KiwiSaver

Financial advisers are stepping in while the Government 'does nothing' to ensure KiwiSaver works for New Zealanders, one market commentator says.

The recent Morningstar KiwiSaver report showed some of the schemes that deal most commonly with financial advisers were lagging behind industry average returns.

In the year to December, default KiwiSaver funds returned an average 1.5%, conservative 1.3%,  and moderate funds 0.4%. Balanced funds were down an average 1.3%, growth down 2.1% on average and aggressive down 4.1% on average.

OneAnswer funds struggled to meet that return – the conservative fund was up only 0.5% in the year, conservative balanced down 0.7%, balanced down 1.9% growth fund down 4.4%.

AMP’s LS aggressive fund was down 4.2% for the year.  NZ Funds’ growth fund was down 8.3% and Booster’s geared growth fund was down 5.9%.

Chris Douglas, principal at MyFiduciary, said even if adviser-distributed funds were not topping the tables, their clients should end up better off.

“Look at the where the money is invested for the adviser-distributed options and there tends to be a great allocation in balanced- and growth-oriented KiwiSaver schemes, where a large portion of those who are not using an adviser are in the default options earning a very meagre return. As a result, the average investor who has used an adviser would have done materially better than the average investor who hasn't,” he said.

The risk profile of their KiwiSaver was one of the most important decisions an investor could make, he said.

“Advisers have tended to place their clients in the higher risk options which have performed materially better than those in conservative options, as they should over the long-term.

“I think that many advisers are playing an important role in KiwiSaver. As a result of the poorly structured default process, many investors are far too conservatively invested – especially those with 15-20 years till retirement. They are really missing out and should be invested into a balanced or growth scheme, which is where they will get the best potential returns from. So, you could also say that advisers appear to be doing a very important job by ensuring that clients are appropriately, given the government is doing nothing. “

About 60% of all KiwiSaver funds tracked by Morningstar ended 2018 in the red.

It has released its latest KiwiSaver survey, showing sharemarket volatility hurt fund managers.

Returns for the calendar year ranged from 3.60% down to a loss of 6.77%. The conservative category recorded an average return of 1.3% for the year, followed by moderate funds at 0.4%, balanced with an average  loss of 1.3%, growth an average loss of 2.1% and aggressive an average loss of 4.1%.

The top performers over the quarter included FANZ Lifestages KiwiSaver Income, Fisher Two KiwiSaver Scheme and Aon KiwiSaver Russell Lifepoints.

Milford KiwiSaver Active Growth Fund topped the performance across all multisector categories over 10 years.

This approach was originally launched as a domestic-equity capability but has become more diversified as it has grown with offshore exposure and investments across asset classes. Performance has stacked up favourably against peers, with returns comfortably ahead of the category average.

"Despite a difficult year for many other equity markets New Zealand shares delivered a positive return of 4.9% and was one of the best performing developed economy equity markets last year," the report said.

"Australian shares fell 8.2% over the quarter and 2.8% over the year. The Achilles heel of the Australian market was the large financial sector, which dropped by 14.8% in the wake of highly damaging findings by the Royal Commission. There were patches of positive performance: the defensive consumer staples stocks performed reasonably well as did IT shares, and the miners were also ahead for the year.

"But the dead weight of the struggling financials, plus losses for the industrials and consumer discretionary stocks were the dominant influence. For New Zealand investors, the losses in Australian dollar terms were compounded by the appreciation of the New Zealand dollar against the Australian dollar."

Booster has snapped up the former Mahana Estates winery site, and announced the formation of the Booster Wine Group.

The high-profile Nelson winery went into receivership as its owner became embroiled in a bitter legal fight with a Las Vegas businessman.

KiwiSaver provider Booster spotted the opportunity to add the site to its other wine investments: Awatere River, Waimea Estates, Bannock Brae and Sileni Estates.

The fund manager said the purchase, and formation of Booster Wine Group, would create a new investment opportunity for members.

“Most New Zealand wineries, as small independent businesses, have always been challenged by scale.  The Booster Wine Group allows our wineries to focus on what they do best – produce world-class wine, while still remaining Kiwi owned and operated,” said managing director Allan Yeo.

“The wine industry is one of New Zealand’s most successful exports.  We’re pleased to be keeping a piece of it in local ownership and giving everyday Kiwi investors the chance to share in its success.”

He said only a fraction of KiwiSaver money was being invested in New Zealand businesses at present.

Booster has several other investments in its pipeline which are expected to be finalised and announced this year.

“Booster Tahi helps invest Kiwi savings back into successful New Zealand businesses to help fulfil their growth potential and to keep them Kiwi owned.  While our initial focus has been on horticulture investments in wine, kiwifruit and avocados, we see exciting opportunities in other areas as Tahi grows,” Yeo said.

Government is exploring its options to allow people with life-shortening conditions to access their KiwiSaver money earlier.

Two independent advisers, Claire Matthews from Massey University, and the IHC's Donna Mitchell, will help Commerce and Consumer Affairs Minister Kris Faafoi find the best solution.

Faafoi met with Down syndrome man Tim Fairhall earlier this year, who drew attention to the issue of people in situations like his.

People with Down syndrome have a shorter life expectancy and Fairhall said he wanted to be able to use his KiwiSaver money to travel overseas.

“KiwiSaver helps New Zealanders enjoy the best retirement they can,” Faafoi said.

“Part of the success of KiwiSaver as a retirement savings scheme is because funds are not available until the age of 65, so the savings grow and help people considerably towards a financially secure retirement.

“However, it’s important KiwiSaver works for all New Zealanders. Tim has Down Syndrome and is aging prematurely. He hopes to retire in his mid-40s and access his savings – but at the moment, he can’t.

“I think it’s fair and just that New Zealanders who have been paying into KiwiSaver throughout their working life should expect to one day enjoy the benefits of their savings in their retirement – be that at 45 or 65.”

At present, savers can only access their money for a first home or in serious of sever financial hardship.

”I think we have to acknowledge that the one-size fits all retirement age does not work for this group faced with life-shortening conditions – so we are going to fix that,” Faafoi said.

“Dr Matthews and Ms Mitchell have been tasked with looking into how special circumstances could cater for people like Tim, enabling them to withdraw their money at the point at which they choose to retire.

“The two advisers will consult with people who are faced with this issue, with medical practitioners and KiwiSaver experts, before reporting back to me in early 2019.

“It is a technically complex area so I can’t promise a quick fix for Tim personally but I am going to move this forward because this Government is committed to ensuring its policies work for all New Zealanders.

“Everyone deserves the right to use the money they have saved for their retirement.”

Advice is expected back to the Minister by the end of February. Changes to the KiwiSaver withdrawal criteria would require legislation.