Low profile adviser group Aurora Financial has establised a new firm with its own KiwiSaver scheme with a strong ESG focus.

New investment manager, Aurora Capital, is delighted to announce the launch of the Aurora KiwiSaver Scheme. The Aurora KiwiSaver Scheme offers a range of funds that apply environmental, social and governance (ESG) principles, with a specific focus on investments that can improve the health of our planet, such as reducing the impact of climate change.

The initial core offering of the Aurora KiwiSaver Scheme, which is issued and hosted by Wellington-based company Implemented Investment Solutions, is comprised of three funds: the Aurora Conservative Fund, the Aurora Growth Fund, and the Aurora Future Focused Fund. The Aurora KiwiSaver Scheme also offers a lifecycle option, Aurora RetirementPlus, which blends the fund options to provide a targeted level of risk based on age.

The Aurora Conservative Fund and Aurora Growth Fund currently invest into underlying funds managed by Mint Asset Management. The Future Focused Fund invests in BlackRock ETFs, selected by Aurora Capital, that are comprised of companies with high ESG ratings and exposure to specific climate change themes.

Commenting on the launch, CEO and co-founder, Simon Rolland, said “Aurora Capital was created to provide KiwiSaver investors with an opportunity to use investment for good, and all the funds in the Aurora KiwiSaver Scheme are oriented around ESG principles. We are especially thrilled to bring a climate change focused fund to KiwiSaver investors because we believe that solving climate change is one of the greatest challenges we face today.”

Aurora Capital’s co-founder and Chief Investment Officer is Sean Henaghan, a financial services veteran who worked previously at AMP Capital (Australia) where he managed more than A$100 billion in multi-asset portfolios. Henaghan said “KiwiSaver is a long-term investment vehicle – clients that invest with us can create personal financial wealth while also leaving the planet in better shape for future generations. We are proud to be accessing the investment expertise of Mint Asset Management, whom we regard as a high-calibre active investment manager that has integrated ESG considerations into its investment process as well as being a signatory to the UN-supported Principles for Responsible Investment”.

“We are excited to be investing in innovative technologies and solutions that can create positive change for people and help address climate change issues. We have specifically appointed BlackRock for the Future Focused Fund, as their ETFs are best-in-class and are aligned to the climate focus of the Fund,” Mr Henaghan said.

As part of Aurora Capital’s commitment to making a positive impact on the planet, it is proud to support CarbonClick, an Auckland-based technology company that provides individuals and businesses the tools to calculate and offset their carbon emissions. Together with CarbonClick, Aurora Capital will measure, track and offset its own carbon footprint, and will encourage its staff, as well as clients, to consider offsetting their individual carbon footprints, reducing their environmental impact. Aurora Capital and CarbonClick will work together to not just offset emissions, but to educate Aurora Capital’s staff and clients on sustainability and how they can reduce their overall emissions wherever possible. In addition to offsetting, the overarching goal is to reduce gross emissions. Aurora Capital believes this approach is consistent with the goal for the planet, which is to actively reduce the overall carbon footprint.

The Aurora KiwiSaver Scheme offerings will be distributed by financial advice provider, Aurora Financial, which means that all members of the Aurora KiwiSaver Scheme will have access to financial advice through an adviser.

Implemented Investment Solutions Limited is the issuer and manager of the Aurora KiwiSaver Scheme. Aurora Capital Limited is the investment manager of the Aurora KiwiSaver Scheme. A product disclose statement for the Aurora KiwiSaver Scheme can be obtained from the manager at www.iisolutions.co.nz, from the investment manager at www.aurora.co.nz, and via the offer register at https://disclose-register.companiesoffice.govt.nz.

ANZ New Zealand Investments has dropped its annual membership fee from all its managed KiwiSaver schemes.

ANZ Investments will remove the $18 annual membership fee from its ANZ KiwiSaver Scheme, ANZ Default KiwiSaver Scheme and its OneAnswer KiwiSaver Scheme.

It will also reduce management fees of its Conservative Funds (excluding the Default Fund) and Conservative Balanced Funds by 0.22% and 0.15% respectively.

Under the new structure, a person with $20,000 invested in the ANZ KiwiSaver Scheme Conservative Fund would have their fees reduced from $192 to $130 a year.

"These fees will ensure a simpler fee structure and provide greater value for money for our more than 650,000 KiwiSaver members, said ANZ’s acting managing director of funds management Stewart Taylor.

“We regularly review fees as we achieve greater economies of scale. This latest change particularly benefits members with lower balances or those just starting out,” Taylor says.

ANZ Investments has reduced the total fund fee for the ANZ KiwiSaver Scheme by approximately 25% since 2009.

In 2019 it removed the $24 membership fee for members aged under 18 and reduced it to $18 (from $24) for all other members.

The membership fee for over 65s was removed in 2020.

“Through its active management approach, ANZ Investments has delivered strong returns over the long run for our members and this with the reduction in fees is another step to helping our members grow their retirement savings,” Taylor says.

ANZ Investments is the largest private-sector funds management and KiwiSaver provider in the country with more than 650,000 customers and $35 billion under management.

More than 1.2 million KiwiSaver members did not invest in the scheme in the year to March 31, showing that while KiwiSaver has hit new heights in funds under management, there are big opportunities for providers and advisers.

The Financial Markets Authority (FMA) has just released its KiwiSaver Annual Report for the year ended March 2021, which shows total funds under management reached $81.6 billion, or double the $40.8 billion held in 2017 (see table below).

