KiwiSaver

KiwiSaver providers should be required to disclose a range of extra information in their annual statements, including the total fee in dollar terms a member has paid during the year, the Ministry of Business, Innovation and Employment is suggesting.

It has released a consultation document outlining proposed changes to annual statements for KiwiSaver, superannuation and workplace savings schemes.

In it, it says that many New Zealander do not make good decisions about their retirement savings – such as staying in default funds when another type of fund might be a better option.

While they remembered getting their annual statements, they wanted more information, such as what their projected final balances might mean in terms of a weekly income.

“Given the high levels of readership of annual statements, we believe there is an opportunity for them to be used as a decision-making tool to prompt investors to consider how their current investment choices are impacting their retirement savings goals,” MBIE said.

It is proposing that statements be required to include a saver’s current balance, total fees paid over the year, projected retirement lump sum and income, the total amount the account grew over the year, transaction figures showing money going in and out of the account and the question: How do I increase my retirement income?

“We propose showing members the fee impact in real dollar terms on their statements; that is total fees paid including management and administration charges and performance fees and other charges. The FMA’s consumer research into KiwiSaver annual statements also showed that there is consumer appetite for information about fees: 39% of those interviewed wanted information about how fees are calculated and 37% wanted to see fees displayed in a dollar amount.”

The total fee calculation would be made in accordance with the disclosure of other fees under the Financial Markets Conduct Act, MBIE said. That would include management fees, performance-based fees, other charges and a total.

“Where fee estimates for underlying funds are used, or where it is not possible to estimate fees, the statement should include a footnote explaining this and referring the reader to the product disclosure statement or fund update for full details of how estimates are arrived at, or which funds have information omitted,” MBIE said.

MBIE said it was also considering whether other information would be required such as the investor’s retirement savings history, information on the main types of funds and the investor’s actual investment mix. 

The goal is for the changes to be implemented in time for the 2017 KiwiSaver annual statements.

KiwiSaver providers say some of the guidance they are getting from the Financial Markets Authority about their sales and advice processes may be getting in the way of members switching funds.

The FMA has released its latest KiwiSaver report, which shows that, for the first time, the number of people transferring between schemes was higher than the number of people joining KiwiSaver over the past year. In the year to March 31, 175,000 members transferred to a different scheme provider and 145,000 joined for the first time.

Investment returns of $1.3 billion were down from $3b in 2015.

Rob Everett, FMA chief executive, said: “As new membership is slowing, it’s logical that providers will continue to look to transfers to grow the size of their schemes. The FMA will be paying attention to how transfers occur, making clear our expectations to providers and giving clear information to KiwiSaver members about how to prepare for those circumstances and what they should expect from providers.”

But the FMA’s report said there had been feedback that it’s KiwiSaver sales and advice guidance could get in the way of members receiving the help they needed to make decisions.

Some said that the guidance invited a conservative interpretation of how they should engage with members, particularly on changing funds, and had led them to prefer to focus on written, information-only advice.

“We are currently reviewing our guidance, including our position on the use of incentives and expect to publish revised guidance before December. Changes to Code Standard 8 during the year mean our guidance on limited personalised advice is now out of date and will be removed,” the FMA said.

Everett said: “Providers have told us there are barriers to encouraging their default members to make an active choice, however it is clear from the level of transfer activity by the same providers that these barriers are not insurmountable when encouraging other providers’ members to transfer to their schemes.”

The FMA also asked KiwiSaver providers to report on what they were doing to meet their obligation to improve members’ financial literacy.

It said one of the measures to show how successful they were was the number of default members who made an active decision on the fund they were in.

The report showed there is a range of success in terms of customers making active choices from 1% of default members in the case of ASB, up to 22% of the scheme’s members in the case of Grosvenor (now known as Booster).

The Booster model includes a focus on financial advice and takes members through a risk profile questionnaire to help them identify the right fund.

The number of default members continues to decline from its peak of 465,000 in 2013 to 445,000 in 2016, now representing 17% of the total members.

The report said there had been huge growth in the number of people using KiwiSaver to help them into a first home. Nearly $500 million was withdrawn for that purpose in 2016, more than double the 2015 figure.

