KiwiSaver

New product disclosure statements that were meant to be easier to understand still contain a large number of specialist financial terms, researchers say.

Research by associate professor Aaron Gilbert and Ayesha Scott at AUT Business School Department of Finance has shown, on average, KiwiSaver PDS documents delivered under the new Financial Markets Conduct Act framework are significantly shorter and contain simpler language when compared with the prospectuses and investment statements they replaced.

But even the simplified product disclosure statements require a high level of literacy. People would need to know and understand about 100 finance-related terms.

“On average, simplified disclosure has made these documents easier to understand for our average New Zealander who is thinking about or invested in KiwiSaver,” Scott said.

Gilbert said, given the uncertainty around the future of national superannuation, KiwiSaver would become a major component of people’s financial future.

“Because it is so important and because small decisions made today can have a huge impact 30 or 40 years from now in terms of how much money people have to retire on, it’s really important people are making good decisions when it comes to their KiwiSaver.

“The first step in making those good decisions is to get people actively seeking information.”

Gilbert and Scott compared the last prospectus produced by 21 KiwiSaver providers with their new simplified disclosure documents to provide a before and after snapshot of the effect of the regulation.

A number of measures were used to evaluate the readability of the documents including the complexity of the language used compared to common, everyday plain English words and the number of specialist financial terms included.

The researchers will now ask people to read the documents to work out whether they could get the information they needed from them.

Strategi has launched an NZQA-accredited course for people who want to offer advice on KiwiSaver.

“KiwiSaver is the backbone to many peoples’ retirement and it is essential they have access to quality advice and can make informed decisions about their future finances”, said David Greenslade, managing director of the Strategi Institute.

“Advising on KiwiSaver is a good way for financial advisers to generate additional revenue plus build closer client relationships.”

Greenslade said financial advisers relied on offering class advice, or an information-only service, as a way to provide advice on a KiwiSaver scheme.

But the Financial Advisers Act still requires financial advisers to exercise the care, diligence and skill that a reasonable financial adviser would exercise in the same circumstances.

He said completing the new level 5 course would help all advisers to demonstrate a level of professionalism, care, diligence and skill relating to the provision of KiwiSaver advice.

The course focuses on the key features of KiwiSaver schemes, understanding the KiwiSaver Act 2006, and the basic investment principles advisers need to know in order to provide KiwiSaver advice and/or guidance for their clients.

Fewer than one in four New Zealanders are confident in their knowledge of KiwiSaver, a sign that the industry could do better, one bank economist says.

ASB has released its latest KiwiSaver survey, which showed it was the second most common investment for New Zealanders, behind bank accounts.

But only 24% of respondents felt they were competent in terms of their knowledge of KiwiSaver.

ASB wealth economist Christ Tennent-Brown said that was concerning for the industry.

He said after 10 years of the scheme, there should be some sign that investors’ knowledge was improving.  “It shows there is so much work to do in the advice space and how providers communicate with clients.”

The proportion of people who believed they needed to save more for their retirement fell from 64% in the same time last year to 60%.

“Investors in growth-oriented funds should have seen their balances rise strongly over the last year as growth assets have performed well, and this may be helping those investors feel they are on track for retirement,” Tennent-Brown said.

Better returns were cited most often as the reason people switched KiwiSaver providers, with 29% of switchers changing provider for this reason. Fund performance was the key reason for satisfaction with KiwiSaver overall.

“Performances varied greatly over the last year. The funds with exposure to growth assets tend to have done a lot better than those that are mainly income assets.  Over the past year, growth funds have returned around 10%, whereas the very conservative funds or cash funds have recorded returns in the 1.5% to 4% region,” Tennent-Brown said.

The survey found 30% of respondents strongly disagreed with the proposal to increase the pension age to 67 by 2040.

That compares to only 11% who strongly agreed.

Those who were older were less likely to approve of the move. ASB found 27% of people aged 50-59 strongly disagreed with the proposed change, and only 9% agreed.

In contrast, 16% of respondents aged under 39 strongly disagreed, and 7% strongly agreed.

Kiwi Wealth has developed its own index fund, which it says will allow its KiwiSaver scheme to have more flexibility to generate better returns, improve tax efficiency and address responsible investment concerns.

All of the Kiwi Wealth KiwiSaver Scheme’s funds are now using a new fund designed, built and directed by the in-house investment management division for implementing their global share index allocations.

The solution is an enhanced index fund which implements Kiwi Wealth’s responsible investing policy, which removes indirect investment exposure in controversial weapons, tobacco and whaling industries and embeds responsible investment at the security selection level.

Initially Kiwi Wealth will also implement in full the New Zealand Super Fund’s current exclusion list and will exclude additional companies with poor track records in environmental, social and governance (ESG) indicators.

Kiwi Wealth can add or drop sectors and companies within the index, driven by what members want. Because it is based in New Zealand, it has better tax efficiency.

Simon O’Grady, chief investment officer, said the enhanced index was tailored to meet the changing views of New Zealanders on responsible investing.

“This new fund gives us the best of both worlds. It retains the benefits of a typical index tracker – such as low cost, good liquidity, and broad diversification of investments – with the added benefits of being more tax efficient and providing greater flexibility and control over these investments. 

“Our new fund has been built from the ground up by our investment management team and is tailored for the New Zealand market, with an expectation that the enhanced tracker will outperform passive index funds used by other KiwiSaver providers,” he said.

“In addition, we incorporate responsible investing throughout our process. Responsible investing involves identifying companies that are being irresponsible in the environmental, social and governance areas, and excluding them because poor behaviour in these areas tends to correlate with poor returns.

“It reflects Kiwis’ growing sophistication and financial awareness when it comes to investing – they recognise that there’s a duty to match investors’ ethical and social concerns with good investment returns.”

Kiwi Wealth said, while its new fund cost more than its previous Vanguard ETF, members would have net benefits of more than 50bps.

Meanwhile,  Mercer said its managers had almost completely divested from companies manufacturing tobacco products.