KiwiSaver

New Zealanders’ KiwiSaver savings would do more for the country if they were used in private equity deals, fund managers say.

Finance Minister Grant Robertson, speaking at Russell Investments’ annual conference, said New Zealand needed to do better at keeping KiwiSaver  money in New Zealand.

He said central and local government could help by packaging up projects such as infrastructure development so fund managers could get the yield they need. Work was under way in that area, he said.

John Berry, of Pathfinder Asset Management, said he would not support moves to push fund managers to invest their money in any particular location.

“That’s the fund manager’s call – they’re acting in the best interests of their clients. They need to assess the risk and return relative to that. You can’t just politically mandate a certain percentage to be held in New Zealand.”

But he said there was merit to the idea of more private equity investment.

“The money that is invested in New Zealand should be accessible to small-to-medium businesses and high-growth companies.”

Some KiwiSaver managers are already doing this – Booster and Milford are two. Booster last year took stakes in two wineries through its Booster Tahi fund.

It was a way to help members’ returns and support New Zealand business, chief investment officer David Beattie said.  About 5% of Booster’s KiwiSaver funds on average would go to direct investments but that would increase over time.

“We think KiwiSaver does lend itself to being able to support unlisted businesses in New Zealand.”

KiwiSaver was a long-term investment vehicle so Booster could use that certainty to allocate funds to less-liquid direct investments with a reasonable degree of confidence.

But he said it would not be able to put a lot in to private deals because the scheme allowed members to change at will and there was the requirement for daily unit pricing.

“The concept is one that is a natural benefit that KiwiSaver money should be able to be used to support New Zealand.”

It was a more expensive approach, too.

Beattie said there was a lot of talk about the growing size of KiwiSaver putting pressure on fees but he said instead of automatically defaulting to the need for those fees to drop, the market could consider what more could be done.

The newest player in the KiwiSaver market is due to launch its offering in two weeks’ time.

Nikko Asset Management will enter the market with an offering using eight of its funds.

While it may seem late in the piece to be joining KiwiSaver, managing director George Carter says a window of opportunity has been opened now that roboadvice can be used. The FMA is currently accepting exemptions from providers who want to make use of its exemption to allow roboadvice, before the introduction of the Financial Services Legislation Amendment Bill makes it legal.

“We want to be in the first wave,” he says.

Nikko plans to have its robo tools available for KiwiSaver members in July.

Members will be able to use digital advice tools to select funds and portfolios and to work out how much they need to save to reach their savings targets.

Carter says this rounds out Nikko’s offering and is complimentary to its financial advice distribution strategy. He says it won’t “cannabalise or compete with advisers”.

Nikko can’t give advice if a member asks. “It will help advisers to sell what their edge is.”

The third leg of Nikko’s distribution is with institutional investors.

As part of its launch Nikko is planning to waive management fees on its funds until March 2019.

However there will be a $30 annual membership fee.

Nikko is offering four balanced funds, plus four sector funds: NZ Core Equities, Enhanced Cash, Global Shares and its Options fund.

Fellow provider, Booster, which is a default provider, has been offering the Options fund to its members, but earlier this month withdrew it from its platform.

It is likely to be a competitive strategy to prevent the loss of members to Nikko.

Carter admits Nikko is not a well-known brand in the market. However, he believes its digital strategy, fee offer and strong fund performance will make a compelling proposition for potential KiwiSaver members.

He expects members will come from other providers as well as people who are not yet KiwiSaver members.

Carter says Nikko has strong support from its parent company to back its entry to the KiwiSaver market.

One fund manger is calling for tax breaks to boost New Zealand’s savings rate.

Milford Asset Management chief executive Troy Swann said savings was a politically sensitive issue. He said New Zealand’s household savings rate had been negative for the past several years, compared to a rate of 4.6% in Australia.

“As a matter of urgency, New Zealand needs to lift its savings rate. Before he became Finance Minister, Grant Robertson said he wanted to see KiwiSaver minimum contribution rates lifted from 3% to 4.%. The problem here is that many Kiwis are already very stretched financially and cannot afford to contribute more.

“A more effective way to encourage people to save more, Milford considers, would be to incentivise them to do it. For example, allowing people to make tax-deductible contributions, capped at a certain amount each year, to their KiwiSaver account. Whilst still allowing them to contribute over and above the annual cap on a non-tax-deductible basis.

“Currently the median New Zealander is earning about $49,000 p.a. yet anyone earning over $35,000 p.a. has no tax incentive to save more than 3% to their KiwiSaver account. Australia, the US, the UK and Canada all have stronger forms of tax incentives to encourage extra retirement savings – and all these countries have higher savings rates than New Zealand.”

He pointed to Australia’s tax system, where there are higher individual tax rates but the tax on super earnings is only 15%.

He said it was something that should be considered by the tax working group, chaired by Sir Michael Cullen, which is currently receiving submissions from people on the future of New Zealand’s tax system.

“What we’re effectively trying to do is encourage people to defer their current consumption for something that it will take them a long time to realise the benefit of. Tax incentives that tilt the benefit towards savings are something that need to be considered.”

Milford also wanted to see a move towards lifestages-style funds as default options and for a Government-sponsored study to be run of individual savings patterns and retirement requirements.

“Having a conservative fund as the KiwiSaver default fund is akin to giving our community poor investment advice,” Swann said.

“And in this case the poor advice is coming from the Government and it’s costing Kiwis hundreds of thousands of dollars in their retirements. A decade on from the start of KiwiSaver, it seems to have proved too hard for default providers to move their clients into growth funds. Clearly, action is now called for from the Government.

“If we take Australia as our yardstick, their Superannuation money is roughly 65% invested in equities. Which means not only are Australians getting wealthier through higher savings, they are also investing their savings in a much smarter way for maximum retirement gains.”

Small reductions to KiwiSaver fund managers’ fees are nothing to be celebrated, an adviser says.

A review of KiwiSaver default providers’ fees was met with little action from the industry.

Only two of nine providers moved their fee in response – ANZ and Kiwi Wealth. ANZ dropped its fee by just two basis points and Kiwi Wealth by five.

Commerce and Consumer Affairs Minister Kris Faafoi said the review was not primarily aimed at reducing fees, although the changes would mean $1 million in fee savings for members over the rest of the default providers’ terms.

“But I have been very clear that we want to see strong competition between KiwiSaver providers and fees going down. The cumulative effect of fees and returns can make a big difference to how effective the funds are at providing for people’s retirement.”

Adviser Brent Sheather said more action was needed.

“If I was in the favourable position of being a default provider I would be offering to reduce fees further and talking to my competitors off-the-record to see if we all sing from the same songbook…probably illegal under anti-competitive laws but do we think the fact that everyone has similar fees is a coincidence?

“I don’t think there is anything to be celebrated in the small reductions made.”

The Financial Markets Authority updated its KiwiSaver tracker tool for the December quarter. It shows fees as a proportion of returns.

Growth funds were some of the poorer performers in the three months – Booster’s geared growth fund had 15% of its returns taken in fees – a figure that rose to 16.6% of its trans-Tasman share fund’s returns. Fisher Funds Two Equity scheme’s fees were equal to 9.3% of returns and the Lifestages Growth Portfolio fund’s fees were 21.4% of returns.

Sheather said the tool understated fees because it did not include trading costs.

The process for the next appointment of default KiwiSaver providers will start in 2019, and Faafoi said fees would be a significant factor in the tendering and appointment process.