KiwiSaver

Advisers have an opportunity to encourage people to use their KiwiSaver statements to work out whether they are on track for retirement, although few of them seem to be taking it, the Financial Markets Authority says.

It has released the results of a new survey, which showed 21% of KiwiSaver members had read their provider’s annual statement thoroughly. Another 58% had looked briefly at it.
Only 23% had looked to see whether they were on track to achieve the outcome they wanted.

Paul Gregory, FMA director of external communications and investor capability, said that the annual statement should be an important trigger for members to think about what they were saving and investing for. “When this arrives through your letterbox, or in your email, it’s a great opportunity to check in with your goals. And, if you’re not happy, to check in with your KiwiSaver provider.”

People should consider the income they wanted in retirement, and the amount they would need to save to get there, whether they were on track and, if not, what they could do about it.

Of those who checked to see if they were on track, only 15% said they had talked to a financial adviser, compared to 43% who had used an online calculator.

Gregory said advisers could use the annual statements as an opportunity to engage clients and make sure they had a plan.

He said there was room for improvement in the statements from providers.

Almost three-quarters of respondents said they wanted to see information about the lump sum they were on track to get, 62% wanted to see what level of income that sum would deliver and 37% said they wanted to see their fees represented as a dollar amount. At the moment, providers often only give details of the administration fee, not the management component.

Gregory said that was something advisers could encourage their clients to ask their providers for.

The Ministry of Business Innovation and Employment is currently working with the FMA and the Commission for Financial Capability to review the format and content of the KiwiSaver annual statement to consider ways to improve the information provided. The results of the FMA survey will be taken into account.

Respondents said high fees (43%), a fund losing money (36%) and another provider achieving better returns (36%) were the things that were most likely to prompt them to change their KiwiSaver provider. Only 11% said they would switch because another provider asked them to join their scheme.

AMP is to expand its KiwiSaver offering.

The provider will add 16 funds to its existing 11 KiwiSaver options, and nine more to the NZ Retirement Trust offerings, which currently sit at 18.

The new options will be available near the end of the month.

They will be provided by external providers including ANZ, ASB, Fisher Funds and Nikko.

AMP Capital funds will also be offered to KiwiSaver members – including its multi-asset fund and income generator, which will also be offered to NZ Retirement Trust members for the first time.

The income generator fund is designed to cater for investors looking for income in a low-yield environment, while the multi-asset fund uses risk-mitigation strategies to manage market volatility.

The changes are reportedly primarily aimed at providing more choice to AMP’s KiwiSaver members, especially those who were taking a more DIY approach to their investment.

AMP advisers are believed to be set to get training in the new fund on offer but those spoken to by Good Returns said they had not yet been given any information.

AMP has suffered over recent years as banks have picked up market share. Its most recent financial statement shows $218 million was transferred to other superannuation schemes in the year to March, down from $223.4 million the previous year.

New Zealand fund managers should be competing for KiwiSaver members on the basis of advice, transparency and service – not fees or returns, one manager says.

Treasury this month released a report by Andreas Heuser that showed neither fees nor returns were significant drawcards for KiwiSaver members – who were instead more swayed by bank marketing tactics.

Heuser suggested it could be a problem of consumers’ lack of knowledge and engagement.

“Providers do spend some time and effort educating members and complying with their regulatory obligations …However, any incentive to improve consumer knowledge levels is not aligned with the economic incentive to retain customers and revenue levels,” Heuser said.

“A significant lift in the level of consumer knowledge of the effect of fees and returns on the balance available at retirement would improve the discipline of the market on KiwiSaver providers.”

But David Beattie, of default provider Grosvenor, said KiwiSaver funds were already under legislated pressure to charge reasonable fees.

Beattie said that meant there was very little scope for the industry to create more expensive funds, even if it wanted to. KiwiSaver schemes had cheaper fees than Australian schemes and managed investment funds that were not part of KiwiSaver, he said.

Beattie said it was much more important for members to consider whether they were in the right fund, rather than worrying about the fee a provider charged.

People who should have been in a growth fund over their working lives and instead were in conservative funds could halve their potential returns and miss out on hundreds of thousands of dollars, he said, whereas the difference in fees between the cheapest and most expensive funds within a category might only be 0.6 percentage points.

“There are some cheap funds but the cheapest funds are cash or default. Does that mean they are the best fund to be in? Absolutely not.”

Henry Tongue, of Generate, agreed. “KiwiSaver members should ask themselves ‘what am I actually getting from my KiwiSaver fund?’”

He said members should look at their return after fees – even a pricier higher-growth fund should deliver a net return that was many times that of a more conservative fund.

Beattie said even returns were not a good thing to base the decision on because they were so variable.

“Managers have different styles and sometimes they work better in some cycles than in others but over time they all end up at about the same point. The thing that drives returns is the market, not what the managers do. It’s not good to compete on fees or returns. We should compete on service, transparency and quality of advice. That should be top of mind, there is still not enough of that, particularly transparency and advice.” 

Tongue said as balances grew, members could be expected to start making more informed choices.

Almost half of New Zealanders would like to increase their KiwiSaver contributions by 1% at a time that suits them, according to a new survey by ANZ.

ANZ, New Zealand’s largest KiwiSaver provider, surveyed 2000 people, asking them whether they would like the option to increase their KiwiSaver contributions in the future.

A total 20% said they would definitely take up an opportunity to increase their KiwiSaver contributions by 1% at any time, while a further 27% were likely to take up this option.

The results come as the Commission For Financial Capability is considering potential changes to KiwiSaver, including the option of increasing and decreasing regular contributions.

Under current KiwiSaver rules, members can choose to contribute 3%, 4% or 8% of their pay to their KiwiSaver account.

ANZ general manager funds and insurance Ana-Marie Lockyer said anything that encouraged people to consider contributing more to their retirement savings – if they could afford to – was worth looking at.

“The key thing people are looking for is flexibility,” said Lockyer. “KiwiSaver is a 30-40 year savings commitment – people’s circumstances will change over this sort of time frame.

“Ideally, we would enable people to increase their contributions to KiwiSaver when they get a pay rise or pay down their debt.

“Equally, some people might prefer to reduce their contributions to 1% or 2% of their pay when money is tight.

“Currently the only option they have is to stop contributing to KiwiSaver altogether for a few years.”

Lockyer said more than 100,000 KiwiSaver members are currently on a contributions holiday and not contributing anything to KiwiSaver. More than 1 million KiwiSaver members did not contribute enough last year to qualify for the Government’s full Member Tax Credit.

“We estimate that New Zealanders missed out on $450 million in Member Tax Credits last year by not contributing enough.

“KiwiSaver members still have until June 30 to make sure they’ve contributed at least $1042 so they qualify for a $521 Member Tax Credit payment from the Government.”