KiwiSaver

There is still work to be done to help people feel confident about setting a plan for their KiwiSaver accounts to achieve their retirement goals, ANZ says.

Retirement savings confidence has dropped among young people but remained flat overall at 47%, according to ANZ’s latest Retirement Savings Confidence Barometer.

Among those who are saving, more than half say that KiwiSaver is their primary savings vehicle, while 13% are counting on investment property.

Those with diversified assets including property and managed funds were more confident.

“We are finding that a lot of people have been ticking the box to join KiwiSaver but then they are not taking further interest in how it can help them meet their goals,” ANZ’s managing director of wealth and private banking in New Zealand, John Body, said.

“Many don’t know what investment fund they are in, despite regular communications. These responses are similar whether people have been automatically enrolled at the workplace into a default scheme or actively joined themselves.

“KiwiSaver is still relatively new and it has already made a positive impact for people who have never saved before, but there is still plenty of work to be done to help people gain confidence in setting a plan and achieving their retirement goals.”

The survey showed there was a big difference in the confidence levels of men and women. It said 56% of men were confident of being able to reach their retirement savings goals, compared to just 39% of women.

Swapping KiwiSaver default funds for “life stages” settings wouldn’t be in the best interests of investors or the scheme, oppponents say.

Submissions to the government’s review of the default provider system have been mixed on the idea of adjusting default fund members’ asset allocation according to their age.

Supporters include default providers OnePath and Mercer, which said age-based defaults were common in the US and UK and recommended by the OECD as suitable strategies for pension plans.

Fisher Funds also supported this approach, saying that if the Government regards itself as a “de facto investment adviser” then it should act consistently with investment industry best practice. 

“In other words, the level of short-term risk and volatility the Government should be willing to impose on default members needs to be in line with that of a best practice investment adviser.”

But default provider AMP opposed such a change because it would upset novice investors.

“Current default asset allocation requirements generally go against recommended portfolio construction for long-term investing,”  it said.

“However, low levels of investor literacy often results in concern and erosion of confidence in the system when experiencing any short-term negative return. To maintain confidence, and therefore contribution levels, a more conservative default option should be continued.”

Authorised Financial Adviser Austin Fisher said adopting a life stages approach would be a step too far.

“My view is that the KiwiSaver providers who are keen to encourage members into growth funds should take the initiative to actively convince members. They do this by using their own resources and expertise to state a compelling case.

“This proposal seems to rely on a Government-sanctioned system to help do that work for them.”

The Trustee Corporations Association (TCA) said KiwiSaver default funds should continue with their conservative approach with a focus on preserving capital.

“It should not try to maximise the member’s returns or savings over the longer term.”

The TCA also said there would be a risk of public confidence in KiwiSaver being damaged if there was a change to the objectives of default funds.

The Retirement Policy and Research Centre said each default provider should be allowed to make its own decision about the default investment option with no official constraints.

“There seems no compelling reason for the government to set the default investment option, as it does now,” the RPRC said.

“In fact, it has no expertise on this topic yet, by becoming involved in this process, the state is representing itself as ‘knowing’ what is appropriate for a very large and disparate group of members.”

The predicted consolidation in the KiwiSaver market is likely to produce more work for advisers.

Speculation is brewing about the impending sale of Tower’s fund management business, including its $900 million KiwiSaver scheme.

BNZ, which recently registered its own scheme, and Fisher Funds are among those touted as possible buyers.

Meanwhile, TSB Bank – which doesn’t have a KiwiSaver scheme – has been reported to be interested in buying Fisher Funds.

Tim Fairbrother, an authorised financial adviser (AFA) for Wairarapa-based Rival Wealth, said his company took a “house view” as to which KiwiSaver providers it recommended and if one of those providers was snapped up it would assess what effect the purchase would have on its recommendation.

“We’d make a blanket communication to our clients saying we’ve made this decision: let’s change or let’s stick with it, and then wait for people to come back to us.  We’d send them something to sign off,” he said.

Fairbrother said only clients with balances of more than $50,000 would be consulted individually, he said.

Tower Investments chief executive Sam Stubbs wouldn’t comment on the speculation about his firm, but he said he had been surprised that the expected consolidation in the KiwiSaver market hadn’t happened earlier.

Stubbs said the reason was probably KiwiSaver’s rapid growth, which had taken even fund managers such as Tower by surprise. 

If advisers had KiwiSaver remuneration agreements with higher commission levels than those offered by the fund manager taking over the scheme, they would usually stay on the higher pay rate until their contract came up for renewal, Fairbrother said.

Impressive returns in equities and property have helped KiwiSaver growth funds achieve strong results in 2012, according to Morningstar’s latest KiwiSaver survey.

In the 12 months to December 31 growth fund returns averaged 14.0%, well ahead of balanced funds (12.4%), moderate funds (9.7%) and conservative funds (including default options), which averaged 7.9%.

The double-digit returns enjoyed by growth investors were driven by equities, which returned 24.18% on the NZX 50 and 9.52% in global shares in 2012, and listed property, which returned more than 20% for the year both in New Zealand and globally.

Fixed interest didn’t fare so well, with New Zealand bonds returning only 5.14% for the year and global bonds providing a more substantial 8.39% return.

The three-year performance of growth funds (6.6%) has now caught up to conservative funds (6.0%) after taking a hammering in the early days of KiwiSaver post-GFC, but five-year returns (2.7% versus 5.3%) are still lagging.

The Aon Milford fund was the top performer in 2012 returning 26.8%, while the Milford Active Fund has been the top performer over five years with an average return of 11.6%.

“The best-performing KiwiSaver options over the past five years continue to be SIL KiwiSaver (as well as National Bank and ANZ KiwiSaver) in the Conservative, Balanced, and Growth Multi-Sector categories,” Morningstar said in its report.

“Fidelity KiwiSaver has also performed strongly in the Balanced and Aggressive Multi-Sector categories. Others worthy of mention include Aon KiwiSaver Russell in the Conservative and Moderate categories, Brook KiwiSaver across Balanced and Growth, and Fisher Funds KiwiSaver Growth.”

Overall KiwiSaver funds under management reached $13.6 billion at the end of December, an increase of $3.3 billion in one year. The largest providers are OnePath ($3.4 billion) and ASB ($2.9 billion) who account for more than 46% of KiwiSaver assets between them.

Conservative funds ($5.1 billion) continue to be favoured by investors and are more than double the size of balanced funds ($2.4 billion) and growth funds ($2.2 billion); as a result, more than 56% of KiwiSaver money is invested in cash and bonds.