KiwiSaver

A strong quarter for share markets has helped KiwiSaver funds back into positive territory.

Morningstar’s latest KiwiSaver survey shows all the funds on its database turn in a positive result for the March quarter, after almost uniformly losing money the previous three months.

Over the March quarter the S&P/NZX 50 Index was up 11.7%, erasing the previous quarter’s loss of -5.8%.

Australian shares gained 10.9% over the quarter and 12.1% over the year.

The Australian market was led by the IT sector, the miners, and consumer discretionary stocks.

Morningstar said international equities had enjoyed a remarkably strong rally for the quarter.

The MSCI World Index was up 11%.

Morningstar said the returns of KiwiSaver funds generally reflected the underlying market conditions.

All surveyed KiwiSaver funds made positive returns.

Average multisector category returns ranged from 10.1% for the aggressive category to 3.6% for the conservative category.

Top performers over the quarter against their peer group included Simplicity's conservative fund at 4.6%, AMP Income Generator at 6.9%, Summer Investment Selection at 7.8%, ANZ Default Growth at 11% and Booster Geared Growth at 14.3%.

Annual returns for multisector options ranged from 11.7% down to 0.8%.

Over 10 years, the growth category average had given investors a double-digit annualised return of 10.9%, followed by aggressive (9.6%), balanced (9%), moderate (7.2%), and conservative (6.6%).

ANZ still has the largest KiwiSaver share, with $13.4 billion of the total $54.6b under management.

“A strong rebound in markets over the first quarter saw KiwiSaver balances bounce back, with every surveyed KiwiSaver fund making positive returns”, said Tim Murphy, Morningstar’s director of manager research, Asia-Pacific.

“The last six months have highlighted the importance of KiwiSaver investors taking a long term approach and not reacting to short term market movements.”

KiwiSaver fund performance has rebounded in the first few months of 2019, more than recovering last year’s losses after a volatile quarter in the markets saw many member balances dip.

In the first three months of 2019, ASB’s growth fund performance was 9.11% after tax and fees, significantly higher than the -8.14% seen in the previous quarter in the same fund.

The S&P/NZX50 was up 11.7% over the same period, Australian shares 10.9% and the MSCI World Index 11%.

Morningstar said all the KiwiSaver funds it surveyed had positive results in the quarter.

ASB head of KiwiSaver Aidan Vince said the bounce back was a reminder of the long-term nature of the savings vehicle.

“We always encourage our members to make a plan for their KiwiSaver and then stick to it. There are always going to be ups and downs so having a fund aligned to your plans mitigates this. 2018 was a volatile year for local and global sharemarkets, particularly in the fourth quarter, which did impact KiwiSaver balances. While we understand this can be uncomfortable for members, it’s important to get a plan and stick to it – we’ve seen the benefits of that over the last three months,”he said.

“This volatility has also been seen in more conservative funds although to a lesser degree. But our message to members is the same – get in a fund that aligns with your investment plan. People looking to use their KiwiSaver in the next few years should have less invested in shares than those investors with a longer time frame. It has been pleasing for us to be able to help our investors continue to focus on plans that help them achieve their long term goals."

Understanding the value of regular contributions to KiwiSaver was also important, especially in times of volatility.

“When you invest in a KiwiSaver fund, the price for the units you buy will vary day-by-day. But all of the units you own are worth the same when you see them totaled up as your KiwiSaver balance. In periods like the end of last year, you could buy units at a lower price than you could have the month before. It’s the time to think your retirement is ‘on sale’.”

Morningstar's top performers:

Simplicity Conservative 4.6% (Multisector Conservative),
AMP Income Generator 6.9% (Multisector Moderate),
Summer Investment Selection 7.8% (Multisector Balanced),
ANZ Default Growth 11.0% (Multisector Growth), and
Booster Geared Growth 14.3% (Multisector Aggressive).

New Zealand's financial services sector needs more action and less talk to help Kiwis get the best outcomes from their investments, one financial adviser says.

Authorised financial adviser John Cliffe spoke at the Retirement Policy and Research Centre and Public Policy Institute forum last week.

He said a lack of regulatory action had left many people on track to have less in their KiwiSaver accounts than they should at retirement.

Cliffe headed a group of AFAs who wrote an open letter to Financial Markets Authority chief executive Rob Everett, Finance Minister Grant Robertson, Reserve Bank Governor Adrian Orr and Commerce Minister Kris Faafoi highlighting problems with the KiwiSaver scheme.

He told the forum that the FMA had for too long taken too little action to ensure that default KiwiSaver providers were engaging with those who were automatically enrolled in their funds.

Too many people were stuck in funds that were too conservative for their investment goals.

“Ask yourself how and why did this happen? Conflicted interests. Term deposits for example make up more than 30% of most of the default funds.”

He pointed to data showing small numbers of people making active choices about their default fund investments.

He said the FMA could have done something about that earlier.

“I live in a world of action. So why didn’t the FMA just make some calls? Did the FMA have the power? Yes, they certainly did.”

Cliffe said all but the top three default providers should be stripped of their default status.

He said there was also a major and ignored issue of over-taxation.

Someone who should be on the 17.5% tax rate but was mistakenly on the top rate of 28% would end up overtaxed $109 this year and more next year. Someone who should be on 10.5% would end up paying an extra $181 this year.

Cliffe said it was too hard for members to have their correct tax rates loaded at present. "So not only are all default members automatically taxed at 28% so are all auto enrolled members."

He said, if the nine default KiwiSaver funds could not be properly managed by the FMA, it was questionable how it would cope with hundreds of financial advice providers.

Cliffe said financial education was needed.

“That’s the biggest thing we can do: teach our kids to be cynics [as well being financially literate]."

KiwiSaver provider Summer has launched two new funds to complement its Summer Investment Selection and My Plan offers.

Summer Investment Committee chair Martin Hawes said the new funds would be known as the Summer Conservative Selection and the Summer Growth Selection. The Summer Investment Selection has also been renamed the Summer Balanced Selection.

“The new funds will provide a broader range of Summer KiwiSaver scheme multi asset class options, at different risk levels, for those who prefer to leave the investment selection to us rather than choose their own combination through My Plan,” Hawes said.

The Summer Conservative Selection will include more cash and fixed interest investments with fewer equity and property investments. Members can expect a fund with low to moderate levels of movement up and down in value. The Summer Growth Selection will focus on more equity and property investments, members can expect moderate to high levels of movement up and down in value and to receive longer-term returns that are higher than those of the Summer Balanced Selection.

Summer offers members the opportunity to design their own customised KiwiSaver accounts, known as My Plan. Alternatively, they can choose the Summer Conservative, Balanced or Growth Selection which are funds made up of a mix of cash, fixed interest, equity and property investment. The Summer Investment Committee provides a general investment view to support asset allocation decisions.

“We have members who are active with their KiwiSaver accounts through My Plan but we also have members who just leave it to us. Either way, we encourage members to take charge of their KiwiSaver accounts and to make sure that they are making the most of their money”, Hawes said.