KiwiSaver

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."

Kiwi Wealth has followed BNZ and put administration of its default KiwiSaver Scheme on the MMC platform.

MMC says this is an extension of its services to Kiwi Wealth. It will provide full registry services, as well as unit pricing and fund accounting for Kiwi Wealth’s Managed Funds and KiwiSaver products.

By transitioning these services from an-inhouse operating model to MMC, Kiwi Wealth will achieve a scalable infrastructure to accommodate growth and deliver enhanced investment outcomes to its members and investors, while also taking advantage of economies of scale.

The soon-to-be implemented operating model will support Kiwi Wealth’s requirements as a default KiwiSaver provider, and includes full PIE and other tax calculations, reconciliation and reporting. MMC’s API interface with IRD will improve automation, speed up KiwiSaver transfers and improve the overall member experience.  Kiwi Wealth will also be utilising MMC’s APIs to deliver its industry leading digital investor experience layer. 

“By aligning Kiwi Wealth’s KiwiSaver and Managed Funds operations, we are benefitting from operating synergies, agility and reduced operational risk," Kiwi Wealth chief technology officer Craig Wardsays in a statement. "Through outsourcing our investment administration to a trusted partner, our investment and operational teams will be freed up to focus on what we do best; creating better financial futures for Kiwi by helping people get informed about how they can grow their wealth.”

Kiwi Wealth’s relationship with MMC dates back to 2018, when it first started using MMC’s investment administration services for managed funds.  Once the KiwiSaver transition is completed, Kiwi Wealth expects its remaining products, such as its Private Portfolio Service, will follow. 

MMC’s acquisition of Aegis in December 2019 means it can offer a holistic investment administration solution that spans both fund and wealth administration services. 

In the meantime, by being part of MMC’s investment management community, Kiwi Wealth benefit from streamlined and robust operational services leveraging latest cloud technology. This includes regulatory compliance, complex reporting requirements and AML (Anti Money Laundering) checks. 

BNZ have gone live with MMC’s registry services to support its default KiwiSaver scheme.

MMC chief executive Vedran Babic says the project took six months to deliver and BNZ is the first KiwiSaver default provider for MMC’s registry services.

The bank were already using MMC’s fund administration services for unit pricing and fund accounting across all their products, with wholesale registry and some specialised retail registry for the Term PIE.

“We see a general trend from existing clients wanting to extend their MMC footprint to take full advantage of our trusted services, expertise and achieve economies of scale while also reducing operational risk”, Babic says.

By offering multiple services across the BNZ KiwiSaver Scheme, MMC can seamlessly integrate both registry and unit pricing using its proprietary technology and provide a holistic view of their KiwiSaver products. The additional services to BNZ also include flexible reporting capabilities and options to leverage MMC’s new digital and insights services.

 

MMC head of its Transformation Management Office, Chris Watson says: “Data migration typically represents a challenge in any large transition project. As we have done a number of these transitions in the past, we rely on well-defined specifications for our data requirements and can leverage bespoke tools that we have built for translating and validating the data for a smooth transition.”

The project also delivered a dashboard solution to visually display data that can be used directly by management. This will save a considerable amount of time as the previous needs for manipulating data were removed.

In parallel to this project, MMC are progressing their efforts to deliver APIs that will provide direct links to the Inland Revenue as well as to support new KiwiSaver default provider arrangements by the end of November.

KiwiSaver funds continue to ride the wave of buoyant stock markets with all funds making positive returns to the quarter ending June 30.

According to the latest Morningstar quarterly KiwiSaver Survey released this week, all multisector KiwiSaver funds made positive returns with average category returns ranging from 1.6% for the conservative category and up to 5.8% for the aggressive category.

Morningstar's Asia-Pacific director of manager research Tim Murphy says total KiwiSaver assets continue to grow and are close to reaching $83 billion.

Murphy says Morningstar agrees with the Financial Markets Authority's recent guidance to KiwiSaver providers on the inappropriateness of marketing shorter-term periods, like 12-month returns, as a means of attracting new prospective investors.

"And as we have repeatedly reiterated every time we publish our quarterly KiwiSaver Survey, 'it is most appropriate to evaluate performance of a KiwiSaver scheme by studying its long-term returns'."

Murphy says worldwide equity markets generally made positive returns over the June quarter, as economies continue to open and recover, vaccine rollouts expand and more people return to the workplace, against this backdrop the MSCI World Index was up 8.0% in NZD.

The US market ended the quarter up 8.6% and almost all sectors made positive gains, led by real estate and technology sectors.

"KiwiSaver funds generally reflected the underlying market conditions experienced over the June quarter with all multisector funds posting positive returns," says Murphy.

"Funds with larger exposures to international growth assets generally outperformed over the three-month period.

"Top performers over the quarter against their peer group includes ANZ Default Conservative 2.3% (Multisector Conservative), OneAnswer Conservative Balanced 3.0% (Multisector Moderate), ASB Positive Impact 4.9% (Multisector Balanced), AMP ANZ Growth 5.9% (Multisector Growth), and Milford Aggressive 7.8% (Multisector Aggressive)."

Over 10 years, the growth category average has given investors an annualised return of 10.5%, followed by Aggressive (10.3%), Balanced (8.7%), Moderate (6.6%), and Conservative (5.9%)

KiwiSaver assets on the Morningstar database sit at more than $82.9 billion as of June 30, up from $76.3 billion on December 31, 2020.

ANZ leads the market share with more than $18.5 billion. ASB is in second position, with a market share of 17.1%.

Westpac holds third spot ahead of Fisher Funds, while AMP sits in fifth.

The six largest KiwiSaver providers account for approximately 74% of assets on the Morningstar database.