KiwiSaver

New data from ANZ shows a big increase in the number of first-home buyers turning to KiwiSaver to help them get into the property market.

ANZ, the country’s biggest KiwiSaver provider, said the number of withdrawals for a first home has increased by 188 per cent over the past three years as KiwiSaver balances increase and become an increasingly important part of the home buying equation.

In the year to March 2016, a total $148 million was withdrawn by ANZ’s KiwiSaver members to help them buy their first home. This compares with just $62 million in the prior year.

ANZ managing director retail and business banking and wealth John Body said more than 8000 customers made a first home withdrawal from their ANZ KiwiSaver accounts in the past year – almost double the number of withdrawals in the prior year.

“As KiwiSaver balances grow, more people are taking advantage of the option to withdraw some or all of their money to help buy a new home,” he said..

“The average first home withdrawal by our customers last year was $18,361, compared with $10,611 in 2013.”

The Government’s KiwiSaver rules enable people to withdraw their KiwiSaver money to help fund the deposit on their first home (excluding the Government’s $1000 kickstart and any savings transferred from an Australian super fund).

The Government also offers KiwiSaver HomeStart grants of up to $5000 to help purchase an existing home and double that to help fund new builds of first homes.

Body said it was great to see KiwiSaver helping people on to the property ladder but people needed to know how the system worked so they could take full advantage of the scheme.

“For instance you need to have been a member of KiwiSaver for at least three years before you can make a first home withdrawal.

“And, people wanting to apply for a KiwiSaver HomeStart grant would need to regularly contribute at least 3% of their income to KiwiSaver for a minimum three years in order to qualify for a grant.

“But you really make the most of this benefit when you have been contributing for five years because the Government will potentially give you $1000 for each year you have been contributing, up to a maximum of $5000 per person ($10,000 per couple).

“You can double that if you are looking to build your first home.”

Body also encouraged people to resume contributions to KiwiSaver after making a first-home withdrawal: “A first-home withdrawal can make a big dent to the total amount of money you have when you retire.

“It makes sense to resume contributions as soon as possible and consider increasing your contribution rate to ensure you catch up and achieve your retirement savings goal.

“This will ensure that saving for a comfortable retirement and owning your own home work hand in hand.”

KiwiSaver investors are suffering less of a “behaviour gap” in returns than investors in other New Zealand managed funds, new research from Morningstar shows.

The research house is producing a new set of data that considers investor returns, as well as fund managers’ performance.

This highlights the difference in what investors themselves receive as opposed to what the fund manager produces.

Director of manager research Tim Murphy said investor returns tended to fall short of time-weighted returns because the “fear and greed” cycle drove people to buy and sell at the wrong time.

The gap gets bigger the more volatility the asset class has.

In the US, Morningstar research shows there is a gap in almost all asset classes – although in US sector funds investors were outperforming the average annual fund returns.

In New Zealand, KiwiSaver members were doing better than investors in other managed funds, Murphy said.

Those in New Zealand equities via KiwiSaver had returns that were 0.86% per year lower than time-weighted returns over the past five years. There was also a lag in multi-sector aggressive and growth funds.

But managed fund investors lagged in Australasian equities, aggressive multisector funds and moderate multisector funds.

In aggressive multi-sector funds, investor returns were 2.4% less.

Murphy said the research was intended to look at funds at aggregate level across asset classes rather than focusing on individual funds.

He said investors in KiwiSaver funds were probably doing better because there was a lot less buying and selling happening and investments were made automatically from people’s salaries. “There’s a narrower gap, a consistent pattern over time.”

Murphy said he would continue to work on the New Zealand experience over the rest of the year.

Morningstar also released its latest sustainability ratings – revealing that six of 44 funds had received high ratings: Harbour’s Australasian Equity Focus Fund and Australasian Equity Income, AMP Capital RIL NZ Shares, Russell Investments NZ Shares, AMP Capital’s Global Listed Infrastructure and RIL Global Shares.

Murphy said there were pockets of investors seeking sustainable investments. The New Zealand contingent was “small but vocal”, he said.

He said Morningstar was working to develop data that would be meaningful at adviser level and add value to investors and advisers who were interested in the issue.

Boutique KiwiSaver manager Generate has ticked over $200 million in funds under management.

It grew by 3000 members in the last quarter – faster than some of the bank-owned schemes.

Chief executive Henry Tongue said one of the key points of difference was that Generate advisers helped their clients understand KiwiSaver’s benefits and to find a fund that suited them.

He said clients found the process valuable and many moved out of default funds into more age- and risk-alternative options.

Generate has a lower percentage of members in conservative funds than the market as a whole.

Tongue said he was grateful to advisers and Generate’s members for their support in reaching the $200m milestone.

“The level of growth stemming from ‘word of mouth’ has been phenomenal and we are working harder than ever to keep up the high level of service.”

Advisers need to get New Zealanders off “autopilot” when it comes to retirement savings, one commentator says.

KPMG has released its second Funds Management Industry Update, which covers the strengths and weaknesses of the country’s funds management industry.

John Kensington, KPMG’s Head of Financial Services, said the industry needed to adapt to the way customers wanted to deal with it.

“Customers want to interact digitally, which is driving the continuous need to make everything one click away – a trend that we are now seeing in the funds management industry, specifically KiwiSaver,” he said.

Kensington said New Zealanders were becoming more engaged with KiwiSaver but were still not as financially literate as they should be. “If we rated New Zealanders two or three out of 10 last time, it might be 2.1 or 3.1 now,” he said. “It’s not a huge improvement.”

Many were on autopilot for KiwiSaver, with the money coming out of their salaries before they gave it any thought, he said. That could be a blessing in a volatile market but would mean savers could end up with poorer returns over the long run than those who took an active interest.

But Kensington said New Zealanders were embarrassed about a lack of understanding of financial concepts and often did not ask for advice when they needed it.

He said there was a large amount of money invested through KiwiSaver that had had no advice at all related to it.  The number of people still invested in default funds showed the need for better help, he said. “I would hate to see financial advisers squeezed out of the market.”

Those who were invested too conservatively could have a case to argue that their providers were remiss in not guiding them on to a better track, he said. “They might have a case to say ‘you’ve earnt all these fees from me and you never told me I needed to change’.”

The report identified roboadvice as a likely future disruption for the industry. Kensington said it could be useful for people with smaller amounts to invest.

“At the moment  they are not getting advice – roboadvice might give them that but will they understand it, and listen to it?”

The paper also included an analysis of the “4% rule”, which assumes that is a safe rate of capital withdrawal for retirees.

Kensington said that rule would likely no longer apply in the current low interest rate environment, once fees and other investment costs were included. The report said safe withdrawal rates needed to start at 2.5%, not 4%. “Most people can’t afford to live on 4%. When you’re taking out less you need to have quite a pool of money,” Kensington said.