KiwiSaver

[UPDATED, ADDS GENERATE COMMENT] A financial adviser who used to manage a small KiwiSaver scheme says the pressure will be on Pie Funds if it launches into the market.

Pie Funds is believed to be planning to open a KiwiSaver scheme next year.

Pie’s funder and chief executive Mike Taylor was not available to confirm that.

It had reportedly been waiting to get enough funds under management to make the move.  It now has $250 million in FUM.

Norman Stacey’s firm, Diversified Investment Management Services, used to manage the Law Retirement KiwiSaver scheme, with just over $5 million in FUM and 382 members.

He said it would be a courageous step for Pie to enter the market. 

Diversified was recommended to take the LRKS scheme to Fisher Funds, which it did in the middle of last year.

“The FMA indicated they wanted fund managers with substantial assets to be running KiwiSaver schemes. The FMA certainly puts pressure on the little outfits,” he said.

But he said he would love to see Pie Funds succeed with KiwiSaver. “There is a lot of group think to KiwiSaver, they are much of a muchness if you deal with the big banks and providers.”

He said most were invested in similar ways and that could lead to systemic risk.

Stacey said KiwiSaver seemed to be a numbers game. “Generate is the only one I think of as being independent out there. I don’t think there are too many smaller ones left.”

Generate chief executive Henry Tongue said: “I think we need more KiwiSaver providers. Consumers will be the winners as competition will drive the industry to provide better products and service. Generate was voted Investment Provider of the Year 2015 by the PAA, we were ranked 1st for services earlier this year by Sorted and in the most recent FundSource tables our Focused Growth Fund was the top performing KiwiSaver Growth fund with a return of 27% for the year. Our Conservative Fund also topped the Conservative KiwiSaver rankings for the year. The net result of that is we are growing strongly with over 11,000 members and around $100m under management.”

KiwiSaver members expect their providers to offer them insurance, Mercer’s New Zealand managing director says.

Mercer has launched two new products that have additional benefits for people who are also members of the firm’s KiwiSaver scheme.

LifeProtect pays out in cases of death and terminal illness. BillProtect insures against inability to work due to redundancy, illness or injury.

Mercer KiwiSaver members who claim on either policy because they are off work will also receive a monthly contribution of $200 into their KiwiSaver scheme account.

The policies are underwritten by Cigna.

Mercer managing director Martin Lewington said research had shown people expected to be offered insurance by their KiwiSaver provides and were highly likely to buy it.

He said there was a high degree of interest in the product.

The policy price would depend on the personal risk profile of the person taking out the policy but would start at $15 a month.

The insurance contributions to KiwiSaver would be enough to give the insured customer the full member tax credit from the Government each year.

Lewington said the impact of the cover would then be amplified because the money would be invested until retirement.

He said the policy, the first KiwiSaver cover in the market, was a way to differentiate Mercer from its competitors.

“Differentiation is about innovation and focusing on customers.”

FMA wants New Zealanders to give their KiwiSaver accounts an online health check as part of Money Week.

It is directing consumers to its website, where it asks whether they know who their provider is, what type of fund they were in, whether their KiwiSaver account is on the right tax rate, how much they have in their account and whether they think their KiwiSaver account is government-guaranteed.

It offers more tools and information.

The FMA is also hosting a free event at Westfield Riccarton Mall in Christchurch, where people can take part in an interactive version of the KiwiSaver health check.

The FMA’s director of primary markets and investor resources, Simone Robbers, says it’s important that people check in to make sure their KiwiSaver investment is working for them and Money Week is a perfect time to do that.

“For many New Zealanders, KiwiSaver will be their first investment experience and may represent a large part of their retirement savings and ultimate financial security. Finding out what choices are available to you now could have a positive impact on your future,” she said.

“There are some essential things New Zealanders can find out about by completing the health check, such as understanding what type of investment fund they are in and making sure their prescribed investor rate (PIR) is correct.”

Money Week is a nationwide week of events that motivates New Zealanders to look at their financial situation and get their money into the best shape possible.

During the week, the FMA will also be releasing more findings from its joint survey with the Commission for Financial Capability into how well older New Zealanders are preparing for their retirement, and what they plan to do with their KiwiSaver when they reach 65.

A decision to remove the $1000 incentive for new KiwiSaver members was made on the basis of inaccurate information, the Financial Services Council says.

This year’s Budget axed the kickstart, on the basis of a Treasury report that said the scheme offered the Government little value for money.

In response, the FSC has commissioned its own report from the NZIER.

Chief executive Peter Neilson said the Government should not have made the decision to remove the $1000 incentive on the basis of the Treasury report.

He said KiwiSaver had been shown to be effective in getting middle-income New Zealanders saving, and diversifying their investments.

He said the NZIER report focused on the people KiwiSaver was designed for – those who were likely to have a lower standard of income in retirement than they had when they were working.

The report found KiwiSaver was likely to lead to an increase in net worth and standard of living for those people.

NZIER’s report said KiwiSaver should also lead to more diversified investment portfolios in New Zealand, reducing the concentration risk of having much of New Zealanders’ money tied up in housing.

NZIER principal economist Aaron Drew said: “If there is a really bad economic shock which compromises the ability of a future government to pay for New Zealand Super, KiwiSaver is one of the key things that is potentially there to mitigate that risk.”

Neilson said the NZIER report found the evidence for Treasury’s argument was too narrow because it used data only from the global financial crisis years.

He said it did not consider that KiwiSaver attracted young and low-income people who would not usually have been involved in formal savings schemes.

“The analysis simply compared the results for the people in KiwiSaver with those who were not, as opposed to those in the target audience who joined KiwiSaver compared with those in the target audience who did not,” Neilson said.

“We need to compare apples with apples. People on a benefit can’t afford to save and are likely to receive a higher income from New Zealand superannuation than they received during their adult lives on a benefit anyway. At the other end of the scale, people who were saving for retirement by investing in rental property or a farm would be unlikely to use KiwiSaver other than to just pick up the KiwiSaver incentives. For this group KiwiSaver would probably not increase their savings, it would only change the composition of their savings. Neither of these categories were in the target group for KiwiSaver and should not have been used for comparison.”