KiwiSaver

It is difficult for people nearing retirement to get access to the financial advice they need, it has been argued.

Simone Robbers, the Financial Markets Authority’s director of primary markets and investor resources, and David Boyle, group manager for investor education at the Commission for Financial Capability, fronted media yesterday at a press conference to discuss their recent report on New Zealanders’ retirement experiences.

The research showed that a large number of New Zealanders over 50 did not have a financial plan in place for their retirement.

Those most likely to have a plan were those who thought they already had the money to live the sort of lifestyle they wanted in retirement, those over 60 and those with annual household incomes over $30,000. Retirees with a financial plan tended to have a more comfortable retirement.

Robbers said whether those nearing retirement drew up a plan with an adviser or whether they did it alone was secondary to the act of planning itself.

She said New Zealanders “needed to start somewhere”. For some, that would mean going straight to an adviser. Others might work through other tools first. “Both starting points are good and better than what we are seeing at the minute.”

But Boyle said a key issue was where New Zealanders could find advice and whether they would pay for it. “It’s hard to get good factually-based information, let alone advice.”

He said adviser businesses had traditionally been geared up to deal with those who already had a significant lump sum saved, but New Zealand also need to think about the needs of accumulators, and develop a better framework to do that.

Robbers said New Zealanders needed to be encouraged to seek advice and consider a lump sum, such as from KiwiSaver, as a way to generate income.

Boyle said he had challenged KiwiSaver providers to think about ways they could provide a better service to those nearing retirement. “At the moment you get a letter from IRD saying you are eligible for NZ Super and then maybe at the same time you get one saying you have got this lump sum, what do you want to do with it? I think we can do better. Don’t send out a letter three months before they hit 65, think about message and ideas at 50 to act as a catalyst.”

A little bit of financial planning could go a long way, Robbers said. “But tools need to be easy to access and easy to find.”

ANZ, the largest KiwiSaver provider, said it provided free financial planning services to its members.

But ANZ Wealth General Manager Products and Marketing Ana-Marie Lockyer said few took advantage of it.

Morningstar has given bronze ratings to Mercer’s KiwiSaver schemes.

Bronze, silver or gold ratings are used to indicate Morningstar’s level of conviction in its recommendation of funds.

The research house said the insights of a global team of investment professionals and extensive diversification at the asset and fund level were characteristics that make Mercer KiwiSaver an attractive option.

“Mercer takes a long-term view when building its portfolios and will venture into esoteric asset classes, such as unlisted assets and alternatives, to source value. The portfolios boast the widest investment opportunity set in the market, and diversification across managers is high. For instance, no other KiwiSaver providers we cover invest into unlisted infrastructure or natural resources.”

Morningstar said that diversification meant Mercer funds performed well when traditional asset classes were performing poorly but lagged when markets were strong.“

The local team has the flexibility to tactically tilt the portfolio to reflect short-term views and exploit mispriced opportunities. This has the potential to add value but execution is paramount and introduces market-timing risk. This was the case in 2014 when the team mistimed the bottoming of sovereign bond yields, an underweight position detracting from performance. However, we are confident the team can add real value over the longer term.”

It said Mercer was competitively priced compared to others in the market but long-term performance was weighed down by a poor year in 2012.

Many New Zealanders have the mistaken belief that once they get to 65, they have to pull their money out of KiwiSaver, AMP New Zealand’s general manager of investments and insurance, Therese Singleton, says.

She said leaving money in KiwiSaver through a retiree’s decumulation phase offered more freedom and potentially better returns than term deposits.

“In the past, many retirees have favoured term deposits because they are easy to understand and viewed as low risk. With the AMP KiwiSaver Scheme we have a great investment alternative for people over the age of 65.”

In the last financial year, the AMP KiwiSaver Scheme Conservative Fund earned 8.2% returns and for the same period, one-year term deposit rates for the major banks ranged from 4-4.35%.

Interest rates and returns from KiwiSaver scheme provider conservative funds may vary from year to year, but Singleton said KiwiSaver also offers retirees additional benefits.

“Unlike a term deposit, where you may have to wait for 31 days to take your money out, once you reach 65 you can make partial or full withdrawals from your account whenever you need to as long as you have been a KiwiSaver member for five years,” she said. “You can also continue to make contributions should you decide to return to work but what many people don’t realise is that once you reach 65, if you leave KiwiSaver, you can’t get back in. Maintaining your KiwiSaver membership into retirement means you can keep your options open.”

She said KiwiSaver was one of the few products that had its fees formally regulated, so it offered good value for money compared to other investments such as managed funds.

Even people who were nearing  retirement could join the scheme,  collect member tax credits for five years and then be left with an effective and affordable product to help them manage their retirement income, she said.

Some would need to change their fund to a more conservative option if they were reliant on their KiwiSaver funds but other retirees could opt for a riskier investment and treat it as an investment vehicle for part of their retirement plan.

“Plus, with a scheme like the AMP KiwiSaver Scheme, you have access to professional expert advice that your bank may not offer. Your AMP adviser is there to help you choose the right fund for your age and risk profile and to help you to make the most of your savings.”

ANZ is calling on other employers to do their bit to help women achieve better outcomes through KiwiSaver.

The bank announced yesterday that it would continue to pay employer contributions to its employees’ KiwiSaver accounts while they are off work on parental leave.

ANZ general manager of human resources Felicity Evans said the move was part of its Wise Women campaign, which aims to raise awareness of the imbalance between men’s and women’s retirement savings outcomes.

The bank says Kiwi women retire with about $60,000 less than men, on average.

Evans said: “We have done this because we do not want our staff to be penalised for taking time out to raise families. This is a first for New Zealand and we hope it encourages other companies to also consider how they can support their employees in saving for their retirement.”

ANZ has more than 9000 staff, with about 200 on parental leave at any one time. It provides 16 weeks of parental leave on full pay and will increase that to 18 weeks from next year, topping up the paid parental leave available from the IRD.

The median net worth of women aged 45 to 64 is $146,100, compared to $167,300 for men of the same age.

At retirement, ANZ estimates women will have an average $144,000 to last them just over 20 years. Men will retire with an average $203,000 to last 17.3 years.

The average balance for women in the ANZ KiwiSaver schemes is just under $9000, 28% less than the male average. Two years ago, the gap was 26.5%.

ANZ general manager of wealth products and marketing Ana-Marie Lockyer said the type of fund women chose could also affect their outcomes.

Only 10% of women surveyed said they did not mind higher volatility if it meant better returns over time: “More women than men are in our conservative funds and this can have a big impact on financial outcomes over the long term. The maths shows that women could be $90,000 worse off by remaining in the conservative fund over the long term,” Lockyer said.

The KiwiSaver top-up applies to any ANZ staff taking parental leave from October this year.

Retirement Commissioner Diane Maxwell welcomed the move. “This is the kind of innovation that shows what a key role employers can play,’ she said.