KiwiSaver

KiwiSaver provider Generate is encouraging advisers to refer clients who are worried about its recent hack back to its website.

It revealed last week that there had been illegitimate access to its systems. Data about 26,000 members, including their ID documents and passwords, was accessed.

“We know that advisers are fielding questions from clients about this incident, both from affected Generate members and others. We want advisers to know that having taken immediate steps to secure our systems, we are working very hard to assist their clients who were affected,” said chief executive Henry Tongue.

“On Wednesday, as we were sending emails to all our members, letting them know whether or not their personal information was involved, we also contacted all the subscribers to our advisers’ mailing list, alerting them to the incident and recommending ways they could assist their affected clients.”

He said advisers who had clients in the scheme should ask them to log into their Generate account so they could see what information was involved.

They should also go to the website for steps to take to prevent harm.

"Advisers can also assure their clients that this incident affected our online application system information solely, and not our members’ KiwiSaver or other investment accounts, or the investments themselves, which are held in a completely separate system.

"As an organisation we take the protection of our members’ data very seriously. Unfortunately, as advisers will know, malicious attacks of this nature are becoming more common both in New Zealand and globally, so constant vigilance is required, which is why we are taking longer term steps to further strengthen the security of our systems. This is a key priority for us alongside continuing to perform strongly as an investment manager to deliver results for our members.”

Lifestages funds are a better option for savers than default KiwiSaver funds, but they’re not all created equal, new research from MyFiduciary suggests.

The research was commissioned by NZ Funds and reviewed the lifestages options available in New Zealand.

Nine out of 22 KiwiSaver managers offer a lifestages option. These reduce the level of risk an investor is exposed to over time.

David Rae, an investment consultant and principal at MyFiduciary said the research found that the average fund was too conservative overall and started de-risking too early.

There are two main approaches to lifestages investment – one makes small regular changes to asset allocation while the other undertakes less frequent but bigger steps. AMP, ANZ, Generate and Lifestages opt for the latter.

Bigger steps could be a problem if rebalancing coincided with a bad time for the equity market. Rae said a smoother approach was much better.

But he said in general any lifestages approach was better than a single setting for an investor’s overall outcome.

“The right investment allocation for a 25 year old is very different o a 65 year old … you’ve either got to be pretty active through your investing life to make sure you are getting the right setting … or you do it automatically through a lifestages approach.”

The Government has proposed requiring default KiwiSaver funds to take a lifestages approach.

Rae said this would be an improvement.

People were more likely to choose a lifestages option than to opt for a high-risk investment fund if presented with a menu of options, he said, and default funds would never be set at the 80% growth allocation that would best suit many young investors.

But they could be delivered those results through a lifestages fund.

Early de-risking remained a problem, though.

The research showed that ANZ had people in zero growth assets at 65, despite potentially having another 30 years to live.

Some started to dial down risk when investors were in their 40s, Rae said.

“In terms of total accumulation of wealth through the life cycle that’s early in dollar terms.”

MyFiduciary modelled a person who starts saving at age 25, has an income of $75,000 that grows through time, and saves 4% of their income (plus a 3% employer contribution).

The average of all balances at 65 was $426,000.

Savers who chose NZ Funds, Fisher Funds or SuperLife achieved a higher level of expected wealth at retirement after fees. 

KiwiSaver providers can expect pressure to show what value they're giving members, after an analysis prepared for the Financial Markets Authority showed they charge higher fees than comparable British funds.

The report, produced by actuaries MJW, was included with this year's KiwiSaver report.

It showed that New Zealand fees were higher than those of the UK across all fund types except the most conservative active funds.

KiwiSaver members were paying FUM-weighted average fees for active funds of 1.14% compared to 0.4% in Britain.

Passive funds sat at 0.67% and 0.29%, respectively.

Year-on-year the average fee charged to members increased 13%, to $132.26.

The FMA said, despite its expectation that there would be competitive pressure on fees, they had moved very little over the year to the end of March.

"We will be asking KiwiSaver providers to demonstrate how they are providing value for money for their members, which includes explaining their investment style and how higher fees are justified for services such as active fund management or responsible investment funds."

Director of regulation Liam Mason said, had the MJW report come back showing that New Zealand fees were cheaper than Britain's, the FMA might have decided to reduce the pressure with which it focused on fees.

"It hasn't said that."

He said providers' claims that fees had to be looked at in conjunction with services offered was valid.

The report has already prompted change – Westpac announced it would cut its monthly administration fee from $2.25 to $1 and reduce the management fee on its cash, default, conservative, moderate, balanced and growth funds by 0.1 percentage points.

Kiwi Wealth cut its fees the day after the period the FMA included in its report.

Richard Klipin, chief executive of the Financial Services Council, said there was a clear message in the report about fees.

"Fees are a work in progress but there is already considerable work going on across the industry to reduce fees and to deliver a greater range of fee structures and other product innovations to Kiwis.

“With the growth of the KiwiSaver market there is now real competition for consumers to choose from to ensure that they are getting value for money and that they are paying fees which reflect their needs."

The report showed that there was $1.04 billion in withdrawals by people aged over 65 in the year, and 23,000 of those people left the scheme,

He said that was a key area in which advisers could help.

Making their KiwiSaver savings last through retirement was a complex proposition.

That end of the KiwiSaver journey could be the most important for financial advisers to offer guidance in, he said.

Mason said it was positive that six out of the nine KiwiSaver default providers reported an increase in the percentage of members who had made an active choice on their investments.

“This has been a key focus for us over the past few years so it is great to see more than 52,000 default members made an active decision about their investment over the past year – up significantly from just over 28,000 in the prior year.”

 

 

KiwiSaver providers are raising questions about a series of prescribed assumptions they will have to use to show clients' KiwiSaver balance projections – including that defensive funds will lose money in real terms each year.

The Financial Markets Conduct Amendment Regulations 2019 require annual statements sent to KiwiSaver members from next year to include a total retirement savings and retirement income projection.

The Government says using the projections will help people to understand how their current contributions and investment decisions will affect their retirement savings over time.

Requiring standard assumptions would ensure investors were "comparing apples with apples", it said.

The Financial Markets Authority has since told providers that they will need to use those prescribed assumptions in their online KiwiSaver calculators, too.

But not all providers are convinced.

Murray Harris, head of wealth management at Milford, said no one in the industry had expected calculators to be captured by the requirement.

"There are so many different calculators out there and all calculators use different assumptions."

He said he could see some value in industry standardisation but there should also be the option to provide other calculators to clients who wanted to look at different aspects of the scheme.

Among the assumptions that providers will have to use is that inflation will run at 2% a year but defensive funds will only return 1.5%.

That means, in real terms, they lose money each year.

Harris said that would be a "difficult conversation to have" for providers of defensive funds.

The assumptions also apply the same expectations to a balanced fund with 30% growth assets as to one with 70%.

The MJW assumption looked conservative across all fund types, Harris said, and also assumed that investors would go to a conservative portfolio at 65, which was not always the case.

“Homogenisation is great in theory but in practice we need to make sure we can have valuable conversations with members where we can guide people through different scenarios.”

Other providers said they were having productive discussions with the FMA about the best way forward.

One, who did not want to be identified, said there should be a way to achieve the results that the regulators wanted without getting to standardisation at fund level.