Morningstar analysts have given their stamp of approval to a reduction in ANZ KiwiSaver fees.

The rating house has given the bank’s KiwiSaver funds a silver rating.

Analyst Elliot Lucas said the depth and tenure of the ANZ investment team was unmatched among KiwiSaver providers, although investment analyst Alan Clarke and senior capital markets manager Stuart Millar would benefit from more analyst support.

“ANZ takes a long-term view in the strategic positioning of its portfolios, which is the key driver of performance, although the team looks to add value through short-term tactical positioning, currency hedging, and stock selection. While they won’t be perfect, the team has proved that they can get these calls right more often than not. For instance, overweightings in domestic and international equities from 2012 to 2015 propelled returns as ANZ featured among the top performers.”

Lucas said an above-average fee had tempered Morningstar’s view of ANZ as a KiwiSaver option in the past but the reduction had brought it into line with its peers. “All told, this is amongst the best KiwiSaver schemes on offer to investors.”

ANZ’s head of product – funds and private bank, Grant Hodder, welcomed the rating. He said ANZ had reduced its total expense ratio for the ANZ KiwiSaver conservative fund by 20% since 2009.

“These savings are largely arising from greater economies of scale as the fund balances grow.   It’s also good to see that Morningstar has noted that these benefits are flowing to members.”

Private companies are being suggested as a good place for KiwiSaver providers and other fund managers to find growth opportunities.

John Johnston, of Milford Asset Management, said a disproportionate share of New Zealand’s economic output was concentrated in the hands of privately-owned enterprises rather than being accessible to investors via the listed market.

He said there were 243 businesses with a turnover greater than $200m and 2490 companies with turnover of between $20m and $200m. The average return on assets of the 2490 companies in 2015 was 5%, double the average of 2.5% return for businesses of over $200m in size.

“We believe these attributes taken together make the private company market in New Zealand an attractive place to look for compelling growth investment opportunities.  In fact, Milford has had a successful track record in this market with 12 Milford Active Growth Fund private company investments over the past five years.”

Brooke Bone, who manages the private investments for the Active Growth Fund, said the private investments had performed very well and were well ahead of the overall fund performance, which sits at 13.7% over the past year.

Some investments, such as that in Manuka Health NZ or Kauri Property Fund, had been sold. Others, such as Orion Healthcare and AFT Pharmaceuticals, had ended up listing.

Bone said the high public profile of Milford meant that there was a large amount of information about private investment opportunities being submitted regularly.

He said the Milford team would then look at the options and select those that were the most likely to become listed companies. “We’ve been doing this for five years and started small but continue to add more businesses and new investments in this area.  We are keen to get to the point where we can assist these businesses to become listed businesses, but we see some being sold as well. We’re not just collecting a big group of private companies.”

He said most diversified portfolios would aim to have between 3% and 8% in alternative assets, including private equity. The Active Growth Fund has just under 3% at present but has been as high as 7%.

”It’s helped to enhance the returns of the active growth fund and decreased the volatility of the return and enables us to have greater capacity going forward. We consider it to be a very good way to develop the New Zealand economy, by finding these good growth companies and adding capital to then enable them to grow faster.”

He said there were additional risks and there was less liquidity if shares needed to be sold, but the benefits outweighed the negative.

Norman Stacey, of Diversified, said KiwiSaver investing in private companies was one of the “great national benefits” of the scheme, which would lead to deepening markets and an increased capital pool.

“NZ Super Fund has to a very significant extent led the way. As with listed shares, private equity is best diversified – so best with a variety of selections to spread the issuer risk. I am peripherally involved in a private equity candidate in NZ, with a view to taking a more dominant role. Our objective will be the KiwiSaver capital pool.”

Massey University commentator Claire Matthews said it was a legitimate option for funds.

“But I think it would be important for funds to make it clear if they are doing so in order that their members understand what their funds are being invested in.  There are different risks associated with private equity, and I would generally expect only growth and/or more aggressive funds that are inherently structured for higher levels of risk to be doing much in this regard.”

Some fund managers have said private companies are not a feasible option for KiwiSaver because of issues around size, efficiencies and problems valuing the asset.