KiwiSaver

A new, low-fee KiwiSaver scheme being launched today will be a good fit for financial advisers who work on a fee basis, its managing director says.

Former Tower Investments boss Sam Stubbs is launching Simplicity, a not-for-profit scheme run in the style of health insurer Southern Cross.

It will be run by a charity and its launch is being funded by Stubbs personally.

Stubbs said he wanted to create a “Vanguard of New Zealand” – a low-cost model that would shake up the KiwiSaver industry in this country. He said the providers had been allowed to become too complacent and members were paying too much as a result.

“There’s the Vanguard effect – as soon as Vanguard enters the market, the whole thing changes.”

He said KiwiSaver had become a “gravy train” for the big Australian banks in New Zealand.

“Compared to similar savings schemes in other developed countries, fees are very high. Profits for KiwiSaver managers are at $150 million now. Without change, we think they will be at $1.3 billion by 2030.”

Simplicity will charge $30 a year in administration fees and 0.3% in fund management. Stubbs said that was less than half the industry average. The same fee will be charged across all of Simplicity’s funds. Of that fee, 15% will go to a charity that will work to improve financial literacy.

Simplicity will offer advisers no trail commission, unlike other providers such as Generate and Grosvenor, but would suit those who worked for fees, he said. “If they can add value for their clients by using the product and maximize returns, then that helps them justify their fees. For fee-based advisers, this is very suitable. For those on commission, it’s less so.”

Simplicity intends to have more than 9000 investments in 23 countries in each fund. Overseas investments will be managed by Vanguard. Each investor’s savings are held in custody by Public Trust.

Stubbs said he also had plans to branch out into other financial products eventually, including life insurance, which he said was much more expensive than it needed to be.

Simplicity trustees include Peter Neilson, former chief executive of the Financial Services Council and Craig Richardson, chief executive of Wynyard Group.

Directors include Kirsty Campbell, formerly of the Financial Markets Authority, and Mark FitzGerald, former director of private banking and wealth at Westpac.

KiwiSaver funds with allocations to defensive assets are starting to shine again, new data shows.

For a number of years now, aggressive and growth funds with heavy allocations to equities have been the star performers.

But the latest Morningstar survey, for the June quarter, showed more conservative options gaining ground amid international jitters.

Most KiwiSaver funds had a positive quarter.

Morningstar’s Australasia director of manager research ratings Kathryn Young said investors who were most exposed to defensive or domestic assets did best.

“Investors should, however, focus on ensuring that their KiwiSaver option’s asset allocation best fits their investment timeframe and risk profile.”

Average multisector category returns were all positive for the June quarter, ranging from 0.34% for the aggressive category to 1.57% for the conservative category.

Aggressive funds were flat on average over the year to June 30, 2016, while the conservative category gained 5.2%. Over longer periods, however, funds with greater equity risk have generally gained more.

Notable performers over the quarter included ASB KiwiSaver, whose growth and balanced options topped their respective peer groups.

The best performers in the multisector conservative category were Milford KiwiSaver Conservative (2.43%), followed by Fisher Conservative KiwiSaver (2.42%), and Aon KiwiSaver Russell Lifepoints Conservative (2.10%).

KiwiSaver assets on the Morningstar database grew to $33.40 billion at June 30, 2016 from $954.10 million at June 30, 2008. The industry remains highly-concentrated, the six largest KiwiSaver providers accounting for 85.9% of assets on Morningstar’s database

Financial advisers are being urged to give clients a reality check about what they really need in retirement.

An ANZ survey found most New Zealanders have lofty goals for their retirement – they want to own their own home, drive recent model cars and travel overseas.

More than a quarter plan to do house renovations in retirement and 41% expect they will buy new appliances. The same number said they had no intention to work past 65.

ANZ general manager funds and insurance Ana-Marie Lockyer said the survey found that 75% of people intended to fund their retirement through KiwiSaver.

“It’s great that so many New Zealanders have put their faith in KiwiSaver but it’s important this isn’t blind faith,” she said.

“The reality is that it costs a lot of money to cover daily expenses, run a car and maintain a home. For example, it costs about $4700 a year to run a car and $7000 a year to cover home repairs and maintenance.”

According to ANZ’s Retirement Savings Barometer most New Zealanders (54%) want their savings to generate more than $300 a week on top of national super.

“You’d need to save around $370,000 to allow you to withdraw $300 a week during retirement,” she said. That was based on a 25-year retirement.

“Many New Zealanders will fall well short of that based on current KiwiSaver balances and contribution rates.”

A 30-year-old with $10,000 in their KiwiSaver account today, earning $50,000 and contributing 3% of their salary, matched by their employer, would have around $190,000 saved by the time they’re 65.

A 45-year-old with $10,000 in their KiwiSaver account today, earning $50,000 and contributing 3% of their salary, matched by their employer, would have around $90,000 saved by the time they’re 65.

“While this is sobering information, you can take steps to make sure you save enough for your retirement,” she said. “The first step is to take a bit of a reality check on whether you’re contributing enough to meet your goals.”

Lockyer said KiwiSaver members could be directed to check out online calculators as a first step to work out what they were on the path to achieve.

A growing number of high-net-worth individuals are looking to KiwiSaver as a way to manage their retirement income, AMP’s general manager of insurance and investments says.

AMP is introducing 16 new funds to its current 11 KiwiSaver options, which will be made available via an online platform. 

Therese Singleton said it was the next best thing to a wrap platform-style KiwiSaver solution, which is not allowed under current legislation.

She said it could be used by DIY investors who wanted to manage their money themselves, or financial advisers who could use it to help their clients. “They can pick and choose what they like within an online environment. We’re tying to make KiwiSaver as all-encompassing and competitive as we can get it for advisers as well as direct investors.”

Singleton said there had been a noticeable increase in demand from high-net-worth people who wanted sophisticated KiwiSaver solutions. It was still a small percentage of the market, she said, but was growing. 

“Typically high-net-worth or sophisticated investors want more control around where they invest their funds and in time it will position us for the equivalent of a wrap offering in KiwiSaver.”

KiwiSaver was starting to stand out as a retirement income option for those aged over 65 because of its comparatively low fees, she said.  AMP is to start offering its sister company AMP Capital’s retirement income fund as a KiwiSaver option.

“People are looking at low term deposit rates and looking for income for life. But with low interest rates for the foreseeable future, people who might not have thought of KiwiSaver as a solution are thinking it’s a good product,” Singleton said.

Singleton said savvy advisers should be tapping into the KiwiSaver market because as balances grew, so too would their books. 

AMP had dealt with at lest two clients with more than $10 million to invest, who wanted to use KiwiSaver to cater for their retirement needs.