KiwiSaver

Kiwibank has confirmed its KiwiSaver scheme will be replaced by one managed by Gareth Morgan Investments (GMI), but it hasn’t decided whether the scheme will be rated by Morningstar.

GMI, which Kiwibank bought earlier this year for an undisclosed amount, is one of the few major KiwiSaver schemes that do not take part in the research house’s KiwiSaver Performance Survey, which measures returns after fees and before tax.

Kiwibank head of wealth product Joe Bishop said it was “too early” to say whether the scheme would put itself under Morningstar’s microscope: “that’s a discussion we’ll probably have at some point in the process.”

GMI manages a total of about $1.3 billion and had $715 million funds under management in its KiwiSaver scheme at the end of March according to its annual report.

Kiwibank general manager of wealth and insurance, Stuart Bremner said the intention is for members of the existing Kiwibank scheme to transfer, but that the processes for this are still being worked through.  Members will be kept fully informed throughout.

“Drawing on the GMI expertise will provide Kiwibank customers with benefits such as improved transparency, customer service, in-house investment and detailed reporting while retaining access via Kiwibank Internet Banking and a simple, competitive fee structure.”

KiwiSaver growth funds have had another tough quarter, but the long-term struggles of growth funds seem to have had little impact on investors’ overall returns so far.

Morningstar’s latest KiwiSaver survey found that the mixed returns from sharemarkets resulted in funds with higher exposures to income assets (cash and fixed interest) outperforming those with more invested in growth assets (shares and property) over the June quarter.

“Multi-Sector Conservative and Moderate options were generally the best performers over the three months to 30 June 2012, and KiwiSaver options with hefty sovereign bond and listed property allocations were among the best performers.”

OnePath was the “standout performer” across the multi-sector categories, while Grosvenor and Tower were among the other providers deserving mention for strong results across a number of risk profiles, Morningstar said.

The best-performing KiwiSaver options over the past four years have been Aon KiwiSaver Russell Lifepoints within the Multi-Sector Conservative and Moderate categories, and SIL KiwiSaver and OnePath KiwiSaver in the Conservative, Moderate, Balanced, and Growth Multi-Sector categories.

Fisher Funds KiwiSaver Growth was the best-performing option across the combined Multi-Sector Growth and Aggressive categories, Morningstar said.

Over the past four years growth funds have averaged 2.5% per year after fees and before tax, compared to conservative funds which have averaged 5.3%.

Morningstar analysed how a hypothetical investor on the median New Zealand salary would have done investing 2% of their salary into KiwiSaver since day one, using ASB as the provider.

It found the difference in the size of the investor’s funds at the end of June would have only been only $800 ($15,740 in conservative and $14,932 in growth).

“This is not as surprising as it may appear. In the early years of KiwiSaver it is all about being in a scheme and incrementally building up the nest egg,” Morningstar’s Chris Douglas said.

The results show that just being in KiwiSaver is the most important decision for now, he said.

“As the value of KiwiSaver grows, however, the risk profile decision will become increasingly important. A 15.0% loss in 2008 had virtually no impact on an investor’s future KiwiSaver savings, because the investor had only just started accumulating.

“In 10-20 years’ time, however, a similarly-sized loss will have a much greater impact on the investor’s total savings.”

Most New Zealanders support making KiwiSaver compulsory and believe it would be in New Zealand’s best interest, according to new research by the Financial Services Council.

A Horizon Research poll of 3,177 adult New Zealanders commissioned by the FSC found that 74% think New Zealand should, over time, introduce a retirement savings scheme in which contributions by both employees and employers are compulsory.  Only 16% oppose.

A similar number, 72%, support the FSC suggestion of increasing savings contributions to reach 10% a year (5% from employees, 5% from employers).

In terms of how compulsory contributions might be phased in, 52% support the idea of contributions being made of 0.5% each year by the employee and employer over 10 years, until the total each year reaches 10% of an employee’s income.

Asked if making KiwiSaver compulsory or voluntary is the best option for New Zealand, regardless of their personal point of view, 63.7% favour compulsion, 26.7% favour voluntary, while 9.6% don’t know.

FSC chief executive Peter Neilson said the latest survey on retirement policy option suggestions showed most of the parties in Parliament would have their voters’ support if they move to consider new retirement savings options.

Some 73% of people who voted National at the 2011 general election think making KiwiSaver compulsory would be in New Zealand’s best interests. Support among other parties’ voters was: 66.3% Labour, 70.1% Green, 74% NZ First, 60.1% Maori Party and 79.5% Mana.

The FSC report on future retirement options is available here.

Advisers are ideally positioned to help tackle the looming retirement savings shortfall but are failing to convince KiwiSavers of the value of advice, says Mercer NZ head Martin Lewington.

“I don’t think financial advisers are getting out there and having a persuasive message to KiwiSavers,” he said.

“Some media [reports] over the weekend said they’re not getting paid for it, so you’ve got to flip it around, you need to make your proposition more persuasive – more compelling – so that the customer sees the value in it.”

Lewington was speaking to Good Returns in the wake of the release of a Mercer discussion paper outlining recommendations around KiwiSaver and NZ Super to address the financial impact of an expanding ageing population.

He said that with the July date approaching when the first KiwiSavers will draw on their funds, it was more important than ever for Kiwi’s to successfully manage their post-retirement phase, “and for the industry to develop adequate and sustainable income streams for retirees.”

The paper argues that unless measures are taken such as raising the retirement age and enabling people to work longer, the potential financial impact of our ageing population “could dwarf the global financial crisis.”

Mercer also recommended the development of an annuities market and, in a space ideally suited to advisers, a change of investment philosophy.

“Encouraging investors and KiwiSaver providers to look beyond traditional defensive asset strategies which emphasise fixed interest investment allocations and instead offer an expanded set of asset classes, offering members a portfolio construction suited to their specific needs and retirement lifestyles,” the paper said.

Lewington said it was ironic that while advice could help boost a savers’ retirement pot – and would be increasingly needed as balances grow –  Mercer’s recent KiwiSaver Sentiment Survey found a fall in the amount of people seeking KiwiSaver advice from a financial adviser.

“They [advisers] should be very well positioned to look at their customers’ personal balance sheet, they’ll know them, their family, their whole personal situation,” he said.

“If they’re doing their job well they’ll have a really good head around it.”