KiwiSaver

While growth funds took a hammering in the first quarter of this year, the category is still the best performer over the longer term, Morningstar’s latest KiwiSaver survey shows.

The survey for the March quarter noted that the S&P/NZX 50 Index was down 14.8% over that period.

“While any drawdown is never ideal, New Zealand was one of the best performing markets in the world over this period, helping KiwiSaver investors achieve better outcomes than might have been the case with similar schemes in other countries.”

Some of the best performing KiwiSaver funds in the quarter were FANZ Lifestages KiwiSaver Income – up 0.6%, JUNO KiwiSaver Conservative -1.4%, JUNO KiwiSaver Balanced -3.1%, JUNO KiwiSaver Growth -7%, and Booster KiwiSaver SRI Growth -9.7%.

Average category returns ranged from a 2.2% loss for conservative funds to a 14.5% loss for aggressive funds.

“Over the quarter, the JUNO KiwiSaver options benefited from their large active cash positions relative to both category peers and their own target asset allocation, providing downside protection as equity markets fell. This reverses the relative positioning for their conservative and balanced options compared to 2019, where their conservative positioning caused them to lag most peers during that strongly performing period,” the survey noted.

On an annual basis, the conservative category was up 2.2% for the year while aggressive funds were down 4.5%.

But on a 10-year basis, the growth category average was a return of 8%, compared to 6.75% for balanced, 6.72% for aggressive and 5.5% for conservative.

Average annual returns for multisector options ranged from 2.2% down to -4.5%. The conservative category average recorded 2.2% for the year, followed by moderate (0.3%), balanced (-1.5%), growth (-3.2%), and aggressive (-4.5%).

“It is most appropriate to evaluate performance of a KiwiSaver scheme by studying its long-term returns,” Morningstar said.

“Over 10 years, the growth category average has given investors an annualised return of 8.0%, followed by balanced (6.75%), aggressive (6.72%), moderate (5.8%), and conservative (5.5%).”

ANZ, ASB and Westpac are the top three KiwiSaver providers by volume, respectively.

Some KiwiSaver members could get a nasty surprise when they receive an update from their provider telling them what sort of income their savings could generate in retirement, one provider says.

As of this year, annual KiwiSaver statements must include retirement savings lump sum and income projections.

Blair Vernon, chief executive of AMP Wealth Management, said a recent survey conducted by his organisation found that 75% had no idea what their KiwiSaver balance would be when they retired. More than a third did not know what income they would need to support the lifestyle they wanted.

The majority of AMP members would get a projected income of less than $100 a week from their KiwiSaver accounts, he said, even though their members were higher than the industry average.

There was a risk some people might think that made it not worth engaging with their savings, he said.

Providers would have to help them see that the money put aside so far was meaningful and help them stay the course, he said. “For a lot of people they’re in their 20s or 30s and have 30 or 40 years until retirement. How do you move forward?”

It would be hard for advisers to have conversations beyond immediate financial concerns with some clients, he said, but there was also an opportunity while some people were off work to take the time to budget and plan.

“People who have taken the opportunity to work with an adviser have a more optimistic view … having a coach helps and an adviser takes that role.

“Advisers know how to talk through volatile moments. The critical work of an adviser in these moments is to help people not make rash decisions, not crystallise the downside. That’s coming through in our client base.”

He said the level of calls to the AMP call centres from people worried about their KiwiSaver balances because of market volatility had dropped.

But he said there was an increase in inquiries about hardship withdrawal criteria, although that had not translated into large numbers of applications yet.

There would be work to be done to help people work out whether they could afford to continue their contributions if they lost income, he said.

The challenge would be to help people think beyond the immediate problems they were encountering and through to the future, including retirement.

“Ethical” KiwiSaver funds are outperforming their mainstream competitors through Covid-19 market disruption, a responsible investment platform says.

Mindful Money chief executive and founder Barry Coates said funds that his platform classed as “mindful” outperformed in all risk categories in the first quarter of this year.

On average, KiwiSaver funds fell 2.1% in the quarter but mindful funds fell 1.8%. On average, balanced funds were down 8.9% but mindful options dropped 6.9%. Growth funds were down 12.4% on average but only 7.8% if they were mindful.

CareSaver outperformed the average by 4.9% across all three main risk categories.

Booster outperformed the balanced fund average by 2.9% and the growth fund average by 2.7%.

Simplicity outperformed the average in each of the three main risk categories. Amanah’s growth fund, which avoids investments that are not in line with Islam, had a return of 5.4% compared to an average loss of 12.4%.

