KiwiSaver

KiwiSaver providers have been told how the Official Assignee will access the savings of people who go bankrupt.

A long legal fight has been raging over whether bankrupt KiwiSaver members’ money can be used to pay their creditors.

Estimates are that more than 5500 members of KiwiSaver are bankrupt, with accounts worth about $30 million.

The Court of Appeal ruled this year that bankrupts’ KiwiSaver cash did not vest to the Official Assignee, which administers bankruptcies, so could not be used to pay their debt.

It said: “There is nothing in the KiwiSaver Act to suggest that a purpose of the legislation is to accumulate funds for the benefit of creditors in the event of the member’s bankruptcy.  If that were the case, the important social and economic purposes of the Act would be undermined and the burden of providing for the welfare of individuals would fall back on the state.”

DLA Piper, which acts for KiwiSaver trustee Trustees Executors has written to providers.

It says it can still summons people and request information from them, that money paid to a KiwiSaver member during bankruptcy could be claimed, such as money withdrawn in the case of a serious illness, and that it would investigate irregular contributions to KiwiSaver that might indicate people trying to put money into their accounts before they entered bankruptcy.

The Official Assignee is planning to repay money it received from KiwiSaver scheme providers before the ruling that it was not entitled to it.

MBIE is expected to issue a discussion document over the coming months.

[UPDATED] Advisers have been “totally out-manoeuvred” by banks when it comes to KiwiSaver, an investment analyst says.

Collin Nefdt, formerly of Morningstar and now operating research organisation NZ Trends, said the bank dominance in the KiwiSaver market had pushed financial advisers to the side.

His latest research, for the third quarter of 2015, showed the drop in market share of schemes distributed by financial advisers.

Including AXA pre-merger, AMP’s market share dropped from 20% in 2008 to 12.9% in 2015.

ANZ’s OneAnswer Scheme dropped from near 10% of the market to 5% in 2015.

Grosvenor was the only one holding its own, increasing from about 2% in 2008, including Fidelity Life, which it later acquired, to 3% in 2015.

That is despite OneAnswer leading the growth and balanced categories in per-annum returns over the past seven years, with 9.6% and 9.1% growth per year, respectively, ahead of medians of 7.3% and 7.6%.

Nefdt said: “It’s eye-opening how advisers have just been crushed in this market.”

AMP did not want to comment.

Over the life of KiwiSaver, much of the growth has been with the big banks. Nefdt’s data showed ASB had the largest chunk, at 17.8% in 2015, up from 15% in 2008.

ANZ’s bank scheme alone had 15.7%, Westpac 11.4%, Kiwibank 7.6% and late arrival BNZ has just under 2%. All increased their share of the market over the seven-year period.

Nefdt said: “Each bank is essentially an adviser or distribution business and it is a lot easier to get to a bank than for an adviser to get to a potential member or a potential member to get to an adviser. The banks made sure that each customer who came through the door was asked the ‘KiwiSaver question’ – Westpac has been particularly good at this from inception. From day one of KiwiSaver I saw advisers grappling with KiwiSaver and many were not prepared to do the hard yards at the expense of easier commission-driven insurance sales.”

Schemes provided by consulting firms have not made much impact – Superlife had 1.4% in March this year, Aon 1.1% and Mercer 4.4%.

Nefdt said advisers seemed unsure of how to approach the KiwiSaver market. “It is fair to say the adviser community did not crack the KiwiSaver puzzle. When some advisers focussed on KiwiSaver – where all clients started with zero balances – their remuneration suffered and they were forced to refocus on commission business. The Asteron scheme did all the hard work and then closed with a market share of 0.6%. A 0.6% market share is gold in today’s market.”

He said: “This short-term view was unfortunate because in the long-run KiwiSaver balances will be many Kiwi’s largest asset. Huljich was the one provider to crack the adviser-distribution model and the saga is a sad one for me as I appreciated how they got out there’ and created alternative adviser channels and aggressively competed with the big guys.”

Nefdt said preferred provider schemes were an adviser opportunity that had been missed. ” I feel the authorities did not articulate the opportunity and provide guidelines on how preferred providers should be serviced. Thus, many advisers lost sight of the opportunity. Clearly it is more convenient and time-effective for advisers to deal with employee-groups than individual one-on-ones. What has happened is that many advisers are attached to preferred providers but not servicing them or waiting for it to be worth their while. I strongly believe that the FMA must ask every adviser attached to a preferred to show how they are servicing the arrangement over the year. In turn preferred provider members have been very susceptible to approaches from other providers as they were not being serviced.”

