KiwiSaver

The Real Property KiwiSaver Scheme (RPKS) was closed down in May and the funds of members are now to be distributed to other providers.

RPKS director Lindsay Hay says a bulk cheque from the funds has been given to Prince Partners to distribute.

He says about 90% of RPKS members have chosen a new KiwiSaver provider with a lot changing over to Fisher Funds and a few to Gareth Morgan.

The RPKS was set up for investors who were not confident about investing in assets like shares, however the scheme never really got off the ground without a property to its name.

Hay says a few properties were looked at, but several million dollars were needed to get somewhere and the fund wound up with just under $1 million and only 70 people signed up.

“If we had $5 million or $6 million we’d have been away but it wasn’t forthcoming and we were up against the big boys which wasn’t easy.”

He says the timing of starting the scheme up was a shame with the recession keeping people’s hands in their pockets.

“We had great support and a lot of people are disappointed, but we pulled the pin because we didn’t have enough money to get traction and as a result we were going to struggle.”

In March last year RPKS’ annual financial statement showed it had just $405,998 funds under management.

 

 

 

Making KiwiSaver a compulsory savings isn’t the silver bullet to address New Zealand’s dismal savings record, with the evidence across the Tasman unclear, according to the Savings Working Group.

The group’s chairman, Kerry McDonald, told a media briefing in Wellington the group was using Australia as a “laboratory” to draw on the experience across the Tasman. Though Australia’s had compulsory superannuation since 1992, McDonald said the data was unclear as to whether it had boosted that nation’s overall level of savings.

“The data I’ve seen at this stage is pretty equivocal on whether it increases national savings or not – I need to be pretty clear that’s work in progress,” McDonald said.

The group won’t be looking at the household sector, which includes KiwiSaver, until later this year, he said. 

The group has been tasked with finding ways to lift the level of New Zealanders’ savings across the board, and was asked to focus on government saving, tax on capital income and the role of KiwiSaver. Finance Minister Bill English excluded New Zealand superannuation from the terms of reference.

The group won’t offer recommendations on issues outside the terms of reference, McDonald said they may make wider comments on issues such as superannuation, and recommend the government revisit some of the taboo topics.

The group has met twice so far and has taken a wide macro-economic look at the issues facing New Zealand, putting much of the blame on the poor performance of the tradeable export sector over the past decade, he said.

This has encouraged foreign investment and local reliance offshore debt, which in turn lifted interest rates and the strength of the kiwi dollar, which fed the imbalance further, he said. The group estimates interest rates are 1.5 to 2.5 percentage points more than they should be.

The group meets tomorrow and will focus on the government sector, with spending cuts likely to be on the agenda.

McDonald said the group’s recommendations don’t have to be fiscally neutral, but any proposals to take money from the government coffers and put it into another part of the economy have to be for the wider good of the nation.

There is potential for KiwiSaver to grow the retirement savings pool but it is unclear whether that has been the case so far according to industry experts.

Speaking at the Workplace Savings conference in Christchurch Inland Revenue senior evaluator Katherine Meerman says it is an important but unanswered question.

“Because if KiwiSaver isn’t growing the retirement savings pool over and above what would have been the case, then what has been the point?”

She says there is some indication of the potential for growth in savings, but there are also indications of substitution behavior.

She says in terms of members, the pool has had relatively steady growth for the last two years, with an average of 30,000 people joining a month and membership at just under 1.5 million which represents 38% of the total eligible population.

Inland Revenue data shows over one third of members (37%) have joined through automatic enrolment, with two thirds (63%) opting in.

Meerman says without KiwiSaver 38% of households would have been unlikely to save for retirement.

From the funds perspective, in the three years to July 2010 Inland Revenue passed $6.6 billion in funds to providers for investment.

Meerman says in the big scheme of things KiwiSaver represents a growing but still relatively small percentage (9%) of the value of total funds under management. Of the value of superannuation savings KiwiSaver makes up close to 30%.

Meerman says taking Inland Revenue data into account, she has a foot in both camps as to whether KiwiSaver is growing the retirement savings pool or not.

This sentiment was matched by BT Funds Management senior product manager Sharon Mackay who says most KiwiSaver members are contributing 2% which is a great start, but not enough for retirement savings.

She also believes too many people are in conservative funds which is not necessarily the best level of risk for their profile.

However ASB head of group investments Greg McAlister believes the retirement savings pool is seeing growth.

He says ASB as a default provider, has 252,000 members and as of last month $1.23 billion in the fund which is a number well beyond its expectations. He says overall KiwiSaver numbers are also beyond initial treasury and provider forecasts.

 

Most KiwiSaver funds were in the red over the second quarter as the markets had their first pullback after four positive quarters of strong results according to the Morningstar quarterly KiwiSaver Performance Survey.

Morningstar says the pullback was due to the global recovery being put on hold in May after uncertainties as a result of some European countries’ overhanging debt, a slowdown in China, and disappointing economic data across the globe.

As a result the New Zealand sharemarket lagged most global counterparts during the second quarter and the NZX50 Index was down 9.05%, while Australia was down 15.62% for the June quarter, and global sharemarkets fell 7.96% in aggregate.

This meant only a few KiwiSaver funds remained in the black over the second quarter, and it was the cash and fixed income heavy options which tended to do the best.

This meant that the default options largely led the way.

Mercer and ING were the top performers among the default providers and the only options to post positive returns.

Morningstar says Mercer has been the dominant performer across the default providers, easily outpacing the pack over the one and two-year periods.  

ING and Mercer also posted admirable results when compared to all KiwiSaver funds.

Morningstar says other fund managers that deserve mention for table-topping results over the June quarter were Aon Russell, Mercer, and Grosvenor, which were among the best performers in the risk-conscious Conservative and Moderate categories.

Aon Russell also performed well in the balanced, growth, and aggressive categories alongside Tyndall and Tower.

Looking out over two years is of course a better indicator of a fund manager’s performance record. Over this period, AMP, Aon Russell, AXA, and Mercer did well in the conservative and moderate categories.

In the more growth categories Fisher Funds Growth, ING, and Mercer were the KiwiSaver options with the best results.

Morningstar says the second quarter again demonstrated the perils of performance-chasing, as many of the top performers over the past year were among the bottom-dwellers when markets fell.

But the performance gap among KiwiSaver funds is opening up. In the Moderate and Balanced categories, for example, the difference between the best and worst performers over a two-year period was 7.34% and 4.79%.

Morningstar says the next quarterly report will be the three-year anniversary of KiwiSaver and while it’s still early days, given the upheaval in markets over this period, it will be a very interesting time to look at medium-term results.

As for assets under management, ING and ASB were the dominant players at June 30, with just over 40% of KiwiSaver assets between them. Below this pair was a tight group hovering above 5% – the default providers and Westpac are in this mix. Gareth Morgan is also in this group, with 5.60% of market share, while the rest of the providers fight it out for the remaining 10% of the pie.

KiwiSaver assets on the Morningstar database have grown from $954.10 million at 30 June 2008 to $5.77 billion at 30 June 2010.