KiwiSaver

A KiwiSaver model is needed that makes it possible for financial advisers to provide the level of advice the KiwiSaver members need, in a way that is also cost-effective for advisers, says the author of a new report on the scheme.

The Financial Services Institute of Australia commissioned Claire Matthews, of Massey University’s Centre for Banking Studies, to compile its latest report, KiwiSaver and retirement savings in 2012.

It showed that the level of participation in the scheme had increased, up to just over 62% of the working-age population.

Smaller providers were gaining ground but more KiwiSaver members have their accounts with a bank. A third reported that there accounts were in bank funds.

Just over 20% had changed funds and most had moved for “bank-related” reasons. Many said they wanted all their dealings to be with one bank.

Being able to easily check their balances was one reason suggested for moving to a bank KiwiSaver scheme, but only 41% of members checked their balances more than once a year.

More than 30% said friends and family were their preferred source of advice on KiwiSaver.

Matthews said some people were not looking for advice for a financial adviser and others were not able to get it because advisers found it unprofitable.

She said banks were doing a lot of work on growing their KiwiSaver balances and were putting increasing value on them as a useful part of their product ranges.

“Kiwibank saw value in buying Gareth Morgan Investments and BNZ has chosen to go into the KiwiSaver market, which it didn’t initially.”

Fisher Funds is now the biggest New Zealand-owned and managed KiwiSaver provider, after the acquisition of TOWER investments.

The $79 million deal settled today, leaving Fisher Funds with 269,000 customers and $5.5 billion under management.

Managing director Carmel Fisher said: “We are proud of Fisher Funds’ journey to date, one that has seen us attract a large and loyal client base as a result of excellent investment returns and our commitment to servicing our clients. We look forward to extending this high quality customer service to all TOWER Investments clients.”

She said TOWER clients would not notice many differences over the short term.

“Over the next 12 months, we will select the superior elements from both the TOWER and Fisher Funds offerings to provide a range of best in class Fisher Funds branded products and services for current and future clients to choose from. As we go through the process we will keep our clients fully informed, explaining the impact and benefit of any changes.”

TOWER Investments is the fourth KiwiSaver provider acquired by Fisher Funds in the last three years taking its market share to about 10%.

The acquisition of TOWER Investments was fully funded by bank debt, Fisher Funds’ existing shareholders and the addition of TSB Bank as a 26%shareholder. No client funds were used to fund the purchase.

Only 9% of New Zealanders think the country’s superannuation is enough to live on in retirement, survey results released by the Financial Services Council show.

About 65% said it was not enough to live on. Ten per cent said they were not sure and 15% were neutral.

NZ Superannuation provides an individual $349 a week.

FSC chief executive Peter Neilson said despite that, New Zealanders were not doing enough to save for their retirement and standard KiwiSaver contributions were insufficient.

“Whilst 2 million New Zealanders have enrolled in KiwiSaver most are currently contributing at 2 per cent for the employee and 2 per cent for the employer respectively. At a 2 per cent contribution from employee/employer individuals will fall below the savings threshold that will provide them with a comfortable retirement.”

He said people needed to save 10% of their income from the time they started working to achieve a comfortable retirement.

The option to withdraw KiwiSaver fund to buy a first home should be retained but other changes made if default funds are changed to “life stages” settings, Mercer says.

Mercer, one of the default providers, has about $800 million under management in KiwiSaver and Mercer’s New Zealand boss Martin Lewington said the first-home option has been used by only about 1% of its members so far.

But he said home ownership was important for New Zealanders and KiwiSaver members should still be able to use it for that purpose.

“We know New Zealanders want to buy their own home; it’s part of the New Zealand psyche even if it is getting expensive.”

Lewington said Mercer also supported switching the default funds to “life stages” or “whole of life” settings, meaning investors’ asset allocation was automatically adjusted as they aged.

“What we’ve observed in the USA and the UK is whole of life offerings have a higher probability of delivering much a better outcome than a set and forget conservative option.”

The problem, he said, was that many prospective first-home buyers were in their 20s and 30s, meaning their default setting under a “life stages” approach would be very aggressive.

But if they were going to pull their money out in a few years they would need to focus on capital preservation.

Mercer’s suggested solution is to include a question for members asking whether they think they will buy a house within the next 10 years.

“You’d be put within a relatively conservative fund for 10 years then your risk profile and amount of exposure to growth assets would be increased and then gradually decline again along the whole of life path as you get closer to retirement.”