KiwiSaver

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.”

Aggressive and growth funds are likely to continue to top the KiwiSaver performance tables through 2016, an analyst says.

On a three-year annualised basis, aggressive and growth funds have been the clear standouts, returning 11.9% and 11.5% respectively according to research house Morningstar. That is well ahead of balanced funds’ average 9.7%, moderate funds’ 7.3% and default funds’ 6.2%.

Morningstar analyst Kathryn Young said there was unlikely to be any major upset for KiwiSaver investors through 2016.

She said “muted” was likely the best way to describe this year’s predicted performance. New Zealand equities’ long run of double-digit returns was unlikely to continue, she said.

“There have been really strong returns on a lot of asset classes over the past five years and valuations are at a place where they are vulnerable to shocks, as we’ve seen in global equities.”

But she said she was not expecting major equity market losses. 

Young said KiwiSaver funds were well diversified, with reasonable asset allocation that would make them able to weather market environments such as the current one well. “We’re not worried about the structure of the KiwiSaver managers we cover.”

Not having a lot of exposure to emerging markets had helped KiwiSaver returns over recent months, she said. “That’s where a lot of the pain has been in the past year and could be in the coming year.”

Of the managers Morningstar researches, only AMP and Mercer have emerging market shares int heir strategic asset allocation.

“KiwiSaver is a bit insulated from that and that’s probably a good thing going into the year,” she said.

Morningstar was not predicting any major changes in KiwiSaver market share, either.

Young said she expected banks to continue to dominate.

Market turbulence was unlikely to prompt members to move to more conservative investments in great numbers, she said, partly because many were already invested more conservatively than was the norm internationally and partly because many were not engaged enough with their KiwISaver accounts to do so.

She said she did not expect aggressive and growth funds to stop being the best performers because there is no equity market collapse predicted, and fixed interest is also expected to deliver muted returns.