KiwiSaver

With confidence in KiwiSaver underpinned by members’ ability to switch funds types and providers at a drop of hat, just how that will marry with long-term investment in potentially illiquid private assets remains in question.

Financial services sector participants are weighing up the pros and cons of tweaks to regulation which could potentially pave the way for more KiwiSaver investment in private assets like unlisted infrastructure or private businesses, with the government now considering submissions on a range of options.

One of those would allow KiwiSaver providers to opt out of "portability" requirements for funds so long as their intentions are clearly laid out in the provider’s PDS. Providers could then use liquidity management tools such as side-pocketing or redemption gates and withdrawal limits to allow for investment of funds in private assets which generally have longer horizons of 5-10 years.

“The trade-off here is that by essentially locking-up assets, either through what they call side-pocketing or redemption gates, by allowing that, you're eroding the simplicity of KiwiSaver and potentially risking a little bit of loss of public confidence,” says Buddle Findlay Senior Associate Andrew Suggate, who specialises in financial services law.

“The ability to take it out, to buy a home, if it's your first home, or to transfer it to another fund you like better, that makes people feel like they've still got control over it.

“I think they just need to exercise caution on anything that's going to restrict that and maybe affect the public perception of KiwiSaver. And maybe people would accept it and think, ‘oh, that sounds perfectly fine’, but maybe not, it's a bit of an unknown.”

Members need to know what they are getting into

An alternative being floated and met with some support, is to allow for a specific private asset fund type within a KiwiSaver scheme, which would need to be clearly labelled with what its selection means for members’ ability to withdraw or move their funds around. Although liquidity management tools such as side-pocketing and redemption gates would also be opt-in for members, a specific fund type would make it clear if anywhere between 2-20% of their funds would be locked-up in a long-term investment.

Looking at the success of super private asset funds in Australia, Simplicity Chief Economist Shamubeel Eaqub says it is something New Zealand must seriously consider.

“We don't really have an infrastructure asset class, so I'd like us to have the choice for people to invest in.

“As for who should and who shouldn’t invest and how much they should invest in this asset class, I can't answer that, because I think that is quite personal.

“I imagine over the coming decades, we're going to see a significant shift in how much mix and match goes into people's KiwiSavers.”

In a joint legal opinion on the options, MinterEllisonRuddWatts and Chapman Tripp outlined concern for the need for transparency where members are committing their funds to be locked up for a longer period with potentially higher returns. Although the firms note the concept shouldn’t be too difficult to explain given the familiarity people have with offers like long term and on call deposits.

Andrew Suggate, of Buddle Findlay, agrees education and advice will be key to members’ understanding.

“Given the kind of quite well publicized low levels of financial literacy in New Zealand, are they really going to understand in advance that potentially a percentage of their funds is going to be locked up in a side pocket or is not going to be available when they want it?”

The latest Morningstar KiwiSaver report shows the largest provider, ANZ with $22 billion under management, continues to be outperformed by most other providers in the core diversified fund categories.

The report ranks ANZ multi-sector funds’ performance last or second to last place in conservative, balanced and growth categories for both the December quarter as well as the 2024 year, although returns were all in positive territory. Over longer time periods, ANZ does perform better compared to peers in the moderate fund category, ranking middle of the pack for the 10-year period.

At the top performing end, Quay Street features in first and second across a range of time periods for conservative and balanced funds. Milford continues to deliver consistently high performance over the long term, although returns in the short to medium have suffered of late. Generate is ranked in the top five for a range of time periods and across different fund categories.

Of the default funds, BNZ, Booster, Superlife and Simplicity lead the table for the three-year time period, followed by Fisher Funds and Westpac.

The average diversified funds category returns for the quarter had a range of 1% for conservative to a strong 5% for aggressive growth assets, with Morningstar reporting annual returns followed a similar trend.

Growth in funds invested continues unabated

KiwiSaver assets grew to $121.9 billion in the December quarter, up close to $24 billion for the 2024 year. 

ANZ remains in the lead for market share with $22 billion under management, while ASB is in second position, with a market share of 15.0%. Fisher Funds, Westpac, then Milford make up the top five.

“The five largest KiwiSaver providers account for approximately 66% of assets in our database, or around $81 billion under management,” says the report.

