KiwiSaver

Eight KiwiSaver experts discuss how the scheme performed during the Covid downturn and discuss what needs to change.

Women are 10% more likely than men to switch KiwiSaver providers if their funds are invested in industries they do not support, a new survey shows.

The research from Mercer found that nearly 75% of members said access to responsible investment was an important feature of the scheme.

“Investment performance is top of mind for investors across the market, however we found that a growing number of members also want their money invested responsibly and in line with their personal value. Women in particular are more likely to rate access to RI options as one of their top five important features when compared to men” said Sarah Whitelock, consumer wealth leader, Mercer New Zealand.

“Across the board we see women express significantly higher levels of concern about where their funds are invested than men. So much so that women are more likely to switch KiwiSaver providers if their funds are invested in industries they do not support, suggesting investments need to align with their beliefs. Further to that, just over one in five (22%) women are more likely to disagree that their KiwiSaver provider offers a sufficient number of RI options, which tells us there is an opportunity for providers to more clearly demonstrate and communicate their commitment to RI.”

She said the research showed that funds that were invested in a way that targeted responsible or sustainable outcomes did not come at the cost of performance.

Mercer found that KiwiSaver members were most frequently concerned about investments in weapons, pornography, gambling and tobacco. Women were 16% more concerned than men about where their funds were invested, on average. One in five women said their KiwiSaver provider did not offer a sufficient number of responsible investment options.

Women rated communication material as the most important feature of a KiwiSaver scheme, followed by investment performance, while men rated investment performance first, followed by fees.

New Zealand may not need KiwiSaver default schemes at all, one adviser says.

The Government is working through the process of appointing default providers for the next term.

There are nine default KiwiSaver providers, and their terms of appointment expire on June 30. About 715,000 people are in default funds and more than half have not made the choice to be there.

Being a default scheme is understood to give providers a reputational boost, but it comes with increased scrutiny and regulatory restrictions, particularly on the fees that can be charged.

But Clive Fernandes, an AFA who specialises in digital advice, said the idea of default schemes had passed its use-by date.

He said the review of default provider settings ahead of the appointment process had focused on the wrong thing.

“The KiwiSaver default scheme concept was required when three million Kiwis needed to be onboarded as KiwiSaver members in a short period of time,” he said.

“However, the situation has now changed significantly. Now that most Kiwis are already signed up to KiwiSaver and new signup numbers each year are lower, the 'default scheme' idea is no longer required.

“Instead, people should be given access to personalised advice right as they are signing up. We should be encouraging new entrants to make an active choice to best set them up for their future and specific goals. This would help to solve a lot of issues and would be in the best interests of members vs providers,” he said.

Treasury wanted a reallocation of KiwiSaver default members so that each default scheme had a similar number of members, a regulatory impact statement shows.

The Government is working through tappointing KiwiSaver default providers for the next term, which starts next year, through a tender process.

At the moment, there are just under 690,000 people in default funds and almost 400,000 of those have not made an active choice to be there. There are nine providers of default schemes – AMP has the bulk of the market, at 22.38%, followed by ANZ.

The Ministry of Business, Innovation and Employment and Treasury said in the regulatory impact statement that providers of default funds had many benefits – there was a steady stream of customers and they had a reputational benefit.

“Some providers have told us that the reputational benefits of being a default provider alone would incentivise them to tender competitively.”

But they said a potential outcome of the current procurement process was that one or more of the default providers might not be reappointed as a default, and that would create questions as to what should happen to their members who had not made an active choice to be there.

The KiwiSaver Act allows regulations to be made to provide for default members of a scheme to be reallocated and transferred at the expiry of the providers' instrument of appointment.

If members were to remain with the scheme they defaulted into they would lose the protections of the default scheme, such as limits on fees, the paper said. There would also be insufficient incentives for new providers to tender or tender competitively because the rate of new default sign-ups had slowed significantly.

There would also be insufficient incentive for schemes to engage with default, non-active members.

“If they do not face any risk that default members would be transferred away at the end of their appointment they may have reduced incentives to incur the expense of attempting to engage with members.”

Treasury preferred the idea of transferring members from default providers with more members, as well as those not reappointed, to providers with fewer.

But MBIE backed the option proposed by Government of reassigning the non-active members of a provider that was not reappointed. This would reduce the disruption in the market and the risk of people losing trust in the scheme, the paper said.

The paper noted that a large transfer of members could have an effect on the financial markets.

“When a member is transferred their investments are liquidated and the accumulated funds and data are transferred to the new scheme. During this time, the value of the KiwiSaver fund is taken of the market, transferred to the new provider and then reinvested into the market.

“Subsequently, providers with incoming members will be obligated to invest these funds. There is a risk that if these investment all occur at the same tine the increased demand for investment vehicles could serve to drive up market prices.”

That could be mitigated by staggering transfers, the paper said.