KiwiSaver

A growing number of high-net-worth individuals are looking to KiwiSaver as a way to manage their retirement income, AMP’s general manager of insurance and investments says.

AMP is introducing 16 new funds to its current 11 KiwiSaver options, which will be made available via an online platform. 

Therese Singleton said it was the next best thing to a wrap platform-style KiwiSaver solution, which is not allowed under current legislation.

She said it could be used by DIY investors who wanted to manage their money themselves, or financial advisers who could use it to help their clients. “They can pick and choose what they like within an online environment. We’re tying to make KiwiSaver as all-encompassing and competitive as we can get it for advisers as well as direct investors.”

Singleton said there had been a noticeable increase in demand from high-net-worth people who wanted sophisticated KiwiSaver solutions. It was still a small percentage of the market, she said, but was growing. 

“Typically high-net-worth or sophisticated investors want more control around where they invest their funds and in time it will position us for the equivalent of a wrap offering in KiwiSaver.”

KiwiSaver was starting to stand out as a retirement income option for those aged over 65 because of its comparatively low fees, she said.  AMP is to start offering its sister company AMP Capital’s retirement income fund as a KiwiSaver option.

“People are looking at low term deposit rates and looking for income for life. But with low interest rates for the foreseeable future, people who might not have thought of KiwiSaver as a solution are thinking it’s a good product,” Singleton said.

Singleton said savvy advisers should be tapping into the KiwiSaver market because as balances grew, so too would their books. 

AMP had dealt with at lest two clients with more than $10 million to invest, who wanted to use KiwiSaver to cater for their retirement needs.

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.