfolio exceeds $250m – an increase of $100m from when the Growth Fund first invested. Nine are generating more than $10m, three are pushing $20m, and one exceeds $100m in annual revenue.

Icehouse Ventures funds has attracted investment from more than 1,500 high net worth investors and a growing number of institutional-grade funders including Simplicity, Harbour Asset Management, Hobson Wealth, and Ngati Apa ki te Ra To.