KiwiSaver

KiwiSaver’s first-home withdrawal function is a practical solution and a reflection of the reality of New Zealand house prices, providers say.

Members are able to withdraw some or all of their KiwiSaver funds to purchase a first home after at least three years’ saving.

That has been criticised in the past by those who said it worked against the aim of the KiwiSaver product, which is to provide money to help fund retirement.

As more people buy homes later in life, they have less time to recover from wiping out their retirement savings to fund a deposit.

In 2013, AMP said the Government should review the first-home scheme.

It argued savers should only be able to withdraw any savings they have made above the minimum salary contribution.

“The first-home withdrawal feature of the KiwiSaver scheme is incongruent with the concept of a long-term retirement savings vehicle,” AMP wrote in a submission to the Ministry of Business, Innovation and Employment on the KiwiSaver default fund system.

But AMP’s general manager of investments and insurance, Therese Singleton, said she believed it was a necessary function of the scheme.

“You’ve got to remember that before we had KiwiSaver, we had nothing. It allows people to experience the value of saving and it’s reflective of the reality, particularly in the Auckland market, of how hard it is to save for the down payment on a house. While it’s not purist the sense it is a retirement savings scheme, it does have a lot of value in educating people on the value of saving.”

She said it was then up to the provider to ensure they continued the relationship with people who withdrew money, so they would not stop saving once the house was bought.

David Beattie, of Grosvenor, agreed. He said it might encourage some people to join and it was likely that they would start contributing again once they were in their first home.

“On balance it’s not a bad function. If they did not have KiwiSaver, they would be saving frantically in another vehicle and not contributing anyway, at least this way they get top-ups and tax credits. It establishes the discipline.”

KiwiSaver funds with more assets invested in growth assets shone in the December quarter, Morningstar analysis shows.

The research house has released its latest quarterly KiwiSaver report, which covers the final three months of 2015.

It showed a big difference between conservative and more risky options: The average return over the quarter for conservative funds was 0.69%. For aggressive options, it hit 4.4%.

“Kiwis saving for their retirement benefitted from favourable market performance in the final quarter of last year, despite significant market turbulence, with growth-oriented funds doing particularly well,” Morningstar Australasia manager research analyst Elliot Smith said. “Over the past year, every KiwiSaver fund on our database posted a positive return.”

Many KiwiSavers benefitted from the performance of the New Zealand equity market, which fared much better than its global counterparts through the December quarter.

The NZX finished the year up 13.5%. The Australian market wasn’t as strong: the S&P/ASX200 Index gained 3.1% over the quarter and 4.1% over the year in New Zealand dollar terms.

The New Zealand dollar’s depreciation helped unhedged KiwiSaver investors achieve a 13.2% return from global equities over the entire year, although the Kiwi dollar appreciated against the AUD and USD over the fourth quarter, particularly in December.

While the MSCI World Index gained 6.2% in the December quarter, the result was a 1.4% loss in NZD terms.

BNZ was the top-performing KiwiSaver provider during the final quarter of 2015.

It benefitted from fully-hedged exposure to international equities and its top-performing Australasian equities investment. Milford and Generate remained among the top performers in the balanced and moderate categories respectively.

Over the whole of 2015, the funds in the aggressive category gained most from the strong performance of growth assets, posting an average return of 11.4%.

The conservative category’s average return was 6.07%.

Generate was the standout provider over the 2015 year, its three funds either at the top or second on the table within their respective categories.

Aon Russell and ANZ remain at or near the top of most categories over longer-term timeframes, and are the most consistent performers across the board. Kiwi Wealth continues to be a top performer in the aggressive category, and Milford is comfortably atop the balanced category.

A one-off enrolment of all salary and wage-earners who are not KiwiSaver members would likely cost more than it would deliver in benefits, a Treasury report says.

The report, prepared for Finance Minister Bill English last year, has been released under the Official Information Act.

The Government has previously said it intended to carry out a one-off enrolment day once it returned to fiscal surplus.

People would be given the opportunity to opt out if they did not want to be automatically enrolled.

It was designed to tackle the problem of people who had not got around to signing up to KiwiSaver.

Last year’s removal of the $1000 kickstart incentive for all new KiwiSaver members made the move a  cheaper one to implement.

But Treasury said the case for one-off enrolment was diminishing as time went on and more and more of those who would be captured by the exercise enrolled any way.

“Weighed up against the costs, the benefits for national saving and individuals’ saving of a one-off exercise are minimal.”

Analysis by the Treasury and Inland Revenue in 2011 found that one-off enrolment would increase membership by around 330,000 individuals and thereby boost the 1.6 million membership by 20%.

But since 2011, the rate of enrolment into KiwiSaver has been high and exceeded officials’ expectations. The total membership is now 2.5 million and 1.4 million of them are  salary and wage earners.

A one-off enrolment exercise would only boost membership by 5% to 7%, the report said.

The economic costs of a one-off enrolment exercise amount to $4 million for implementation; $10.4 million, being the 20% deadweight cost for four years of subsidies (for a 1 July 2016 exercise); and unspecified costs on individuals, employers and KiwiSaver providers which could be minimised in the scheme design.

But it said the exercise could have benefits if it was part of a wider campaign to raise awareness of the scheme, which could prompt members to consider their fund choice and engage the large number of people who do not make enough contributions each year to receive the member tax credit.

It wants groups working together including the Commission for Financial Capability, Ministry of Business Innovation and Employment (MBIE), the Financial Markets Authority and Inland Revenue to develop a KiwiSaver awareness strategy.

KiwiSaver members should not be allowed to “set and forget” a five-year contributions holiday, providers and industry commentators say.

Members can choose to opt out of their contributions for five years at a time. At the end of that period, they are asked whether they want to roll over on to another contribution holiday. If they do not respond, contributions automatically restart.

Therese Singleton, general manager of investments and insurance at AMP, said one of the things she would most like to change about the retirement savings scheme was the length of that contributions holiday.

She said people needed to realise the value of continuing contributions.

“The tax credit in itself is more of a return than you’re ever going to get on $1000 anywhere else and that in itself is reason enough to contribute,” she said.

David Boyle, group manager of investor education at the Commission for Financial Capability, agreed. He said people would forget they were not contributing.

“At the minimum they should get a letter each year telling them the impact of not having contributed over the year.”

Claire  Matthews, of Massey University, said people should look at their KiwiSaver accounts annually to determine whether the settings were still right for their circumstances.

She said it would make sense for those on a contributions holiday to be contacted every year to be asked whether they wanted that to continue.

ANZ general manager products and marketing Ana-Marie Lockyer supported a one-year holiday limit.

She knew of cases where people had got to the end of their five-year holiday and been surprised to find they had not been contributing. They had then wanted to contribute more to catch up.

“They probably would have preferred a reminder earlier.”

But she said her only concern was that further changes to KiwiSaver might make people more hesitant to sign up at all.

“A reason a lot of people don’t join KiwiSaver is because of the constant changing. I support the idea but the time has to be right and it has to be rolled out in the right manner.”