Globally, Dan Lefkovitz, strategist for Morningstar Indexes found 20 of the 21 members of the Morningstar Sustainability Index Family, which is methodologically aligned with the Morningstar Sustainability Rating for funds, lost less than their broad market equivalent.

The Morningstar Global Markets Sustainability Index fell roughly 8% in the first quarter, outperforming the global broad market index by 1.5%.

The Morningstar Australia Sustainability Index lost 22%, more than one percentage point better than the broad Australian equity market. 

“As investors of all kinds increasingly think about ESG factors as risk factors, the relative resilience of Morningstar’s ESG-screened indexes in first-quarter 2020 offers a proof point that ESG investing is not just about values.”

Mindful Money’s founder and chief executive Barry Coates said: “Investors are always looking for an X-factor, especially now that they are losing money from their hard-earned savings. These results show that ethical funds have been resilient during the Covid-19 crisis so far. The companies that manage their environmental, social and governance risks have had lower financial losses, and even some gains, in the financial downturn.

“KiwiSaver investors need to ensure they are making the right ethical choices, as well as being in the right risk category. This analysis of quarterly results shows that being ethical doesn’t mean a financial cost – in fact, it shows that investors can have both good financial returns and do good for the environment, the climate and people.”

David Beattie, principal at Booster, said its responsible investment portfolios were already outperforming before Covid-19 hit, driven by fossil fuel exclusions.

“During this latest quarter, we have seen further significant falls in the price of oil and the share prices of companies involved directly in fossil fuel industries. Our active management strategies have also come into their own, as we expected during a market downturn, and our unlisted investments in the NZ horticulture space are significant strategic risk and return diversifiers.”

There are calls for New Zealand to follow Australia’s lead and make it easier for those affected by Covid-19 to access KiwiSaver savings.

In Australia, people who are struggling because of Covid-19-related disruption have been allowed to access up to A$10,000 of their super before June 30 and another $10,000 between July and September.

Richard James, former chief executive and now director of NZ Funds, said New Zealand should do something similar.

He suggested it be made easier to withdraw up to $20,000 of KiwiSaver money.

He said he did not agree with earlier advice from the Financial Markets Authority and Retirement Commissioner that it should be seen as a last resort option.

“I think it’s probably going to be an inopportune time to take money out. But the hardship process is very difficult. It seems like an obvious thing to do in these extraordinary circumstances.”

James said it seemed cruel for people who had suffered a big income drop to have money in an investment, which they could not access.

“The only way KiwiSaver providers can help is by making the hardship process as simple as possible.

“I think there will be people who for example may not lose their jobs but their income will be cut to 80% and their hours are cut but they have a mortgage to pay. Do you want to lose your house or dip into savings? I know what I’d do. If we get to 10% unemployment there will be tens of thousands of people in that situation.”

Allowing members to access 20% of their current balance would free up $10 billion of money to help New Zealand families without any extra government funding.

While your circumstances may qualify for withdrawal under significant financial hardship, taking out money now may severely impact your quality of life in retirement later,” Retirement Commissioner Jane Wrightson said. “There is a lot of other help available you could access before going down that road.”

She said people could check they were getting the full support available from the Government, could ask for support from their bank or advice from helpline MoneyTalks.

“Avoid making a decision based on fear,” says Wrightson. “Emotional situations tend to lead to poor financial choices, so access the help above before turning to the long term savings and investment that is your KiwiSaver. You will not only crystallise the losses your fund has suffered since the effects of Covid-19 began, but also lose out on future returns.”

Commerce Minister Kris Faafoi said KiwiSaver provided an important means of investment to help people finance their retirement.

“I would urge anybody facing financial pressures to access assistance the Government has set up through the wage subsidy and other initiatives, also seek financial advice through their KiwiSaver provider, bank, and/or budgeting services to see what other options might exist to help them to get through this emergency before having to draw on their retirement investment. If at all possible it is best if KiwiSaver hardship withdrawals remain a last resort.

“It is, therefore, important to maintain existing processes for significant financial hardship applications to be assessed. However, I support the Financial Markets Authority guidance to KiwiSaver providers to be flexible with hardship withdrawal application requirements for things like making lawyers available to witness a statutory declaration by virtual methods, or accept other ways of obtaining verifications.”

The FMA said KiwiSaver providers and supervisors and their industry groups had established simplified processes for hardship withdrawals for New Zealanders who decide they do need to proceed with a hardship application.

“We have supported this work with guidelines outlining alternatives to normal methods of verification during the Covid-19 level 4 restrictions. These will be distributed directly to KiwiSaver providers and supervisors, and key industry and consumer stakeholders.”