KiwiSaver

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.

New Zealanders with memories of financial crisis pain may be letting misinformation get in the way of retirement savings, a new survey shows.

The Commission for Financial Capability has released the results of its survey of 2200 people, which asked why people joined KiwiSaver, or what put them off.

The most common reason to enrol was to save for retirement. One in three cited this reason.

That was followed by the $1000 kickstart, which is no longer available.

A third of people who’ve never signed up said they had concerns about the scheme, compared with 17% of active members.

Of those concerned non-members, three-quarters said they didn’t trust the government to leave the scheme alone, 64% worried about getting their money back and nearly half had doubts about the providers – either going out of business or their ability to make the right investment decisions on their behalf.

CFFC group manager of investor education David Boyle said: “There appears to be a problem with a lack of understanding about KiwiSaver that’s putting some people off joining. So, more needs to be done to make sure people know the facts, rather than myths, and can make better-informed decisions around their long-term financial planning.

“The fear may be because of what occurred during the credit crisis: as finance companies collapsed investors’ money in those companies was lost. However, KiwiSaver members’ funds don’t go into the provider’s company, they are invested on behalf of the members into a range of assets like shares, cash, property and fixed interest.”

The research found that most people were aware of at least one of the benefits of being in KiwiSaver, but few people knew about all four of the main ones.

The most well-known was the employer contribution, which was on the radar of 71% of those surveyed. 63% knew you can’t access your funds until you are 65.

Just over half – 53% – knew about the HomeStart grant to buy a first home and just under half (47%) knew about the $521 member tax credit the government gives savers every year. That figure dropped to 27% among non-members.

And a quarter of those who had never joined were unable to name any of the benefits.

oyle said: “My concern is that people think they have to put the full $1043 in each year before they get the matching $521 member tax credit from the government. But the reality is that for every dollar you put in, the government adds 50 cents up to $521.”

More than two out of three people said they weren’t sure that NZ Super would be enough to retire on.

Boyle said: “The worrying thing is just on 50% of non-members are relying on NZ Super or don’t know how they are going to fund their retirement.”

Of those who have stopped contributing, 40% said it was because they were no longer working and 35% couldn’t afford to contribute.
Nearly 80% of active members said the scheme should be compulsory and more than a third of non-members agreed.

More than a third of New Zealanders would be willing to use money from their KiwiSaver accounts to pay for advice on what to do with it, ANZ research shows.

An ANZ survey of 700 people found more Kiwis plan to leave their KiwiSaver savings where they are when they hit the pension age.

Just  27% of them intended to withdraw all their money from KiwiSaver once they turned 65, down from 35% in November last year.

Of those people planning to withdraw all their KiwiSaver money, 48% intended to reinvest their money in a term deposit, compared with 53% in November.

ANZ managing direction retail and business banking and wealth John Body said the current low interest rate environment was making it more attractive for people to leave their money in KiwiSaver.

“More people say they plan to leave their money in KiwiSaver and fewer people are planning to invest their funds in term deposits.

“While the current low interest rate environment is great for borrowers, it’s a tough situation for savers.

“It’s becoming more attractive for over-65s to leave their money in KiwiSaver, continue to earn investment returns and still be able to access their money at any time,” he said..

Body said the survey showed a large number of people – 52% – had no idea what they’d do with their KiwiSaver money once they reached 65: “Young people today may need their retirement savings to last for 30 years or more so it’s important to have a plan to make good use of your savings.”

Britain recently moved to allow people to withdraw up to 500 pounds from their pension savings to pay for professional financial advice on how to manage their retirement savings.

The ANZ survey found that 36% of New Zealanders would be willing to withdraw up to $1000 from their KiwiSaver to pay for independent financial advice to develop a financial plan for retirement.

Body said that as people got older, they were prepared to pay more for financial advice while younger, less affluent people were prepared to pay only a small fee.

More conservative KiwiSaver schemes are starting to get their chance to shine.

After a number of years where growth and aggressive schemes were the outperformers, a period of sharemarket volatility has seen the balance tip back in favour of those invested in less risky assets.

Morningstar has released its survey for the quarter ended March 31.

It found funds with a tilt towards defensive assets outperformed growth funds in the quarter. Average returns were positive across the board, ranging from 0.79% for the aggressive category through to 2.65% for the moderate category.

“Despite a volatile first quarter in global markets, most KiwiSaver funds delivered positive performance, with more conservatively-oriented options in particular doing well,” Morningstar Australasia director of manager research Tim Murphy said. “Strong returns from bond markets, coupled with the local sharemarket’s resilience, meant that most KiwiSaver investors’ retirement savings continued to grow.”

Fixed interest returns were strong across the board, as global bond yields generally fell over the quarter, while another unexpected cut to the OCR in March was a further positive for local bond performance.

In equities, New Zealand was one of the strongest performing markets in the world in the March quarter, benefitting funds with greater exposure to domestic stocks. Australian equities weren’t as strong, despite the rebound in commodity prices, while most international equity exposures delivered negative returns for the quarter.

Aon Russell KiwiSaver Scheme was again a standout performer in most of its categories. Aon’s outperformance is due primarily to its low exposure to growth assets.

Kiwi Wealth KiwiSaver had a tough quarter, with all its multi-sector funds sitting at the bottom of their respective peer groups. Kiwi Wealth has no exposure to Australian or New Zealand shares.

Over a longer term, Aon KiwiSaver Russell and ANZ KiwiSaver were at or near the top of most categories and were the most consistent performers across the board. Mercer KiwiSaver continues to be a top performer within the conservative category, while Milford KiwiSaver comfortably tops the balanced category over the long term, despite a weaker quarter.