KiwiSaver

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

Note: Returns are shown gross of tax and net of management fees.

Fisher Funds is bucking the trend towards consolidation among KiwiSaver providers by launching a new Conservative Fund as part of its KiwiSaver Scheme.

The Conservative Fund will be offered to current and prospective Fisher Funds clients in addition to the Fisher Funds KiwiSaver Growth Fund – a fund investing solely in growth assets. 

Fisher Funds managing director Carmel Fisher says the decision to introduce a Conservative Fund is a logical one. 

“We’ve been a big supporter of KiwiSaver since it was launched nearly two years ago. In joining our Growth Fund, our members have recognised the importance of capital growth in what is generally a very long-term investment scheme,” Fisher says. 

“However, we have also been asked by many people, particularly those with less than five years until retirement or those saving for a first home, who wanted us to invest their KiwiSaver savings in more conservative assets.  We’ve listened, and we’re pleased to now be able to cater for their investment needs.”

New and existing members of the Fisher Funds KiwiSaver Scheme will now be able to invest in either the Conservative Fund or Growth Fund or a combination of the two in any ratio they choose. 

Members will also be able to switch their investment strategy as their investment objectives change, at no cost. 

“We are delighted with the support for our Kiwisaver Scheme to date” Fisher says. “The launch of this new fund reinforces our long term commitment to KiwiSaver and to our members.” 

“We still think that most KiwiSaver members should focus on growth for their KiwiSaver scheme, as historically growth assets produce the best long term returns, but that approach does not suit the circumstances of all our potential investors. 

“It has been great to watch the growth in our existing funds with large numbers of our members already having over $50,000 in their accounts.  It’s been quite amazing to see the balances of these accounts grow in such a short space of time.”

“Our KiwiSaver Growth Fund has delivered returns of over 30% since late November 2008, comfortably outperforming the market and other KiwiSaver Growth Schemes. The existing scheme has also attracted over 14,000 members exceeding our expectations. 

“We are excited about the prospects for our KiwiSaver portfolios as investment markets return to ‘normality’ and investors focus on a timeframe beyond the next month.”

The new Conservative Fund is available now.

Fisher Funds is a specialist investment manager, founded in August 1998.  The company manages more than $600 million for 40,000 clients ranging from individual investors (with as little as $500 to invest) and KiwiSaver members, to share market investors who have accessed Fisher Funds’ expertise through their NZX listed investment companies, Kingfish Limited, Barramundi Limited and Marlin Global Limited. Fisher Funds’ New Zealand Growth Fund has been the top performing New Zealand share fund over the past ten years.

Plans to suspend contributions to the New Zealand Superannuation Fund until 2021, announced in today’s Budget, are a short-term action and could bring long-term pain, according to consulting, outsourcing and investments firm, Mercer.

Mercer’s New Zealand Business Leader, Martin Lewington, said, “While we recognise the Government is under significant budgetary strain, like many countries around the world, we’re concerned suspending contributions to the Fund – even on a temporary basis – may put future Governments and generations under significant pressure to change NZ Super.

“Reducing funding now without any other significant reform around retirement saving policy, such as increasing the NZ Super entitlement age or providing alternative retirement savings mechanisms, will only add to the financial pressure on the Fund in the future,” he said.

The Fund has been set up as a mechanism to pre fund or provision for a portion of the NZ Super costs of New Zealand’s ageing population. Contributions were planned for investment over a very long time frame, over which returns on risky assets were expected to exceed returns on New Zealand Government debt (being the cost to the Government of borrowing to fund its NZ Super obligations).  Government contributions were previously running at $2.4 billion annually.  The New Zealand Government could have used the contributions to clear its debts, but decided to contribute to the Super Fund of which capital is expected to be drawn down commencing 2031.

“Suspending contributions to the fund in the short-term obviously means less future accumulation.  This may well lead to future Governments needing to make larger contributions to recover this suspension or ultimately bear higher NZ Super costs due to the shortfall in draw-downs from the Fund,” said Lewington.

“The Government could save money through the contributions’ suspension if its debt funding costs exceed the return on the Fund’s assets. We believe this is unlikely over the next 20-30 years but is possible over shorter timeframes, as has been the case recently.

“As such the suspension is not only likely to increase future contribution requirements due to lost investment earnings, but also to raise the risk of inadequate returns on catch-up contributions due to the shorter investment timeframe,” he said.

“NZ Super represents a known fixed cost, which the Government will have to meet in future years. While the Government has produced a budget with a $3 billion increase in core spending in a number of areas to stimulate the economy, which we support in principle, we do not believe this should be to the detriment of the NZ Super Fund.  The long term risks cannot be ignored and the potential consequences of suspended funding are significant if no other action is taken.

“We agree with the Government that the current recession will pass, but our population – and our workforce – will continue to age and the long term risks of this cannot be ignored. The potential consequences of reduced funding to NZ Super Fund could be significant at a national and individual level,” Lewington said.

Apart form the suspension of contributions to the NZ Super Fund, the Government has not formalised any policy around asset allocation within the NZ Super Fund, however it has indicated they would like 40 per cent of its assets invested in New Zealand.

Mercer does a lot of work globally with sovereign wealth funds such as the New Zealand Super Fund, many of which exist for the purpose of providing public pensions where countries have ageing populations and  Lewington noted there are risks and benefits in mandating these funds to invest domestically.

“Overall, we believe our ageing population and the budget strain these demographic changes bring are some of the biggest challenges our current, and future, governments face.  We encourage the Government, and business, to look at a more holistic approach to these challenges specifically with the aim being to secure an adequate retirement income for all New Zealanders, which may involve multiple solutions that could increase private provisioning for retirement.