Nefdt said the impact of market turbulence had been felt in the September quarter for the first time in some years.

“The third quarter of 2015 resulted in a pull-back in equity markets while currency is playing a big role in the short-term returns on international assets for New Zealand investors. For the first time in over three years the majority of KiwiSaver funds reported negative quarterly returns.”

He said over the past three-year period, growth and balanced funds had comfortably outperformed more defensive multi-sector funds.

But in the most recent three-months, the conservatively-invested default funds were the only positive performers in Nefdt’s survey, returning 0.01% in the quarter.

The highest return of the quarter was 6.1%, and the lowest was a drop of 10.8%. The median return in the quarter was a drop of 0.97%.

Nefdt said:  “One of the major investment trends over the past 20 years has been the steadily increasing exposure to ‘alternative assets’ in pension and superannuation portfolios.”

In KiwiSaver, only AMP, Aon, Koinonia – the Christian fund, SBS Lifestages, Mercer, NZ Funds and Westpac, have exposure to alternative assets. Nikko has the most with 19.9% in hedge funds, followed by Mercer’s balanced fund, with 10.7% in hedge funds, commodities, private equity and infrastructure.

On a rolling three-year return basis, those funds with alternative assets have lagged balanced funds without them, in terms of returns gross of tax and net of fees. Nefdt said they tended to be more expensive.

 

KiwiSaver clients who use financial advisers were less likely to react to last month’s market volatility, ANZ says.

ANZ general manager of wealth products and marketing Ana-Marie Lockyer said the bank had noticed a significant increase in KiwiSaver members switching their accounts to more conservative investments.

The rate of switches was up 500 per cent at the peak and 300 per cent on a weekly average over the period of increased market uncertainty.

September was the first quarter in a number of years in which KiwiSaver balances declined.

Lockyer said the majority of switches were made by younger KiwiSaver members.  “That’s perfect if they are looking to buy a house soon and wanted to lock it in but it is more challenging if they saw the balance change and thought ‘I don’t like this volatility, I’ll move down the risk spectrum’ because if they sit there for 40 years it could have unintended consequences.”

She said the bank had contacted people who had switched and offered them advice. It would get in touch again in the near future to assess whether the members were still happy with their decisions.

Lockyer said the bank had also experienced an increase in the number of calls from people wanting to check their balances, even though this can be done online.

KiwiSaver members who have financial advisers had a different pattern, she said.  Some had moved their investments to riskier assets as the volatility hit.

John Berry, of Pathfinder Asset Management, said people who panicked could hurt their long-term outcomes.

“This month our world equities fund is up 5%. Those people panicking and thinking ‘I’ve got to get out’ have shot themselves in the foot and missed it.”

He said KiwiSaver members would be better to take the approach that when sharemarkets were down, prices were cheaper and they would get more for their contributions.  “That’s a mindset change that needs to happen in New Zealand investors. When markets come off they should go from conservative to aggressive strategies to get in at the good entry level.  But they are going the other way and missing out.”

 

KiwiSaver accounts took a hit for the first time in years in the September quarter, new Morningstar data shows.

The research house has released its latest quarterly report on the retirement savings scheme.

Conservative funds were the only positive performer, with an average return of 0.2% over the three months.

The aggressive category performed the worst, down 4.47%.

During the quarter, global markets fell 4.09% in aggregate, New Zealand dollar, terms.

Emerging markets were down 13.08% although most KiwiSaver schemes’ exposure to this was indirect.

The S&P/ASX200 lost 6.58% in Australian dollars. The NZX50 fell 2.33%.

Global fixed interest markets were up 2.08%.

Fisher Two was the top performer in the conservative category, as it benefited from exposure to direct property.

Generate topped the moderate Category, which Morningstar said was due to its strong security selection.

Milford was the best-performing balanced category as it dialled back its exposure to growth assets.

AMP Nikko and Forsyth Barr did the best in the growth and aggressive categories because they had the most exposure to New Zealand equities.

On a long-term basis, Aon Russell and ANZ topped most categories.

Morningstar said: “For the most part, we commend the KiwiSaver providers for producing appropriately-diversified KiwiSaver funds. The strategic asset allocation across the board is sensible, with strong emphasis placed on long-term returns and preservation of capital. Volatile market conditions will provide some angst for investors but they should take comfort in their retirement nest egg if it is invested in the most appropriate risk profile.”