KiwiSaver

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.

KiwiSaver investors still lack the knowledge required to make good choices about the investments, ASB’s latest KiwiSaver survey shows.

ASB senior wealth economist Chris Tennent-Brown said the latest KiwiSaver survey, for the February quarter, showed most were still extremely conservative in their investment preferences, which would could harm their long-term outcomes.

“It’s surprising that a high number of investors regard term deposits as the investment likely to provide the greatest return, with many saying they would like to see term deposits available as an investment choice within KiwiSaver.”

The February 2018 quarter ASB KiwiSaver Survey found 17% of respondents had never reviewed their fund choice, and 19% did not even know which fund their investment was in.

“We strongly encourage KiwiSavers to look at their timeframes and goals when choosing their investment fund.  Unless an investor’s timeframe is very short, we expect some exposure to share markets will enhance their long-run returns,” Tennent-Brown said.

“A reasonable exposure to share markets within a KiwiSaver fund is appropriate for investors with a decade or more until retirement.

“In contrast the default conservative funds typically have a low exposure to share markets, and accordingly, are expected to have lower long-run returns.”

The survey found respondents did not understand how KiwiSaver worked, which created uncertainty, especially through periods of volatility.

“February’s volatility has highlighted the challenges for both investors and product providers,” Tennent-Brown said.

He said the wobbles needed to be seen in the context of long-term performance.

“The fluctuations in the NZX are consistent with dips we have seen over the past decade, but it’s important to factor in the large gains over the past year when considering the February declines.  The lack of volatility and the staggering share market gains of more than 20% over 2017 are more unusual than the early February dip.”

He said there was an information gap between providers, investors and markets which affected KiwiSavers’ confidence when it comes to choosing which fund to invest in.

Share market volatility this week caused little concern for KiwiSaver members – and that could be down to financial advisers doing their job.

Booster chief investment officer David Beattie said his organisation had received just one call after US markets dropped at the beginning of the week.

He said that could be because the Booster model focuses on members receiving personalised financial advice.

In most cases, an adviser would be the investor’s first contact point rather than Booster itself. He Advisers were given information with which they could respond to any worried clients this week, he said. That would give clients more confidence.

Ana-Marie Lockyer, at ANZ, said there had been only a very small increase in calls and switches. “To put that in context, it is double digits out of 700,000 customers.”

“We continue to remind members that volatility is simply part of share markets. At ANZ Investments we remain focused on long term goals rather than short-term ‘noise’. With global economies continuing to perform well, we believe the fundamentals for good share market performance remain in place. We also have good diversification to help manage volatility,” she said.

“Despite current volatility we believe that maintaining good investment disciplines and staying focused on long-term goals is more important than ever.”

She hoped people would seek financial advice if they felt unsure about how to respond.

“We have seen in the past sensible decisions made when advice is sought.  That said we have not seen a lot of our members seek advice this week, and I am not sure we will as members seem to be getting more comfortable with volatility within their KiwiSaver.”

At ASB, general manager of wealth Jonathan Beale said there had been a few calls asking what the market movements meant. “We have put up a  blog and additional comms, which certainly seems to help.”

The Government should think about offering other tax-advantaged investment vehicles if it wants to break New Zealanders’ focus on residential property, says Rebecca Thomas, chief executive of Mint Asset Management.

She said it was currently a hard sell to promote managed funds, when it was KiwiSaver stacked with incentives.

Data from Milford shows that over the scheme’s first 10 years, savers invested $17 billion of their own money but received another $10b in employer contributions, $8b government contributions and $11b of investment returns.

Having another tax-advantaged scheme would encourage saving and boost the local funds management industry, Thomas said.

She pointed to Britain’s PEPs and ISAs, which she said had helped to significantly boost retirement incomes as well as provide people with the means to save for other things, such as a house deposit.

There, savers are allowed to put away income on which tax has already been paid, up to a maximum cap, and pay no tax on its growth.

It would also be a better option than KiwiSaver for those saving for a first house. 

“With KiwiSaver it’s a very mismatched concept, having the ability to withdraw for a house purchase when KiwiSaver is designed to be a locked-in scheme. That should be untouched and just grows over time.

“I spoke to the new minister of commerce about this before Christmas. The success of KiwiSaver paves the way for looking at non-locked in investment scheme,” she said.

“Investment in in non-KiwiSaver managed funds has been helped by the growth of KiwiSaver but there is a long way to go before other financial savings become meaningful. The benefits to investors, though, are the availability of liquid investments they can realise as needed or retained as a more flexible addition to retirement savings.”

Mint recently took over the contract to manage BNZ’s KiwiSaver investments, from Harbour and Devon. That will happen from March. It is Mint’s second KiwiSaver client, after AMP.

Milford Asset Managemtn chief executive Troy Swann said the KiwiSaver scheme’s incentives did attract working-age investors.

“But for many people, saving only 3% of their salary in a KiwiSaver fund likely won’t be enough to fund a comfortable retirement. Therefore, people should also be saving and investing outside of KiwiSaver if they can afford to. For example, at Milford we have KiwiSaver Funds, PIE Investment Funds and our Private Wealth service, and many of our KiwiSaver clients invest their additional savings in our PIE Investment Funds and our Private Wealth service.”