“We estimate these five providers will deduct more than $650 million dollars in fees in 2025 from KiwiSaver members, at an average fee of around 0.80 of a cent per dollar invested.

“This mirrors the overall market fee levels in terms of average dollar invested.”

Murky economic waters

Taking a bird’s eye view of economic conditions, Morningstar describes the final quarter of 2024 as a mixed bag for the economy.

“While some indicators pointed towards a potential upswing, others suggested continued headwinds,” says the report.

“Globally, economic uncertainty persisted, with geopolitical tensions and varying growth trajectories across major economies.”

There appears to be an appetite among KiwiSaver members to take home less pay now in order to boost their retirement savings, according to a survey by investment platform Sharesies

There appears to be an appetite among KiwiSaver members to take home less pay now in order to boost their retirement savings, according to a survey by investment platform Sharesies.

Sharesies asked investors who are also enrolled with a KiwiSaver provider – any provider, not just Sharesies – how they would feel about a small drop in their pay for future gains.

“Almost 80% of people told us, ‘yeah, I get it, I have to put away more now than I want to have more later’ and I support them in that,” says Matt Macpherson, Sharesies’ GM of Super and Funds.

The response was the highest consensus among the questions asked in the survey, says Macpherson, but interestingly, just 20% of survey participants supported raising the minimum contribution rate.

At the same time, 67% of participants told Sharesies that the ideal contribution rate is higher than the current 3%, although the survey report commented that it could be an indication that people are unaware of the current settings, as when asked about lifting the minimum from 3% to 6%, there was 56% support for a significant increase to the minimum.

Matt Macpherson says the phrasing of the questions could explain the shift in sentiment, or just uncertainty around what future retirement will look like for people.

But he says it does demonstrate the importance of KiwiSaver members being actively engaged in their retirement planning and not waiting to be told what to save. 

“Instead of just outsourcing the thinking to whoever is setting KiwiSaver policy that election cycle and just relying on doing the minimum, make sure that works for you.

“Don't just blindly trust that 3% is the right thing for you, and don't wait for the government or something else to step in and tell you that it's not, because it's your retirement and a little bit of ownership here is what we're trying to encourage.”

With members seemingly interested in saving more, the next piece of the puzzle, says Macpherson, is finding out what business think.

“Employers contribute a lot to KiwiSaver, and if we assume how businesses feel about increasing those contributions, it might be better to just go and actually ask a whole lot of businesses as well and see how they feel, because I was really surprised at how many individuals were supportive of increasing their contributions.”

“Who knows? Maybe businesses are too, but we don't know that. We don't have that data.”

Sharesies is a recent arrival on the KiwiSaver scene but says it’s finding favour with customers who access all their investments in one place.

Sharesies is a recent arrival on the KiwiSaver scene but says it’s finding favour with customers who access all their investments in one place.

Thirteen months after launch of its KiwiSaver offering, the wealth app this week celebrated the 10,000 member milestone for its scheme, which offers access to base funds managed by Milford, Pathfinder, Pie Funds and Smart, alongside individual company and ETF picks. The Sharesies investment platform has around 750,000 customers.

Sharesies’ GM of Super and Funds Matt Macpherson says customers’ desire for consolidation has been a major driver of the scheme’s growth, as it was with the banks in the early days of KiwiSaver.

“People wanted their KiwiSaver in the same place they’re logging on to do their other banking and it made a lot of sense for them, because they didn’t have to worry about another sign in, they didn’t have to worry about tracking it somewhere else,” he says.

“We’re actually seeing that working to support customers switching to us, they want to see all their investments in one spot.” 

However, it’s not just existing KiwiSaver investors the company is targeting, with around 10 percent of business coming in the form of customers new to KiwiSaver, says Macpherson. 

“We’re engaging people to get involved, maybe they’re in their mid-forties or fifties even, and they’re signing up because we’ve made it more convenient and an easy process.”

The ability to maximise US exposure appears to be another drawcard for investors, with most gravitating towards the US 500 in their individual picks. So much so, Sharesies is turning it into a base fund option for KiwiSaver investors.

Macpherson admits it’s been a more challenging road to market than the company expected, but says he hopes to see it continue to grow at a sustainable pace.

“We’ve got things like kids accounts we don’t currently support, our ambition is to try to complete the product, it’s probably about three quarters of the way there.”