KiwiSaver

Government’s contribution to KiwiSaver balances has been “substantial”, a new Treasury report says.

There is now more than $27 billion invested via the retirement savings scheme and it has more than 2.5 million members.

But the report by Treasury analysts says it is hard to identify the amount of new saving created by the scheme, and what has just been transferred from other investments.

It says best estimates are that between 25 per cent and a third of the saving in KiwiSaver is “new” money that would not otherwise have been invested.

“The evidence suggests that the effect of KiwiSaver on increasing net wealth is poor,” the report says.

But it says the amount the Government has contributed in getting the scheme off the ground is significant.

Until this year it offered a $1000 kickstart to new members. Between KiwiSaver’s launch and 2011, it offered a member tax credit of $1042 to members who contributed that amount. Since then, it has offered $542 to people who save $1042 in a year.

“In June 2008, the Crown’s contribution to KiwiSaver represented over half the total payments to providers. However, this has fallen to just over 20% in June 2013. The main fall in Crown contributions seen between 2012 and 2013 resulted from the halving of the member tax credit as of July 2012,” the report said.

In 2014, the Government’s contribution represented about three-quarters of a billion dollars, out of contributions of just over $4 billion.

A Treasury report that argued KiwiSaver was not making a significant impact on savings rates was part of the reason cited for the Governmenrt removing the $1000 incentive at this year’s Budget.

Since then, many providers have reported a significant drop in the number of new enrolments.

David Boyle, of the Commission for Financial Capabiltiy, said the cost of the Crown’s contributions to KiwiSaver was something that was worth looking at.

But he was unconvinced the latest report would be used as an argument to cut member tax credits completely. “The cost to the Crown going forward is going to continue to fall as a total percentage of funds growth, The investment has been made.”

Boyle said the report’s prediction of $70 billion under management by 2020 was probably conservative.

The report also pointed out that KiwiSaver investments are heavily weighted towards income assets relative to growth. That is in contrast to other countries with similar schemes, where investors have more money in higher-growth assets.”[This] could lead to less than optimal future retirement incomes.”

Craigs Investment Partners is reporting solid growth in its KiwiSaver scheme that allows investors to select their own investments.

KiwiSTART Select is a platform that offers a range of 250 nominated securities from which clients can construct their own KiwiSaver portfolios.

Nominated securities include QuayStreet Unit Trusts and a range of investments in equities, investment trusts, managed funds, index funds and listed property trusts as well as cash.

The scheme returned 12.3% in the year to March 31 on a n aggregated basis but each member’s portfolio delivered different returns.

There were 4379 members in the scheme at the end of the 2015 financial year, compared to 4500 in Craigs’ more standard KiwiSaver scheme.

It had 216 new members over the year, including 36 transferring from an Australian scheme.

It charges an admin fee of $30 per year, and up to 1.25% for investments in self-selected portfolios.

Craigs Investment Partners head of client services Stephen Jonas said the investment selection idea was  in line with Craigs’ philosophical approach.

He said the objective was for the platform to be as agnostic as possible and operate on an almost self-managed basis.

But he said there were regulatory challenges to overcome. The Financial Markets Act requires a PDS including a risk indicator, which is hard to deduce if individuals’ investments are not known.

Jonas said the solution would probably be to describe it as a high-isk fund.

He said he expected interest to grow in DIY approaches as balances increased. The average balance of KiwiSTART Select members is higher than the industry generally, at almost $30,000.

There is no minimum balance required but every client has an AFA associated with them and those with very small balances are guided into managed funds as a way to get started. “As balances get larger they can start to enrich them.”

Jonas said he expected other similar products to launch. “In Australia just under 30% of super scheme investments are self-managed so there is a trend, when the market gets more mature more will step into that space.”

Financial advisers are not significantly influencing the rate at which new KiwiSaver members are enrolling in the scheme, a new Treasury report says.

The report by Treasury analysts was released this month.

It says four out of five new enrolees join the scheme via banks and the impact of financial advisers on KiwiSaver is limited.

“The data suggests that the role of independent financial advisers is minimal in new enrolments in KiwiSaver and therefore that competitive pressure from financial advisers using their comparative advantage at selecting the most optimal fund on the basis of risk, return and cost also appears to be minimal,” the report says.

It said KiwiSaver appeared to be competitive but there was a growing level of concentration in the market, driven by the dominance of banks and a number of mergers and takeovers.

Whether that would lead to cost reductions and efficiency gains would depend on the financial capability of members, the report said.

“Certain trends such as a growing significance of large banks could detract from this and should be monitored to ensure that contestability in the market exists.”

Between 2007 and 2014 the major banks increased their share of the KiwiSaver market from 59% to 65%.

New Zealand’s banks have a larger chunk of our super savings market than their parent companies across the Ditch.

The five largest and ten largest Australian superannuation funds by assets in 2013 accounted for 16% and 27% of total industry assets, respectively.

In comparison, the top six providers by AUM in the KiwiSaver account for 91% of the market.

The report said New Zealand’s banks had the benefit of a strong branch network that was not available to other financial services providers.

They were able to leverage their other relationships with consumers to boost their KiwiSaver reach.

“Numerous media reports in addition to the Commerce Commission have noted the direct sales strategy of the major banks, for example packaging KiwiSaver products with other financial products such as mortgages, insurance and personal banking so that the consumer has all their personal finance products with one institution. “

The report said KiwiSaver fees were high by international standards and returns were mixed compared to the investment performance of Crown financial institutions.

BNZ is launching a new KiwiSaver First-Home Buyer Fund.

This new fund, open to customers from Thursday, extends BNZ’s KiwiSaver Scheme fund choices from five to six.

It is designed for people saving for their first home using BNZ KiwiSaver and who intend to withdraw their savings for their deposit.

BNZ head of wealth Donna Nicolof said: “We have identified that five years is the typical timeframe for people to withdraw their funds to purchase their first home.

“The  BNZ KiwiSaver Scheme First-Home Buyer Fund has an investment profile of 85% income and 15% growth. This ratio reflects the fact people saving for their first home are likely to be more averse to investment losses but would like to outperform cash bank deposits in a three- to five-year timeframe.

“At BNZ our mission is to help people be good with money and the BNZ KiwiSaver Scheme First Home Buyer Fund optimises the investment risk for people intending to withdraw their savings to purchase their first house.”