KiwiSaver

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.”

Labour has floated the idea of forcing KiwiSavers to keep their money in New Zealand, as well as making the scheme compulsory.

Labour’s finance spokesman David Parker raised the possibility of preventing KiwiSaver funds being moved overseas in an interview on TV3 programme The Nation on the weekend.

He mentioned it as an option, while reiterating Labour’s election policies of compulsory KiwiSaver, a capital gains tax and a gradual increase in the retirement age.

“On the savings front, we’re going to have to consider whether we make our savings sticky, rather than having open borders – people being able to take their savings pool with them to Australia,” Parker said.

“Someone suggested to me the other day – a senior business person – that we’re going to actually have to have a closed system that says once you get universal savings you actually can’t take them with you to Australia,” he said.

“We’ve got such a problem now between income differentials between New Zealand and Australia that we’re going to have to do better. We’re actually also going to have to move on inequality, you know, inequality in New Zealand is rising to atrocious levels, and a capital gains tax helps fix that as well.”

New Zealanders who move overseas are currently allowed to apply to pull their money out of KiwiSaver, except for government tax credits; however, there is a minimum 12-month wait before they get their money.

Those moving to Australia – where saving is compulsory – should soon be able to transfer their funds to one of the super schemes over there, once Australia gets around to signing the Trans-Tasman Portability Agreement.

New Zealand signed the agreement in 2010.