KiwiSaver

There are calls to streamline the process of transfers between KiwiSaver schemes, to reduce the burden on providers and members.

KiwiSaver transfers are in the Financial Markets Authority’s sights. It has  requested information from all providers about transfers in the last quarter of last year, broken down to the number of days a transfer took to process.

Binu Paul, founder of SavvyKiwi, said there were problems with the current situation.

“There is too much lag between when an investment decision to move is made, and when their account balances actually get transferred, with some taking more than a month,” he said.

“That is assuming the process goes smoothly. I have seen instances where some users on SavvyKiwi have made a decision to move and even received the sign-up pack from the new provider, and they have simply sat on it for up to three months or more, til we have sent them a follow-up email.

“The issue here is about friction. When it comes to client on-boarding, we still have too many manual steps to go through to make things happen. For example, having to manually walk into a storefront with a copy of your ID and utility bill for identity and address verification. If you want people to take action, you have to take away as much friction as possible.”

He said providers also had to go through a lot of time-intensive activities that were ultimately redundant.

Many of the ID requirements were a result of anti-money laundering rules, he said.

“Having said that, you have to remember that KiwiSaver is like the reverse of a ‘gated-community’. Members are welcome to come in but once you are in, you are locked in till a certain time. There is not much mischief you can get up to during that time in terms of money-laundering.”

He said that should make it possible to make changes. “Once you are in a KiwiSaver scheme, after having gone through a check, when transferring to another scheme, do you need to go through the same checks again?  Can we use a Government-maintained central database of individuals that is a single source of truth when it comes to personal IDs and use that as a base for the transfer process?”

He said some of the checks seemed better suited to be deployed when people wanted money out, rather than when they transferred.

Ana-Marie Lockyer, general manager of wealth products and marketing at ANZ, the country’s biggest KiwiSaver provider, said all KiwiSaver providers reported against the requirement that member switches happened within 35 days, or 10 days for members of default schemes.

“We comply with this, assuming we have all the necessary information. We would support any moves to have the same timeframe for transfers whether someone is a member of a default or other KiwiSaver scheme.”

READ MORE: FMA: No hard lines on KiwiSaver incentives

2016 drew to an unpleasant close for many KiwiSaver funds, Aon’s latest industry survey shows.

In the December quarter, only cash funds posted a uniformly positive return.

Across all the other fund types, most funds went backwards over the three months – although  balanced, moderate and conservative funds were the most affected.

Over the quarter, Kiwi Wealth’s growth fund was the best performer, with a 4.2% return. The worst was Generate’s conservative, losing 2.9%.

Over the past year, Mercer’s high growth fund topped the table with 7.8% and Generate’s focused growth was at the bottom, losing 0.4%.

Guy Fisher, an investment consultant at Aon, said the main issue for the quarter was a rise in interest rates and bond yields, which drove negative returns for domestic and global fixed interest.

“Global shares performed well in anticipation of Trump’s pro-growth policies, but New Zealand shares fell. New Zealand is a high-yielding share market, attractive for investors looking for yield, but vulnerable as interest rates rise,” he said.

“We would expect this volatility to continue. There is uncertainty around the timing and the impact of Trump’s policies. The actual amount of fiscal stimulus may be lower than currently assumed as the government debt to GDP ratio is already very high and politicians will be unlikely to sign off on policies that send it significantly higher.

“Even if they do, passing legislation takes time and may not happen until near the end of 2017. In addition is appears that the Fed will be raising the cash rate this year (probably sooner rather than later), which could send long term interest rates higher. And there is political uncertainty in Europe with elections this year in France, Germany and the Netherlands.”

Fund managers charging high fees for their products have kept a lid on what advisers can earn, Simplicity’s managing director said as the provider launched its first non-KiwiSaver funds.

Simplicity has unveiled plans to branch out into the wider investment funds sector.

Its KiwiSaver scheme, launched last year, has $100 million under management.

The funds will operate on the same basis. Each fund will have 7000 investments in 23 countries and be fully hedged to the New Zealand dollar.

Overseas investments will be managed by Vanguard.  There will be conservative, balanced and growth options.

Fees are 0.31% plus $30 a year for each fund. Stubbs said that was between 50% and 75% cheaper than the average diversified investment fund in the market.

“A Kiwi with $50,000 invested in our growth fund over 10 years could be more than $10,000 better off than the average fund, all other things being equal,” he said.

“Fees for KiwiSaver funds are already way too high, and managed investment schemes are even worse. Some are just outrageous, reflecting old ways of managing money and sales tactics which belong in the last century,” he said.

“For too long fund managers have taken too much of a slice and advisers too little.”

He said advisers could hold Simplicity up as an example when talking to other managers.

“They could go to their existing suppliers and say ‘what are you charging more than this for, this is what it can be provided for’. It will be a useful low benchmark and a useful product for clients.”

Simplicity will not take direct investments from non-individuals, so any trusts or companies that want to invest will need to do so through an adviser via a wrap platform.

He said there could be interest from the small institutional market. “It’s very adviser-friendly. Advisers who want to get a really low-cost manager and add their advice on top – because that’s what they are experts at – will find it easier. And the number is less eye-watering for the client.

“The problem advisers have had is that managers have been taking too much of the fee but this is starting to change that.”

Stubbs said it was possible to offer low fees because Simplicity did not pay trail commissions or run an expensive head office.  He said the breakeven for Simplicity’s KiwiSaver was between $300m and $500m FUM.

Stubbs said one in five of Simplicity’s KiwiSaver members had asked for an option that allowed them to withdraw money at any time.

The minimum investment will be $10,000 and the funds open for deposits on April 3.

Former deputy prime minister and finance minister Sir Michael Cullen says the need for an annuity provider to help KiwiSaver members manage their lump sums on retirement is another sign of the scheme’s success.

He recently joined the board of the Retirement Income Group (RIG).

RIG manages New Zealand’s only variable annuity, Lifetime Retirement Income.

Sir Michael said annuity providers had not made much cut-through in New Zealand and the products that had been available to New Zealanders were not seen as attractive.

But he said as the KiwiSaver balances built up it raised issues about what options would be available to members at retirement. “Being capital rich in retirement is not much use if you are not able to live off it,” he said.

He said Lifetime seemed to offer a viable option for the long-term.

Sir Michael said, when KiwiSaver was first developed, it had not been predicted that such large numbers of New Zealanders would join.

“The success of KiwiSaver has made these second or third-order issues more important. [Another is] are we bringing fees down quickly enough.”

New Zealand was well positioned for an income product, he said.

He said Australia was pondering the problem of a retirement benefit that was heavily income and asset-tested and a compulsory savings scheme had was lump sum orientated, which gave people the incentive to blow their lump sums so they could qualify for the pension.

“New Zealand Super is not asset tested so we don’t face that incentive for misaligned behaviour,” he said.

KiwiSaver was not the only scheme that was likely to deliver lump sums that would need to be manged, he said.

People who had joined the Government Superannuation Fund in the 1980s would start to retire over the next decades and could need help managing that money, he said.

Sir Michael said Lifetime was a good option because people who withdrew their money early could still access any remaining capital without penalty, and a guarantee would cover longevity risk.