KiwiSaver

Taking a passive approach to investment paid off for those in Simplicity's growth and blanced KiwiSaver funds in the June quarter and for those in its newer default fund created after it was chosen two years ago to be one of the six default managers.

But active manager Milford Asset Management continues to produce superior returns over the longer term.

Simplicity's KiwiSaver growth fund was the best performer of 15 growth funds in the June quarter with a 1.6% return and it ranked second over a one-year and three-year timeframe with annual returns of 13.3% and 4.6% respectively, according to the latest MJW survey.

But Milford's KiwiSaver active growth fund was the best performer over three, five and 10 year periods with annualised returns of 5.7%, 9.3% and 10.5% respectively.

In the June quarter, the Milford active growth fund ranked 13th with a negative 0.7% return and it was eighth for the year with an 11.7% return.

The worst performing growth fund in the June quarter was ANZ's with a negative 1.5% return and it also ranked 15th over one and three years with returns of 6.7% and 1.5% respectively.

MJW says its survey covers the largest 17 KiwiSaver schemes by assets under management at March 31, 2023 and that these schemes account for about 95% of KiwiSaver assets under management at that date.

Simplicity's balanced fund returned 1.3% in the June quarter, the best return out of 17 funds.

It was second-placed over one-year with a 10.7% return but fell to fourth place over three years with an annualised return of 2.8% and to fifth place over five years with an annualised return of 5.6%.

Milford's KiwiSaver balanced fund was best performer over three, five and 10 years with annualised returns of 4.3%, 7.1% and 8.7% respectively, but ranked 11th of the 17 for the June quarter with an 0.3% return.

ANZ's KiwiSaver balanced growth fund was the worst performer of the 17 balanced funds over the June quarter with a negative 1.2% return and its one-year return ranked 15th with a 6.3% return.

Another ANZ fund just called its balanced fund ranked 16th over the quarter and 17th over the year.

BNZ's first-home buyer KiwiSaver fund ranked first among 18 conservative funds in the June quarter with a 1.1% return but was 12th over the year with a 6.8% return, while ANZ's was the worst performing conservative fund with zero return over the June quarter and last over the year with a 5.4% return.

Simplicity's default fund was the best performer in the latest quarter with a 1.2% return, second over the year with a 10.6% return and first over a two year period with an annualised 10.1% return.

The worst performing default fund was Fisher's KiwiWealth fund with a negative 0.1% return in the quarter, and worst of the six with an 8.2% return over one year. Over two years, it was fifth out of the six with an 8.8% return.

Fisher's pre-existing KiwiWealth conservative fund, however, ranked first over one, three and five-year periods with returns of 7.7%, 2.5% and 3.5% respectively, despite ranking 15th out of 18 funds in the June quarter with an 0.3% return.

KiwiSaver fees are “highly competitive” with the fees charged by much larger Australian and British peers, according to analysis by Deloitte Consulting Australia commissioned by Generate KiwiSaver.

It also found that the fees charged on default KiwiSaver funds are on average lower than the fees charged to members of similar default fees in Australia and Britain.

The analysis found the was “a weak relationship” between the sizes of funds and the total fees paid.

“Due to the lower average fees and significantly lower funds under management (FUM) that characterises the New Zealand peer group, no meaningful benefit of scale are observed compared to the other systems,” Deloitte said.

Generate declined to comment on the results.

Fees charged by choice funds varied widely, but when management style, asset allocation variations and relative scale were taken into account, the fees charged by NZ and Australian funds were about equivalent.

Deloitte compared a NZ$30,000 account balance, the average size of KiwiSaver accounts currently, across the three countries and also a NZ$50,000 account balance “to capture a potential future state average KiwiSaver account balance.”

Deloitte noted that fees remain “an area of focus” for pension and retirement systems around the world.

“This is due, in part, to the material impact that fees have on the outcomes realised by consumers during retirement.”

The accounting firm considered each country's retirement income system, the impact of legislation such as mandated fee caps and asset allocation requirements, as well as product and fee structures.

It also looked at the largest providers in each country and representative funds from each of the major sectors and included all six of the NZ default providers and the information used is valid to March 31 this year.

Australian managers commonly charge dollar-based fees with 79% of default products and 71% of choice options charging a median fee of NZ$62 a year.

By contrast, no default providers in NZ and only 29% of local choice funds apply such a fee with the highest being $36 as year. In the United Kingdom, only 17% of funds charge dollar-based fees.

Deloitte notes that while dollar-based fees impact those with lower balances most, Australian accounts typically have higher average balances than the two sizes Deloitte examined, mitigating the impact.

Funds with higher allocations to growth assets tend to have higher fees, reflecting the higher management costs.

“We note that all funds in the NZ and UK peer group mostly exhibit a FUM lower than all but the smallest funds in the Australian peer group. In addition, the Australian system offers a substantially higher number of high growth options compared to the NZ system,” Deloitte says.

Fees ranged from a median 0.48% to 1.01% for a NZ$30,000 balance in a choice fund and from 0.44% to 0.92% for a NZ$50,000 balance.

The majority of the Finance and Expenditure Committee doesn’t think a bill to make it harder for employers to include KiwiSaver contributions in employees' pay should be passed.

