KiwiSaver

Commerce minister Simon Power has announced regulatory changes to make it easier for earthquake-affected Cantabrians to access their KiwiSaver cash.

“The Government was concerned that some people may have been unable to make an early withdrawal of their KiwiSaver contributions under the significant financial hardship rules of the KiwiSaver regime,” he said.

“So we have now approved changes to regulations, adding the earthquake to the list of circumstances that can be considered for an early withdrawal.”

Power said that under the approved changes to regulations, any resident of Canterbury at the time of the earthquake is entitled to refer to the destruction or damage of property as a result of the earthquake, loss of employment as a result of the earthquake and costs incurred as a result of the earthquake such as moving home when seeking an early withdrawal.

He said officials were working closely with KiwiSaver trustees to provide guidance on how to deal with earthquake-related hardship claims.

“Trustees will be advised to take a sensible and pragmatic approach to complications such as lack of access to financial records and uncertainty pending insurance claims,” Power said.

Total KiwiSaver membership rose 1.8% in March suggesting concerns about possible changes to incentives and an improving jobs market, according to default KiwiSaver provider Tower Investments.

“March saw a sharp lift in KiwiSaver sign-ups, with net total membership rising 1.8% for the month and closing on 1.7 million members,” said Tower Investments CEO Sam Stubbs.

He said opt-ins via employer were up 1% and automatic enrolments were up 2%, suggesting better employment conditions.

He also cited potential post-Budget changes to KiwiSaver as a driver for the increased membership.

“Another factor could be workers getting in on KiwiSaver before changes are made to the scheme as flagged by the Government for possible announcement in the upcoming Budget,” Stubbs said.

“People hesitating to join may have decided they should get in now just in case KiwiSaver is less generous to those who sign up later on.”

Stubbs said with the Government having flagging the May 19 Budget as being about savings and investments, changes to KiwiSaver incentives were possible.

“It’s possible – I don’t know if you’d call it probable – it’s certainly possible that they’ll be cutting benefits to some degree because those subsidies are quite expensive,” he said.

“Certainly it would seem that if the Government is calling this a savings and investments Budget then they clearly want the industry to grow and KiwiSaver to get even stronger and more viable. Maybe for that long term gain we might have to endure some short term pain in terms of the removal of subsidies or some subsidies.”

Stubbs said that as KiwiSaver membership had grown to include the majority of working New Zealanders, it was more important to focus on contributions rather than initial incentives.

“I think now the mechanisms for enrolling are so well entrenched that people are going to get signed up anyway, so I think the Government will – I hope – be more focused on the long term growth of the contributions in the scheme and making the existing members wealthier than focus solely on signing up new members.”

Stubbs said work could be done around tax credits – which he said are less understood by investors – and cautioned against the creation of a single default fund.

“The only thing we’d be hugely disappointed in is if they adopted the Savings Working Group’s idea of having a single low cost index fund, that would end up robbing a lot of New Zealanders of decent investment returns over the long term,” he said.

He said the current default providers had provided stable returns throughout the global financial crisis, and “I’d be surprised if the Government could run a single scheme at a lower cost that the private industry has been managing.”

 

Regulation for KiwiSaver schemes should place investors at the fore and not be led by product providers, and payments to advisers at the cost of investors should be disclosed, according to Morningstar.

In its submission to the Ministry of Economic Development (MED) Periodic Reporting Regulations for Retail KiwiSaver Schemes Discussion Paper Morningstar also said improved disclosure would encourage greater investment in managed funds.

“We believe that mandatory, periodic disclosure of comprehensive portfolio holdings would increase equity between managed fund investors and encourage greater engagement with retirement savings and pooled investment vehicles more generally,” the company said.

Morningstar also advocated full disclosure of any fees paid to financial advisers, however, “if the payment to advisers is being paid by the fund manager then the information is not so pertinent. Information about the sales practices of a scheme through an adviser channel would be interesting information, but it doesn’t help the end investor make a more informed decision.”

Morningstar also outlined its responses to  questions on a number of issues  raised by the MED paper.

It agreed that any costs deducted from a fund should be disclosed and that there should be a prescribed set of terms for each fee type.

On the issue of performance fees Morningstar agrees with the MED view that they should be disclosed, saying, “There is no rationale or justification for not disclosing performance fees,” it also advocates a wider disclosure regime.

“Simply disclosing the performance fee is not enough, though. Morningstar believes that the terms of the performance fee should be disclosed as well as the fee itself.”

The submission says fund managers should also disclose performance fee quantum, benchmark, hurdle, high watermark, reset period and crystallisation period.

Fuller disclosure of fees would create simplicity, uniformity and comparability and “show the investor the impact of the performance fee on their return, and provide at least a very good approximate basis for comparison.”

The submission also advocates mandatory full portfolio holdings disclosure, noting that despite fund management industry criticism, “Morningstar is yet to find a country where mandatory portfolio holdings disclosure has been harmful to capital market development.”

On wider regulation while Morningstar sees GIPS as the ‘gold standard’ for the calculation and presentation of performance figures, the company said it remains comfortable with the Investment Savings and Insurance Association’s approach.

“GIPS is by and large a strategy or asset class institutional approach to performance reporting not really appropriate to the New Zealand retail market.”

OnePath has seen off competition from Fisher Funds and Milford Asset Management to be named Morningstar KiwiSaver Fund Manager of the Year.

The OnePath general manager funds, David Boyle, said he was delighted with the win.

“It’s a fantastic moment in the sense that the OnePath brand has been recognised with this award, particularly given the criteria that Morningstar used, which was quite extensive, particularly from a customer experience perspective.”

The Morningstar Australasia co-head of fund research, Chris Douglas, said the award winners, “have all shown themselves to be outstanding stewards of their investors’ capital.”

Morningstar praised OnePath’s transparent KiwiSaver options, broad selection of fee choices and strong performances.

“Morningstar’s analysts consider OnePath the best all-round solution for New Zealander’s retirement savings needs,” the company said.

Boyle said the wider criteria used to assess the award and the fact that KiwiSaver is more of a mass-market product made their success especially pleasing.

He said that during the awards ceremony Douglas said Morningstar had, “extended the criteria to include not only the performance of the scheme, but the transparency of fees, the quality of regular updates, the education material, the website, the tools and content on that website to assist KiwiSaver members with information and transparency, [these] were key factors.”

While Boyle stressed the importance of the wider factors around the OnePath offering, he also acknowledged the importance of fund performance.

“We take performance as a given, we have to deliver a level of performance and it needs to be consistent and consistently good relative to peers and the market. That’s what we strive for as a funds management provider as well as a KiwiSaver provider,” he said.