KiwiSaver

New Zealanders are leaving their retirement planning too late, one KiwiSaver provider says.

Kiwi Wealth offers a Future You retirement forecasting tool to help people determine whether they are on track for their savings.

But a third of its users so far have been aged over 44 and two-thirds are over 45.

Head of retail wealth and marketing Joe Bishop said that meant many people were not getting started early enough.

“Being engaged and active in your savings as you get closer to retirement is great, but to give yourself the best chance of making the finish line in good financial shape, decisions have to be made much, much sooner,” he said.

“That’s why we think of retirement saving as a marathon. For many Kiwis retirement is a long way off, just as the finish line is a long way off when you start out in a marathon. But to give yourself the best chance of finishing a marathon you have to make a series of strategic decisions that keep you in the race.  The most important of which is knowing what your race or retirement goals are.”

Kiwi Wealth’s Future You tool shows that a 30-year-old male earning an income of $50,000 and contributing 3% into the Kiwi Wealth KiwiSaver Scheme Balanced Fund could have $175,600 at 65, potentially giving him an estimated income of $8700 a year.

If he only started investing in his KiwiSaver account when he turned 50, he could have $57,900 available at age 65 – or $2900 a year.

“Saving smaller amounts over a longer period is less risky, delivers better investment returns and is much less stressful for people,” Bishop said.

“For most Kiwis that means engaging with their KiwiSaver investment earlier in life.  That’s hard for people to do when you’re dealing with an investment horizon of around 30 years.  People just can’t see, or plan, that far ahead into the future.

“KiwiSaver providers therefore have a moral imperative to help their customers better understand their future wealth and how small decisions now can have a huge impact on their future.”

The FMA is working with ANZ to see if behavioural insights can prompt more ANZ KiwiSaver members to get retirement advice, or use retirement-planning tools, when they hit 56 years old.

The pilot study is designed to examine if adjusting communications sent to ANZ KiwiSaver members at age 56, and users of their “lifetimes” investment approach, results in more members checking they are on track to achieve their retirement goals. The study also wants to find out if they take action or seek advice, if they are concerned they are not meeting their goals.

Recent FMA research shows New Zealanders who started retirement planning at least a decade before they left the workforce had the highest levels of confidence about funding their retirement.

Paul Gregory, director of external communications and investor capability at the FMA said: “This is why the pilot with ANZ is targeting 56-year-olds. They’re at a critical moment when they’re still far enough away from retirement to make a real difference with the decisions they make now.”

In 2016, the FMA published a paper outlining the value of behavioural insights in aiding good investor decision-making. Since then, the FMA has worked with two KiwiSaver providers to explore how improved interactions with their KiwiSaver members could prompt more frequent and better decision-making.

An earlier pilot, with Kiwi Wealth, focussed on decision-making around default funds.

Gregory said: “We hope both pilots will show real and positive outcomes for both investors and providers, prompting other KiwiSaver schemes to take on board these insights.

“We also think there are insights here for managed investment schemes in general.”

ANZ general manager of funds and investment Ana-Marie Lockyer said ANZ supported any moves to help members save for a comfortable retirement.

“ANZ’s lifetimes option automatically moves KiwiSaver members’ money into funds that are appropriate for their age,” she said. “But, everyone is different and it would be good to see if we can encourage members to take a closer look at their retirement savings plan while they’re still at an age where they can take steps to boost their savings.”

The ANZ behavioural insights pilot will run from May until the end of the year.

Increasing optimism about the world economy led to a lift in global sharemarkets in the March quarter and boosted some local KiwiSaver funds, Morningstar says in its latest update.

Its survey for the first quarter of this year shows that KiwiSaver schemes with a bias to shares out-performed, while those with strong cash and fixed interest holdings performed comparatively poorly.

The average multisector category returns ranged from 5% for aggressive funds to 1.8% for conservative options.

Morningstar noted that the local sharemarket was up 4.6% in total returns over the quarter, which buoyed funds with a New Zealand equity exposure.

In Australia, the S&P/ASX200 was up 4.8% over the same period.

“Increased optimism about the wider outlook for the world economy, partly US-related and partly based on evidence of stronger performance in China and elsewhere – led to strong rises in world equity prices up to March,” Morningstar said.

“The MSCI World index was up 6.1% in NZD. The US did well, with a likely economic boost from the Trump administration fiscal policy, the S&P 500 index was up 5.9%. European shares also rose on evidence of a firming eurozone economy.”

KiwiSaver schemes in the aggressive and growth categories were the top performers, posting mid-single digit returns for the quarter.

KiwiSaver schemes in the conservative, moderate and balanced categories posted returns in the low-single digits.

Over the March quarter Booster KiwiSaver Geared Growth, OneAnswer KiwiSaver-Growth, Aon KiwiSaver Russell Lifepoints Balanced, Aon KiwiSaver Russell Lifepoints Moderate, and Milford KiwiSaver Conservative were the top performers across their respective categories.

Morningstar said Aon Russell Lifepoints was a notable performer over a longer term.

“Other KiwiSaver Schemes that deserve a mention include, ANZ KiwiSaver and OneAnswer KiwiSaver, ASB KiwiSaver, and Milford KiwiSaver Balanced. The best performing KiwiSaver Schemes since inception is Milford KiwiSaver Active Growth.”

Morningstar noted that the six biggest KiwiSaver funds continue to hold the vast majority of all KiwiSaver money  – now a 84.9% of the Morningstar database.

KiwiSaver schemes will have to show investors the dollar cost of their annual fees, from next year.  

Now, the FMA is consulting on how those fees should be calculated and disclosed.

It wants all providers to calculate the dollar figure of their fees int he same way.

It has released a proposal for all schemes to use a total expense ratio calculation, and is seeking industry feedback.

It said the method would work for all funds and by including fund charges, would take into account underlying costs. “Providers should be able to largely rely on current methods for calculating the actual fund charges for their fund updates when calculating the total fees amount.”

But it said it relied on approximations rather than true costs and was not the most accurate method.

Paul Gregory, the FMA’s director of external communications and investor capability, said reporting the dollar amount would improve the information given to KiwiSaver members.

“The annual statement offers a unique opportunity for providers to engage with their investors, and help them make good decisions about their investment.

“We discovered in our survey last year that KiwiSaver investors do read their statements and have a strong appetite for information that helps them to make decisions. Investors told us that one of the pieces of information they wanted to see is their fees in dollars.”