The Employment Relations (Protection of KiwiSaver Members) Amendment Bill introduced by Labour bank bencher Dr Tracey McLellan last year, aims to restore some financial protections originally given to KiwiSaver members by the Employment Relations Act 2000 and removed by the National government’s Employment Relations Amendment Act 2008.

Currently employers aren’t legally required to offer the same terms, salary or wages, conditions and or benefits to KiwiSaver members as non-members. Employers can also offset pay increases against workers’ KiwiSaver contributions and include KiwiSaver contributions as part of an employee’s total remuneration.

The Protection of KiwiSaver Member bill doesn’t seek to prohibit parties from agreeing to a total remuneration approach, but it would limit the situations in which it would be possible to use that approach.

At its first reading in parliament, the bill enjoyed wide support on both sides of the house with 109 “ayes” and 10 “noes” from the Act party.

However after select committee hearings,  the Finance and Expenditure Committee has reported back saying most of its members don’t think the bill should be passed.

"The Finance and Expenditure Committee has examined the Employment Relations (Protection for Kiwisaver Members) Amendment Bill. We have recommended changes to the bill to improve its workability. We recommend these amendments unanimously. However, the majority of the committee ultimately do not agree that the bill should be passed."

The report also notes that the National, Act and New Zealand First parties disagree with the bill.

“The National Party does not support the passage of the Employment Relations (Protection of Kiwisaver Members) Amendment Bill. While we support saving for retirement and the KiwiSaver scheme, the bill introduces uncertainty for employers by adding new grounds for personal grievances, potentially complicating existing employment relationships. We do not believe that imposing additional hurdles for businesses under the Employ‐ ment Relations Act benefits either employees or employers.”

Likewise NZ First and Act cited imposing additional hurdles for employers as the main reason.

Retirement Commissioner Jane Wrightson describes the report as Orwellian, in a LinkedIn post.

The Retirement Commission was one of 14 parties to make submissions on the bill.

It supported the bill saying that the total remuneration approach goes against the spirit of KiwiSaver, which incentivises employees to save small amounts over a longer term with employer support, and ultimately see them into a better retirement.

Removing total remuneration approaches was also one of the key recommendations in the Retirement Commission’s recent Opportunities to Improve KiwiSaver report. It was also a recommendation in 2019.

It’s not the first time the Commission has expressed concerns about the approach. Last year it surveyed more than 300 small, medium, and large organisations about the use of a total remuneration approach to KiwiSaver and found that 45% use the model for at least some employees. 

The findings showed 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.

At the time Wrightston said it was not how KiwiSaver was designed to operate as the KiwiSaver Act clearly states that compulsory contributions must be paid on top of gross salary or wages except to the extent that parties otherwise agreed.

“However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining,” she said.

The Retirement Commissioner has made her recommendations for improving KiwiSaver and wants help from members of the financial services industry to get politicians to actually read it.

She also wants the financial advice sector to get some cohesive messaging about products and services for retirement planning.

Speaking on a Harbour Asset Management webinar about the recently released KiwiSaver Opportunities for Improvement Report, retirement commissioner Jane Wrightson asked what the financial services industry could do to build momentum behind calls for KiwiSaver reform.

She called on members of the financial services industry to raise the report with politicians of all stripes.

Wrightson said she would be talking to politicians herself, but governance of KiwiSaver was “not healthy” with three ministers involved, but none having specific responsibility for the retirement scheme. As a result it often fell to the minister of finance and was lost among other priorities.

“So it would be helpful, as I’m trying to tackle three ministers, if the industry can form a composite view on the report.”

She said audience members could also draw the attention of politicians to the report. “Tell them there’s work to be done here, and whether they know about the report.”

Wrightson said the purpose of the report was to provide a data and evidence-based perspective on what changes would make a difference.

The report outlines 15 non-binding recommendations for the government to improve the KiwiSaver including keeping it as an opt-in scheme.

Wrightson said although she has said in the past that compulsory KiwiSaver was a no-brainer,  the latest analysis showed compulsivity wouldn’t improve the scheme in any material way.

Instead the biggest opportunity for change would be to introduce a higher default contribution rate of at least 4% with employers matching, and retaining the 3% contribution rate if the employee can’t manage it.

Other recommendations were: keeping settings that limit membership to one KiwiSaver provider, increasing the government contribution for the self-employed, employer contributions should be required for over 65s and under 18s, remove total remuneration approaches by employers, and extend government contributions to people on paid parental leave to include those who can’t continue their own.

Wrightson said she would like ministers to form a consensus and also wanted cross party talks to get a longer term accord.

“There is a critical need for long-term thinking beyond one election term and electioneering.  KiwiSaver shouldn’t be affected by knee jerk political decisions.

“We’ve got carried away with it as a savings and investment vehicle and haven’t framed it as a retirement fund. We want to see it as a retirement frame and then what else should people do to deal with life shocks.”

Nat strat revamp

The Retirement Commission is also revamping the national strategy for financial capability and wants industry input. In August it will launch new goals for the strategy to support people to grow their money.

Wrightson said that when it came to retirement, the financial advice sector didn’t have a “good collective approach” on what products and services it offered the public. Instead, she said, there was a lot of individual marketing.

“The advice industry still needs to figure out what its collective message is. You’re talking about the value of a service for different types of people. It might not be a campaign but just consistent messaging.”

In an exercise undertaken by the Sorted team, even finding a financial adviser to suit individual needs on the FANZ website was hard work.