KiwiSaver

An investor pressure group is preparing a Petition to Parliament to request the Government review the default KiwiSaver provider status of ANZ-owned fund manager ING.

This comes after the Commerce Commission reached a record $45 million settlement with ANZ over the promotion of ING’s Diversified Yield and Regular Income Funds last month.

The Commerce Commission alleged that the promotion of the degree of investment risk in the two ING Funds was “misleading” and that there was sufficient evidence to pursue proceedings against both ING and ANZ for breaching the Fair Trading Act. The regulator decided against this course of action, saying the settlement was the best outcome for investors in the funds.

The Frozen Funds Group said it had decided to draw public attention to the risks that ANZ/ING’s behaviour presents to all New Zealanders who are saving on a regular basis for their retirement.

The Group says more than 14,000 New Zealander have seen $700 million of their life savings in the Frozen Funds jeopardised by ANZ/ING, yet currently, the same companies hold more than $1 billion of savings from nearly 300,000 New Zealanders in their KiwiSaver schemes.

“The fact the government contracted ANZ/ING in 2007 to be one of the six default KiwiSaver providers, gives ANZ/ING a level of respectability and trust that these companies may have merited at the time, but have lost since then.”

The Group believes there are four compelling reasons to review ANZ/ING as a default KiwiSaver provider.

Firstly, the Commission has concluded after its investigation that ANZ/ ING “engaged in misleading or deceptive conduct and/or made false or misleading representations”.

The Frozen Funds Group says ANZ/ING is a default KiwiSaver that challenges the regulator’s conclusions and yet “deftly avoids full disclosure by settling out-of-court”.

Secondly, the Group says a majority in Parliament wishes to debate a Private Member’s Bill that challenges the legality of the waiver that ANZ/ING made 99% of the investors sign as condition for a partial compensation, while the Commerce Commission’s inquiry was still on-going.

Thirdly, the Group believes the Commission also made the most damning assessment of the performance of ING as a fund manager.

The Commission said: “ING did not measure or manage risks, bought investments that it could not know the contents of, and did not perform appropriate returns attribution analysis.”

Fourth, the Frozen Funds Group believes a review and possible removal of ANZ/ING from the list of default providers would enhance competition in the market and signal to the other default providers to maintain standards.

“It would also signal to non-default KiwiSaver providers that there will be occasional vacancies at the top and that cooperative and ethical behaviour is rewarded. We believe non-default providers will support the envisaged Petition to Parliament,” says the Group.

Kiwibank has registered its KiwiSaver scheme with the office of the Government Actuary (GA), joining Milford as the second new provider to enter the fray this year.

The scheme was registered on May 5, just days after the Asteron KiwiSaver scheme closed its doors.

While further details of the new scheme are yet to be released, it is understood AMP Capital would provide most of the funds management services with the exception of the cash portfolios, which would be run by Kiwibank itself.

Last year KiwiBank ended its relationship with the Mercer KiwiSaver scheme after signing up as its distribution partner early in 2007.

It is understood KiwiBank attracted somewhere between 5,000-10,000 members on behalf of the Mercer KiwiSaver scheme.

KiwiBank was unable to comment, however, its KiwiSaver prospectus is due to be published this week.

Both Kiwibank and Milford entered the KiwiSaver market this year despite what many consider to be an over-crowded scene with 54 KiwiSaver schemes now registered with the GA, of which about 40 are open to the public – the rest either specific employer or industry-based funds.

The exit of Asteron this April from the KiwiSaver market highlighted the difficulties of growing member numbers and funds under management to a profitable size for players outside the default schemes.

Asteron, which was the third provider after Eosaver and IRIS to shut up a KiwiSaver scheme, struck a deal to recommend members transfer to the Grosvenor product.

While it was still unclear how many Asteron members had transferred to Grosvenor, the group estimated its KiwiSaver funds under management would reach $100 million by September as a result of the deal.

As at the end of March last year, Grosvenor recorded about $27 million under management and just over 14,000 members in its KiwiSaver scheme.

 

An industry body argues the biggest risk to KiwiSaver is over-zealous regulation, rather than fund manager behaviour.

WSNZ chief executive Bruce Kerr says the industry body was monitoring “how sweeping the changes will be”.

Under proposed changes announced by Commerce Minister Simon Power late in April, all KiwiSaver providers would have to adhere to the same rules applied to default schemes – in particular the requirements for more regular reporting and stronger trustee oversight.

Kerr said while the organisation supported the broad thrust of proposed KiwiSaver changes but it was opposed to “regulation that simply adds compliance cost for no member value”.

“We believe there is currently no systemic problem with KiwiSaver. In fact in our view, the biggest risk KiwiSaver faces is that overly zealous regulation is rolled out without adequate and effective engagement with all stakeholders to ensure those changes will be optimal.”

He said, for example, many existing employer superannuation schemes and master trusts continued to operate effectively under current regulatory arrangements and could face unnecessary disruption if the proposed new regime was extended to incorporate them.

While Power has excluded non-retail KiwiSaver schemes and other employer-based savings schemes from the proposed changes, he said that decision could be revisited later.

According to Kerr, the Ministry of Economic Development (MED) has indicated the KiwiSaver changes will be included in a new piece of legislation expected to be drafted by August.

“Initially, we thought the changes would be part of the Securities law review.”

WSNZ, which has about 130 representing about 90% of the industry, was also drafting a “high level policy” document for presentation at its conference to be held at the end of August in Christchurch.

Kerr said the policy was unlikely to include a view on the banning of commissions on KiwiSaver products.

“But we’re certainly starting to have conversations about [commissions],” he said.

 

KiwiSaver funds provided positive returns for the fourth straight quarter, though the growth is running out of steam and ongoing fears of a debt crisis in the euro zone may be partly to blame, according to Mercer (NZ) Limited.

The median return for the most conservative Default Funds was 2% in the three months ended March 31, according to Mercer’s KiwiSaver survey.

The median for conservative funds was 2.1%, balanced funds chalked up 2.9% and growth funds managed 3.3%. 

“While KiwiSaver funds have posted positive returns over the last four quarters, performance has reached a plateau and we’re not seeing the same level of growth achieved over the last six months,” said Mark Lewington, head of Mercer New Zealand. 

While growth in global markets and better-than-expected corporate earnings have underpinned returns, “growing concerns over possible sovereign debt defaults in the euro zone could threaten the run of positive returns,” he said.

“The volatility is far from over.”

Some US$3.7 trillion was wiped off the value of global equity markets last week, according to Bloomberg, on fears Greece’s debt crisis would spread. Equity markets rallied again in Asia today after governments in the euro zone agreed to lend as much as 750 billion euros to member states drowning under their debt burdens. 

Fidelity Life’s Aggressive fund turned in the best result, with a 6.3% return in the first quarter, while Fisher Funds Growth Fund recorded the fattest return for the 12 months through March, at 50.8%.  

Growth in funds under management for the top seven default funds grew by almost $1 billion between June 2009 and March 31, bringing the total held between them to $2.2 billion.