KiwiSaver

Financial advisers are losing popularity as a source of information for KiwiSaver members, who prefer to go to product providers or their employers, according to new research.

The Mercer KiwiSaver Sentiment Index Study found only 19% of respondents preferred to go a financial adviser for information about the scheme, down from 23% in the last study in 2009 and 33% when the first study was conducted in 2007 just before KiwiSaver was launched.

Nearly half (49%) chose their KiwiSaver provider as a preferred source of information, while one in four respondents preferred to go to their employer or HR manager.

However, the latter figure is down from 48% in 2007 and 37% in 2009 (the numbers add up to more than 100% as respondents can choose more than one answer).

Financial advisers were just behind government sources such as the IRD (20%, down from 40% in 2009), slightly ahead of family (17%) and well ahead of the media, which only 5% of people chose as a preferred source.

Mercer’s Elyssia Silberstein, who oversaw the research, said respondents weren’t asked why they preferred a particular source.

“I would expect that there’s a lot more information and communication available now.  Financial advisers have been used in the past but with the government playing an active role [in providing information] perhaps the perceived need for financial advisers has diminished over time.”

Martin Lewington, head of Mercer New Zealand, noted that the drop-off had taken place at the same time the new regulatory regime for advisers was introduced.

“Hopefully in the 2014 survey KiwiSavers will have seen the benefits in the new regulatory environment and we will have seen an uptick in that.”

He noted that although 73% of respondents said in 2007 before the scheme’s launch that they planned to pick their own provider, in the latest survey only 58% had actually done so, with the rest allowing their decision to be made by the IRD or their employer.

The study also found opposition to KiwiSaver had increased, with 30% actively against it compared to 22% in 2009; those actively against it tended to be over 55, owned their own home and had children who weren’t enrolled in KiwiSaver.

Lewington said the increase in opposition had implications for the debate on whether to make the scheme compulsory.

Imposing more regulations on KiwiSaver funds could stifle the best performers, says Fidelity Life chief executive Milton Jennings.

Financial Markets Authority chief executive Sean Hughes said there were gaps in the rules relating to KiwiSaver schemes.

He says there should be more co-operation between regulators, and suggests “there is no prudential supervision for KiwiSaver.”

Prudential supervision assesses whether undue risks are being taken with investors’ money.

Jennings conceded the HuljichKiwiSaver saga – where investors were misled about the performance of the Huljich Wealth Management KiwiSaver fund – “certainly exposed a gap”.

But he said prudential supervision of KiwiSaver funds would be complicated.”Do you go down to [assessing] single stocks? It’s very hard.”

He said higher-risk funds could be a casualty of increased regulation, such as Fidelity’s Options fund, one of KiwiSaver’s top performers.

“We had noises from the regulators saying it’s too high risk for KiwiSaver…  there’s been volatility over the five year period, but it’s probably the top performing fund, so do you want to stop that type of investment?”

Milford Asset Management’s investment committee chairman Brian Gaynor said funds already outlined their investment stance in prospectuses.

“And you can see by the way directors are being prosecuted regarding prospectuses at the moment it’s a very powerful document in terms of the law.”

But he said there were two glaring gaps in KiwiSaver regulation that Hughes had not mentioned.

“The disclosure of fees is probably the weakest area, the second is probably consistency in how to measure and report returns and performances.”

He called for the establishment of a KiwiSaver comparison website, managed by a body such as the FMA.

After years of repeated tinkering in successive Budgets, KiwiSaver looks set to finally be left alone this year.

Prime Minister John Key has announced in a pre-Budget speech that there will be no changes to KiwiSaver tax credits.

Last year’s budget saw the government halve the maximum yearly tax credit from $1040 to $520, a change that kicked in earlier this year.

It also flagged an increase in the minimum employee contribution from 2% to 3%, which is due to come into effect next year.

Not-for-profit group Workplace Savings NZ, a membership organisation representing the superannuation industry, has welcomed Key’s comments.

Workplace Savings NZ chairman David Ireland said the certainty that message provides would come as a welcome relief to all those involved in workplace savings.

“Since it was first established, KiwiSaver has been subject to ‘design tinkering’ in just about every Budget, so this will be a refreshing change.

“It means the only change KiwiSavers are likely to see on the horizon, at a practical level, is the proposed increase in contribution rates from 1 April next year.

“There are currently over 1.9 million New Zealanders using KiwiSaver for their savings, and they should be reassured by the Government’s announcement.”

KiwiSaver is about to enter a new stage in its life cycle, with those aged 65 or over who joined on day one becoming eligible to withdraw their savings on 1 July.

“The stability signalled in KiwiSaver incentives and design is great news.  It will help free up providers’ capacity to develop options for helping those KiwiSavers maximize the long term benefit of those savings,” said Mr Ireland.

While KiwiSaver has been spared in this year’s Budget, future changes are inevitable: National plans to introduce auto-enrolment at some point, while Labour has said it will make the scheme compulsory.

A savings expert has called for a radical overhaul of the KiwiSaver default system, which would see the current default providers lose their “privileged” position in the market.

In the Retirement Policy Research Centre’s latest PensionCommentary, co-director Michael Littlewood has questioned the need to renew the agreements with the six default KiwiSaver providers in 2014, when their current deals are up for renewal.

By then, most New Zealand employees will be KiwiSaver members and auto-enrolment will be unnecessary, he said.

However, “…if auto-enrolment continues to be a feature of KiwiSaver, there needs to be some kind of default provider regime. A default investment option is also needed because employees who are auto-enrolled will, by definition, have made no decision about how their savings are to be invested.”

Littlewood said the Government “should not give a commercial and marketing advantage to a small group of financial service providers, especially if they do not pay for the privilege.”

He has suggested two alternatives: the first and preferred option is to extend the Inland Revenus involvement with auto-enrolled members from the current eight weeks to a year.

If the member has not chosen a KiwiSaver provider by the end of 52 weeks, the member will automatically begin a contributions holiday. The membership will stay in the Inland Revenue’s ‘holding’ scheme until the member chooses a provider.

Alternatively, he said the government should prescribe a set of minimum standards for default providers (there are none at present). Any KiwiSaver scheme that continuously complied with those standards would automatically be on the Inland Revenue’s default provider list.

Littlewood said the initial default provider appointment process in 2006 was “flawed” and there has been no follow-up, or research, to see whether the performance of default providers as a group has justified the “commercial favour” conferred on them.

He also opposed the Savings Working Group’s proposal that would have seen the government become a commercial competitor to private providers.

“Aside from size, and the absence of a profit motive, the government has no competitive advantage in delivering superannuation services. On those grounds, the government could justify involvement in any business activity.”