KiwiSaver

Trustees respond to teh government’s comments over their role in supervising KiwiSaver schemes.

“It’s important that trustees are fit for purpose, professional and independent”, Trustee Corporations Association chairman Clynton Hardy says.

“The bottom line is that close to $5 billion, and rising, is invested in KiwiSaver schemes.

“A KiwiSaver trustee’s job is no different from any other corporate trustee role. They are there to supervise fund managers and make sure investors are protected, bearing in mind the long term nature of KiwiSaver schemes.

“KiwiSaver funds are just like public money invested in debentures, bonds, retirement village homes, managed funds or other kinds of non-bank deposits. So they should be subject to the same protection and rules”, he said.

The Securities Trustees and Statutory Supervisors Bill is due for its first reading in Parliament shortly. It creates much stronger regulatory oversight of corporate trustees.

“There will be much tougher hurdles to become a trustee, and once you have been given a licence to operate, higher standards of accountability.

“Making all the KiwiSaver trustees subject to this same regime would give everyone in a scheme more confidence”, Hardy said.

This is an edited version of a TCA press release

Concerns over KiwiSaver fund management have led to the government fast tracking work to ensure the integrity of KiwiSaver is maintained for the 1.3 million people and $4.88 billion of their money invested in the scheme.

Minister of Commerce Simon Power says in recent weeks there has been growing concern regarding the regulation of KiwiSaver schemes.

Huljich Wealth Management brought the spotlight on KiwiSaver account management after it failed to disclose that its then-managing director Peter Huljich had injected cash into the funds because it had not performed well.

Huljich said he felt morally responsible for the investment decisions, but others said it was to give a false impression about the funds’ performance. The Securities Commission is investigating.

Australian investment research company Morningstar Australasia has also warned KiwiSaver investors to look closely at their providers, as there was a very poor disclosure regime in New Zealand.

Power says mum and dad investors must have confidence that their money is being well managed.

“The Government indicated last month it supports recommendations from the Capital Market Development Taskforce for additional regulation of managed funds, including KiwiSaver.

“We were intending to make changes in this area as part of the current review of the Securities Act. However, in light of recent developments, I have asked my officials to fast-track this work to ensure investor confidence is maintained.”

Power has asked officials to report to him within three to four weeks on whether:

• The monitoring and reporting regime for default funds should be extended to all KiwiSaver funds. This would require detailed quarterly reporting to an expert monitoring panel and require that one of the trustees of KiwiSaver schemes be a trustee corporation, rather than just an independent trustee, as at present.
• KiwiSaver funds should be required to regularly report to investors and the regulator on the returns, fees and assets of each fund in a consistent and comparable manner. At present, the only requirement for non-default schemes is for annual returns, and I am advised these are not prepared in a manner which allows for easy comparison between schemes.
• To increase the ability of the regulator to supervise the trustees of KiwiSaver schemes and hold them accountable for fulfilling their obligations.
• Further powers for enforcement by regulators are necessary.

The government has proposed it will review the tax treatment of annuities in response to the Capital Markets Development (CMD) Taskforce recommendation and the financial adviser industry says the review is a must because of KiwiSaver.

 

The CMD Taskforce recommended that the government should support the development of the annuities market and Taskforce chairman Rob Cameron says there needs to be annuities products available for mature investors.

Investment Savings and Insurance Association chief executive Vance Arkinstall says he feels very strongly about this recommendation.

“The taxation of annuities is totally out of date and it overtaxes most people who would be purchasing an annuity.”

He says as New Zealand develops a saving ethic with KiwiSaver leading the way, New Zealand will need to provide the ability for individuals to draw down their savings in income streams which annuities provide.

“We’re very supportive of developing an annuities market because it is totally consistent and goes hand in hand with KiwiSaver.”

Institute of Financial Advisers president Lyn McMorran agrees saying KiwiSaver makes the annuities market a complete necessity as people will start coming out of the scheme with lump sums of money.

“Annuities aren’t offered in New Zealand because the tax structure is not condusive to offer them, therefore there is no demand and no supply.”

She says it is a chicken and the egg scenario, “We need to sort out the tax issue first, and that will create demand which will in turn create supply.”

The government says after the tax treatment has been considered as part of the Government’s tax policy work programme, a timetable will be considered for changes, if any are required.

 

AMP dominated KiwiSaver fund growth in the December 2009 quarter with its conservative, balanced and growth funds all the best performers toppling Huljich Wealth Management from the top.

FundSource’s Latest KiwiSaver Report showed that AMP’s KiwiSaver Conservative Fund produced a return of 2.19%, its AMP KiwiSaver ING Balanced Fund a return of 5.03% and its AMP KiwiSaver Aggressive Fund a return of 4.99%.

In contrast Huljich Wealth Management’s conservative, balanced and growth funds were all ranked either bottom or second from the bottom for the quarter, although those funds still remain top over the two years to December 31.

FundSource business manager T J Singh says any fund manager can have a poor performance over the short period of three-months, it just depends on the underlying securities held and how they perform.

“FundSource looks at the minimum of a three-year risk adjusted performance to judge a fund’s performance.”

He says asset allocation has contributed to the performance of AMP funds which allocated a greater proportion towards global equities over the December quarter.

“AMP were more aggressive in terms of growth asset allocation and it’s worked well for them,” he says.

The report also looked at fund performance over longer periods and found on a one year, six month and quarterly basis growth funds have performed better than balanced funds; and balanced funds have performed better than conservative funds.

 

However, over the two year period, on average, conservative funds have performed better than balanced and growth funds.

 

Singh says the two year period to December 2009 has seen quite a lot of volatility in markets and you would expect variations in returns across fund managers that adopt different investment strategies.

 

“Also you would generally expect growth funds to outperform the conservative funds over a longer time period, however, the past two years have meant that funds with a higher weighting to defensive assets, such as cash and fixed interest, have outperformed the others.”

 

He says over the two year period, boutique fund managers like Brook and Fisher Funds, that take a very active approach to portfolio management, also appeared to have performed well as compared to their competitors.

 

“If we are to draw some conclusions from the statistics, it would be that KiwiSaver members should ensure they are in an investment vehicle that is aligned with their own risk appetite, investment objective and time horizon.”

 

Singh says many KiwiSaver members will have been automatically enrolled in a defensive or conservative fund.

 

“While this has been a great strategy over the past two years, it may be appropriate for some investors with greater ability to take risk and greater risk appetite, to look at growth oriented funds.”