KiwiSaver

Grosvenor has launched a new leveraged fund to complement its current range of four multi-sector portfolios.

The Geared Growth Fund, which may be leveraged up to 50% of the net asset value of the fund, is aimed at those long term savers who are comfortable with using leverage to maximise investment returns, Grosvenor chief investment officer David Beattie says.

The fund was a natural fit not only with the philosophy behind the KiwiSaver Scheme, but also with the long-established principles of optimal investment portfolio design, he says.

“Many New Zealanders will already be quite familiar with the use of gearing and leverage relating to long term property investing, so gearing to buy other growth assets such as shares follows the same fundamental rationale,� Beattie said. “This is a particularly good time to make a geared option available, as both interest rates and share markets are currently very attractive from a long term fundamental perspective.�

“Indeed, it is now possible to implement a self-funding geared strategy, with borrowing costs effectively offset by the dividend income generated by the underlying share investments.�

All of the borrowing will be looked after within the fund itself, using non-recourse loans and active leveraging strategies to ensure that investors are never required to deposit any additional funds to cover liabilities or borrowing costs.

Active leveraging strategies will involve dynamically adjusting the leverage ratio between 0% and 50% over time, depending on some key variables.

Additionally, more advanced leveraging strategies, which use investment instruments such as call options and contracts for difference, may be used where appropriate.

On average, Grosvenor expect the Geared Growth Fund to boost savers returns by an additional 1-2% annually compared to a non-leveraged equivalent, provided savers are investing with a time horizon of least 15 years.

“For someone aged 30 now who earns the average wage and stays in the Geared Growth Fund for 35 years until retiring, this equates to an additional $470,000 at retirement,� Beattie said.

However, the new Fund option does come with some health warnings. “Obviously there are additional risks associated with any leveraged investments, with higher volatility of short-term returns the most visible,â€?  Beattie says.

In order to ensure that any potential users of the Fund are fully aware of the additional risks involved, Grosvenor will be requiring a specific signed acknowledgement from the member as part of the initial investment process with their financial adviser, or as part of any switching undertaken from existing investments.

The Inland Revenue Department, which administers the government-sponsored superannuation scheme, is keeping an eye on distributors of KiwiSaver products to help avoid any confusion over where people’s money is being held.

It has received feedback that some KiwiSaver account holders were confused as to where their money was kept if they signed up with companies such as Mike Pero or NZF Money, both of which distribute products for Huljich KiwiSaver, but brand it to their own names.

It wants to help the public avoid “any confusion” over the difference between actual product providers and the distributors.

Spokesman Jake Harvey said the IRD wasn’t concerned about white-labelled products, but was keeping an eye on any potential areas that could be confusing for people.

“It’s mainly an information thing,” but the department will keep tabs on how distributors sell KiwiSaver products with more companies entering similar arrangements, he said.

 

Finance Minister Bill English will discuss the portability of superannuation with his Australian counterpart Wayne Swan at their annual meeting on July 16, and the country could stand to gain a “considerable amount” of some $16.6 billion that’s held in “lost accounts” by Australian super schemes.

 

While the details are yet to be discussed, it is envisaged retirement savings with complying Australian super funds could only be transferred into KiwiSaver funds in New Zealand. Australia’s tax office last year estimated it had around $16.6 billion in superannuation accounts that it can’t account for, and English expects a “considerable amount of this money could belong to New Zealanders who have returned home.”

While there isn’t any data on how much money could potentially be repatriated to Australia, Craig Howie, a spokesman for the minister, said given KiwiSaver was a fairly new scheme and there are some 500,000 kiwis currently living across the Tasman New Zealand should enjoy a net gain.

New Zealand implemented the KiwiSaver scheme in 2007 and topped one million members long before the 2015 target date. The National-led government cut the minimum contribution rate to 2% of an employee’s wage when it came to power last year, a move lauded by ING as making the scheme more attractive. The Australian government passed legislation for compulsory super in 1992, lifting minimum contributions to 9% in 2002.

David Boyle, head of Kiwisaver distribution at ING, said New Zealand’s KiwiSaver funds should see “significant” gains from the move, with Australia’s scheme being embedded for some 17 years, but the “devil would be in the detail.”

“People will be quite motivated to repatriate funds to New Zealand, and the fund managers will of course be happy with that,” he said.

The government needs to take a “sensible” approach in organising any portability scheme, as the volume of paperwork will be very large.

An aging population is becoming a major issue for the global economy, and in its May Budget, New Zealand’s government suspended contributions to the Superannuation Fund, a separate fund to KiwiSaver, set up to help meet future payments to government pensions. Meanwhile, the Labor-led Australian government passed laws to lift the pension eligibility age to 67 by 2023.

KiwiSaver – and workplace savings as a whole – are at a cross roads. A big challenge for industry and policy makers is how best to encourage employers to remain engaged in assisting their employees with their savings.

That’s according to the Association of Superannuation Funds of New Zealand (ASFONZ) which promotes workplace savings. 1 July 2009 marks the second anniversary of the introduction of KiwiSaver.

ASFONZ Chair David Ireland says it is a time to reflect on the scheme and its impact on the savings habits of New Zealanders.

“While the take up rate of KiwiSaver has exceeded all expectations, there is still debate in some quarters as to whether it has had a positive impact on the level of New Zealand savings as a whole.

“Some say that having a quarter of New Zealand’s population signed up as KiwiSavers is a roaring success.

“But others say that with all the incentives in place, only having a quarter of the population enrolled is disappointing.

“Whatever the view, ASFONZ is pleased there finally appears to be some stable policy in place around KiwiSaver.

“Apart from this year’s budget removing the mortgage diversion anomaly, there have been no substantive changes since the design changes announced when the current Government first came into power.

Ireland says the reduction of the compulsory rate of KiwiSaver contribution to 2% earlier this year – especially in the current economic climate – presents an opportunity for savers to think beyond KiwiSaver in planning for their retirement.

“It is incumbent upon both industry and the Government to ensure the environment is as conducive as possible for employers to play a role in encouraging that thinking,” he says.

This is a press release from ASFONZ