KiwiSaver

Competition between KiwiSaver providers is intensifying as the growth in new members slows, a new analysis by the Financial Markets Authority suggests.

The FMA’s annual KiwiSaver report, which covered 50 schemes, showed that in the year to March nearly $750 million was transferred between schemes, including just under $50 million transferred out of default funds.

Overall the scheme’s funds under management (FUM) exceeded $12.73 billion as at March 31, an increase of $3.56 billion in the past year
The largest contribution to the increase in FUM was member contributions of $1.33 billion, closely followed by Crown contributions/fee subsidies of $1.06 billion, and employer contributions of $865.7 million.

Income from investment of scheme assets represented $449.9 million, or 9.7% of the total income for the annual return year.

As at March 31 there 1.91 million members of KiwiSaver schemes, a 14% increase on the previous year.

FMA chief executive Sean Hughes said the number of KiwiSaver members has since exceeded two million, and people need to take a long term approach to their investment.

“Our desire is for members to make decisions based on their life stage, age and personal circumstances which will leave them in the best financial position when they reach NZ Super age,” Mr Hughes said.

“The type of KiwiSaver portfolio for someone in their 20s will be different from someone in their late 40s. It’s never a bad time to reassess your investment options in consultation with your KiwiSaver provider and your financial adviser.”

The report found that the largest item of expenditure over the year was fees, amounting to a total of $129.0 million across all schemes.  Investment management fees made up the bulk of this figure ($69.2 million), followed by administration fees ($56.6 million) and trustee fees ($3.2 million).

The second largest item was taxation ($90.2 million), while other scheme expenses accounted for $8.44 million.

During the year $28.9 million was withdrawn due to financial hardship, which FMA said reflected the weaker economic climate following the Global Financial Crisis (GFC), and also the effect of the Christchurch earthquakes.

Almost double that amount ($57.2 million) was withdrawn for first home purchase, showing the popularity of that feature of KiwiSaver.

The report also noted that over the next five years, it is estimated that 155,000 KiwiSavers will reach retirement, and approximately $2.3 billion in assets could be unlocked from KiwiSaver schemes.

The Financial Markets Authority (FMA) has released its final guidance on the sale and distribution of KiwiSaver, confirming the circumstances in which registered financial advisers (RFAs) can continue to sell the scheme.

Sue Brown, the FMA head of primary regulatory operations, acknowledged there had been concern within the financial services industry about the extent to which KiwiSaver services could be provided by advisers who were not authorised or part of a Qualifying Financial Entity (QFE).

“FMA’s position is that there are limited circumstances in which a person selling a particular KiwiSaver scheme to a client will not be considered to have provided an advice service,” she said.

“There is broader scope to provide class advice, given the incentives available to join KiwiSaver and the investment options available within KiwiSaver schemes.”

The FMA guidance note outlines what it deems class advice, personalised advice and no-advice, and who can offer each.

The guidance described class advice as generic to a group the investor belongs to, though not tailored to their specific circumstances, and says it may be provided by RFAs.

The move to allow RFAs to give limited KiwiSaver advice had been backed by both the Institute of Financial Advisers (IFA) and the Professional Advisers Association (PAA), both of which made submissions to the FMA on the draft guidance note.

“Perhaps the best outcome is that the document makes it clear that RFAs can sell KiwiSaver in tightly controlled circumstances, by setting the framework for RFAs in particular to continue to sell KiwiSaver with confidence,” said the IFA.

Brown said she expected KiwiSaver providers “to consider the implications of this guidance note and make appropriate changes as soon as possible.”

“We expect these to be in place by March 1, 2013.”

The government is proposing changes to KiwiSaver fund reporting to help members better understand their funds

The public will get a chance to have a say on proposed new rules for reporting of KiwiSaver funds.

Commerce Minister Craig Foss said the rule change, signalled in this year’s budget, would help investor confidence.

KiwiSaver schemes would be required to report information on returns, fees and costs, assets and portfolio holdings, liquidity and liabilities, and key personnel.

That will be done through five disclosure statements per provider, per year, including a disclosure statement relating to the tax year and four shorter statements relating to to the 12 months preceding the end of each quarter of the tax year.

Foss said: “At the moment, it is difficult for KiwiSaver members to make direct comparisons between funds. This is the next step in continuing to improve investor confidence in the financial sector. It is imperative that KiwiSaver providers offer transparent information for investors.”

He said consistent reporting would allow investors to make better comparison.

Submissions close November 5.

The continued rise of KiwiSaver has failed to prevent an unexpected drop in retirement savings confidence, but commentators say it is too early to tell whether the result is a temporary blip.

ANZ’s latest Retirement Savings Confidence Barometer found 56% of New Zealanders who are saving toward their retirement are not confident they will reach their savings goal, representing a 5% fall in confidence since April.

KiwiSaver is set to reach the 2 million member milestone in the next few months and it appears to be having a positive impact among younger people, with 53% of 15–29 year oldsconfident compared to 35% of 45-64 year olds.”

Of the 61% of those surveyed who are saving, 85%of younger people and 77% of those earning under the average wage say that KiwiSaver is their primary means of saving towards their retirement.

“The deepening debt crisis in Europe and prolonged patchy growth in the New Zealand economy have probably contributed to the drop in confidence,” says John Body, managing director ANZ wealth and private banking.

“While the survey found that almost two-thirds of New Zealanders are saving in some form, this drop of confidence is still surprising.”

ANZ general manager funds management David Boyle said many New Zealanders hadn’t given any thought as to the income they would like to have in retirement and how much they would have to save to achieve this.

“I think the 5% drop may be aligned not only with the current environment but also as people start realising what they want and what they can achieve there’s a bit of a disconnect.”

Boyle also said it was important for people to be realistic about what they could achieve in terms of retirement savings.

“Nearly 40% have chosen over $500 a week [retirement income on top of NZ Super] which as a lump sum is going to be quite significant and in most cases very difficult to achieve.”