Overall membership increased 2.1% to 3,090,631 and the number of members who contributed to their accounts increased 3.9% to 1,883,118.

However, those in the scheme not contributing totalled 1,207,513, or 37%, and fees collected by providers cracked the $650 million mark.

Compared to last year, where KiwiSaver made an $820 million loss due to a market downturn around Covid-19 concerns, this year's results show a sharp rise with investment returns skyrocketing to $13.2 billion – a staggering 1708% increase.

FMA director of investment management Paul Gregory says the last year was momentous for KiwiSaver, with unprecedented growth after weathering market difficulties.

Combined fees revenue was $650.3 million, up 20.7% from last year while funds under management increased by 31.7% to $81.6 billion.

Gregory says the rate of growth in fee revenue was a function of the percentage-based investment management fees that providers take as a cut of their members’ balances, not a sign that fees charged were increasing.

“Our focus on value for money over several years has been based on providers generally not passing on the benefits of KiwiSaver’s growing scale."

But Gregory says there are some encouraging signs with several managers reducing their investment management percentage fees to increase the value provided to their investors.

"Over time we are looking to see this approach to value for money to continue, so the current trend of KiwiSaver managers as a whole earning strongly increasing income from fees should slow and stabilise.”

He says that trend was evident with fixed fees, or administration fees, which decreased by 4.8% to almost $80.8 million, as a number of KiwiSaver schemes reduced them or changed their structure.

“This is appropriate, as these fees were only intended to help providers cover costs in KiwiSaver’s early stages,” Gregory says.

Gregory says the year also saw significant shifts in the FMA's regulatory focus for KiwiSaver providers with two important pieces of guidance for fund managers being released – one focused on the accurate labelling of funds' ethical and responsible investment claims, the second focusing on value for money.

“Reflecting on our guidance and the Government’s changes to the default providers coming into effect in December, we believe both will improve outcomes for investors, impacts which will play out over the long term.”

The report shows only a small minority of investors are choosing funds explicitly labelled as responsible or ethical, however, a broad range of research shows that many investors are increasingly expecting that their provider will be taking a responsible approach to investing their money.

FMA’s research has shown that 31 of 37 schemes claim that they consider aspects of responsible, ethical or ESG investment in their decision-making.

KiwiSaver Annual Report by the numbers:

Total membership: 3,090,631 up 2.1%

Average (mean) balance: $26,410 up 29%

Total funds under management: $81.6 billion up 31.7%

Investment returns: $13.2 billion up 1708%

Members contributing: 1,883,118 up 3.9%

Members not contributing: 1,207,513

Members in default funds: 356,021 down 6.6%

Total member withdrawals: $3.05 billion up 7%

First home buyer withdrawals: $1.4 billion up 18.8%

Combined fees revenue: $650.3 million up 20.7%

Members salary/wages contributions: $4.8 billion up 16.3%

Government contributions: $891 million up 6.1%

Employers contributions: $2.7 billion up 19.5%

The number may be daunting – more than $1 million for a couple to retire comfortably – but many Kiwis won't have anything close to that in their KiwiSaver accounts by retirement age.

So, should KiwiSaver be made compulsory?

Considering 35% of New Zealanders over 60 don't know how much they need to retire comfortably, according to research provided by the Financial Services Council (FSC).

Compulsory KiwiSaver was the main topic of discussion during a recent 'FSC Connect' panel event held during the Level 4 lockdown in Auckland.

On the panel were Craigs IP head of emerging wealth Helen Skinner, Milford Asset Management head of KiwiSaver distribution Murray Harris, Westpac NZ head of investments Nigel Jackson, Trustees Executors chief operating officer Geoff Rimmer, along with FSC chief executive Richard Klipin and FSC content manager Clarissa Hirst.

Murray Harris says Kiwis don't feel well prepared for retirement and talking about money is not really a Kiwi thing.

"And we have a low level of financial literacy…for a no-frills retirement, some people are going to be very scared when they see how much they will need and many will have to continue working when they get to retirement age."

Harris says young people are in the best position to start saving but many don't even think about it until in their 50s.

"We must acknowledge that KiwiSaver has been hugely successful and has been the best financial product and savings product New Zealanders have seen.

"But for the people under financial strain or on lower incomes moving to compulsion could be a stretch for the household budget, especially for people living week to week.

"But it is a discussion that needs to happen. There is an option for compulsory employer contributions with some tax relief from the government," Harris says.

Skinner says New Zealand is following a similar trajectory to pension funds worldwide, particularly around compulsion.

"There's a lot of New Zealanders who have no idea how KiwiSaver works and how much they should be investing.

"It's all around how much do I actually need at the endpoint and working back from that," she says.

Jackson says people do recognise the importance of saving for their retirement but we are not doing enough, especially for the more vulnerable.

"But compulsion is a blunt instrument and is dangerous territory for politicians.

"Obviously, it [KiwiSaver] works better if people are in long term employment and for those on higher incomes."

Rimmer, who has had three decades of experience with the Australian superannuation scheme, says there's already a significant underfunding gap identified by the research.

"The Aussie system has matured over three decades starting at 3% contribution and up to 9% for a while…and over time there will be less and less reliance on the taxpayer."

He says few people think about retirement in their youth, but the more money in a scheme like KiwiSaver means people have more interest in their savings.

"Compulsion on its own is not a good idea," he says.

"There are other levers you can pull to make sure you don't end up with a big difference between the haves and have nots."