KiwiSaver

Michael Cullen chairing the new government’s tax working group could be a boon to the KiwiSaver industry, it has been predicted.

Cullen, the architect of the retirement savings scheme, will head up the group which will have  “wide mandate” to look at New Zealand’s whole tax system. It has specifically been tasked with looking at GST and potential measures to slow growth in house prices.

But KiwiSaver providers said the scheme could get some attention, too. Changes to the tax regime could make the scheme significantly more appealing, for example, if deductions were exempt from tax or other concessions were put in place.

In Australia, deductions made before tax are taxed at a rate of 15 per cent. Deductions made from after-tax income are not taxed.

There has previously been criticism that long-term New Zealand savers in managed funds are at a tax disadvantage.

The FSC put out a report in 2013 that said: “No other country has out combination of comprehensive taxation on the return on debt instruments as they accrue, no superannuation tax concessions, no tax on capital gains on rental properties, and the unconstrained deductibility of the nominal value of interest against other income on debt used to purchase rental property.”

A decision around the KiwiSaver scheme was withheld from one of the briefings to incoming ministers made public last week.

A description of the decision, in a document for Commerce and Consumer Affairs Minister Kris Faafoi, was withheld under the Official Information Act. It was reported that, according to the State Services Commission the rule is applied where there is concern that the release of the draft advice would interfere with the ability of a decision-maker to consider the advice tendered.

Sources speculated that could be related to KiwiSaver coming under the remit of the working group – although most providers spoken to said they were in the dark, as well.

Finance Minister Grant Robertson has already indicated that Labour wants to increase the minimum regular KiwiSaver contribution rate from 3% to 4.5%, and make the scheme universal – although there would still be significant exclusions, including for students, beneficiaries and self-employed people.

Nikko Asset Management is to launch a KiwiSaver fund offered via roboadvice.

The fund manager is set to offer the scheme to the market next year.

The fund manager has a strong institutional backing in New Zealand but has been working on growing its reach in the financial adviser community.

It is also planning to apply for an exemption to enable it to offer roboadvice and the new KiwiSaver scheme will tie into that.

Clients may also be able to access the manager’s other funds through the same robo platform.

It has 11 retail products and 16 wholesale funds at present.

Investment documents for the new KiwiSaver scheme are expected to be lodged in the early part of 2018. Clients have been given advance notice of the move.

Nikko made a submission earlier this year on the Financial Markets Authority’s proposed exemption to allow roboadvice ahead of the implementation of the Financial Services Legislation Amendment Bill.

In it, it said there were too few advisers to provide advice to all consumers.

The cost of tailored advice was too high for those with low asset balances. Some people did not know how to seek advice or wanted to remain anonymous while they looked for solutions.

“Roboadvice is not something which replaces the human adviser but provides a complementary service that meets needs that may otherwise be left unmet,” the submission said.

Low-cost KiwiSaver provider Simplicity is making changes that affect advisers.

Founder Sam Stubbs said “quite a few” members were now coming through advisers.

It has put its funds on to the FNZ platform and is working through the process of placing them with Aegis. Simplicity offers both KiwiSaver and non-KiwiSaver passive funds and has almost $300 million under management.

He said that would make it possible for preapproved fee-based advisers to access the funds. “We previously haven’t offered funds on any platforms. This is a shift for us but it has to be linked to the provision of advice.”

It is also developing a portal to give advisers access to their clients’ KiwiSaver accounts so that they are able to track their progress and use it in their planning conversations.

Details of vetted fee-based advisers would also be made available to Simplicity clients who decided they wanted advice. Those advisers will receive no kickbacks from Simplicity and will not be charged for referrals to them. Fewer than 50 are expected to be listed.

Stubbs said he expected demand for advice to increase and Simplicity was keen to facilitate that with fee-based advisers.

Advisers should get in touch if they wanted their details offered to Simplicity clients, he said. “We’re hoping over time a whole bunch of clients proactively approach them for advice. We’re interested in playing our part so people get they advice they want, when they want and from whom they want.”

Stubbs said he would not deal with anyone seeking commission. “I believe everyone, including advisers, is loyal to the person who pays them. When you get commission, that’s the product provider.”

KiwiSaver members shrugged off the only real downturn they have experienced because government incentives covered up its impact – but next time will not be so easy, new analysis suggests.

The superannuation savings scheme has attracted many more members than was anticipated when it launched – it now has more than 2.7 million members and $40 billion under management.

But Ben Trollip, an actuary at MJW, said the government had been lucky with its timing. The markets had been on KiwiSaver’s side through almost all of its existence.

The scheme was launched ten years ago, just before the global financial crisis hit.

But once markets recovered, they entered a bull run that has lasted ever since.

Trollip said the impact of the GFC on KiwiSaver members had been limited because it happened at a time when balances were low, and returns were being boosted by government incentives such as tax credits and the $1000 kickstart.

“You wouldn’t want a bad period of returns at any time. But if you have to have one GFC and then a fantastic bull market, in a situation where your balance is increasing over time you’d prefer the order is bust then boom as opposed to the opposite.”

MJW’s research showed that at the lowest point, New Zealand and global shares lost about 50% of their value.

But members were largely unaffected because balances were so low.

The next crisis, even if it is not quite as big as the GFC, could have a larger impact in dollar terms because they now have more funds at risk.

Trollip said he was worried that members might not know what to do. The government incentives are no longer such as significant part of members’ balances, so the impact will be more noticeable.

“Certainly at some point there will be another crisis. When that occurs, people need to take the emotion out of the decision. It’s easy to make the decisions that feel good. Often the best long-term decision is to do something that feels the exact opposite.”

Trollip said there was a risk that people had been taking more risk than they should because markets had been so strong. “At the moment the markets have been going so well and everyone is so happy to take plenty of risk and they feel they’ve been very smart to do so. But there’s good reason not to over-extend. Don’t be tempted to increase risk to take high returns because of recent results.”

He said MJW’s latest update showed a wider range of returns from managers in NZ shares than would normally be the case. Trollip said that was due to the big rise in value of A2 milk. Those that had been underweight to the stock looked to have performed more poorly.