KiwiSaver

Financial advice offered to whole households or communities would have more of a lasting impact, new research suggests.

Annie Zhang, a corporate finance senior analyst at KPMG and Massey University PhD student, analysed a database of one bank and four KiwiSaver providers’ members to determine what drives investor behaviour.

Less than 20% of the investors surveyed had received financial advice.

Zhang’s report showed clearly that investors are heavily influenced by those they live and work with.

They were two-and-a-half times more likely to hold the same fund as others in their household as they are with any other person, and 1.4 times as likely to be invested in the same funds as their co-workers.

Investors were much more likely to change funds if someone in their household switched.

But while the “peer effect” of those they interacted with daily was the biggest driver of where they put their money, financial advice had an impact, the research showed.

The research found investors who had financial advice tended to hold 8.3% more equity, on average, in their accounts. 

Zhang said they were less likely to be affected by those around them than people who had received no advice.

“People are affected by who they live with and where they work but if they receive investment advice they are less likely to listen to [other people]. If you receive financial advice, and have a plan, if someone else makes a change [to their KiwiSaver] you might contemplate what they’re doing but there’s less of a kneejerk reaction to follow suit.”

But she said it would be helpful to advisers to consider the impact of their clients’ communities, because the peer effect was such a strong driver of behaviour. “Advice as it is given at the moment serves its purpose and is a benefit to the individual receiving it but advisers should know people are more affected by the people the live with.”

She suggested financial advice could be given on a community or household basis, rather than one-on-one.

“The existing model works but there are new ways and opportunities that can be explored. There’s the analogy of ‘don’t feed a man, teach a man to fish’. You should teach the family or the community to fish so they can go fishing together.”

ANZ is reporting a surge in the number of customers wanting to use KiwiSaver to help buy their first home following the April 1 introduction of new regulations for KiwiSaver first-home withdrawals.

ANZ Wealth managing director John Body said ANZ’s customer contact centre received more inquiries about KiwiSaver first-home withdrawals in the first week of April than it did in the whole month last year.

“Also, the number of inquiries to our contact centre in March was double the number we received in the same period last year,” he said.

“It is clear that more people are really keen to understand how KiwiSaver can help them into home ownership.”

Government changes to KiwiSaver that took effect from April 1 included:
• Allowing KiwiSaver members to withdraw all their KiwiSaver funds (except the Government’s $1000 Kickstart) to help fund their first home.
• A new KiwiSaver HomeStart grant of up to $10,000 ($20,000 for couples) to help fund new builds of first homes. This complements the existing KiwiSaver HomeStart grant of up to $5000 ($10,000 for couples) to help purchase a first home.

“The number of ANZ KiwiSaver members making a first-home withdrawal has already trebled over the past two years but it is clear the Government’s latest changes have sparked even more interest,” he said.

“KiwiSaver is now a significant part of the first-home buying equation but there are conditions and people need to know how it works so they can take full advantage of the scheme. For instance you need to be a member of KiwiSaver for at least three years before you can make a first home withdrawal. And, people wanting to apply for a KiwiSaver HomeStart grant would need to regularly contribute at least 3% of their income to KiwiSaver for a minimum three years. But you really make the most of this benefit when you have been contributing for five years because the Government will potentially give you $1000 for each year you have been contributing, up to a maximum of $5000 per person. You can double that if you are looking to build your first home.”

He said KiwiSaver offered good opportunities but many people were not aware they needed to be actively contributing to qualify for the HomeStart grant.

Body also encouraged people to resume contributions to KiwiSaver after making a first-home withdrawal: “The primary purpose of KiwiSaver is to save for your retirement, although there are also some great benefits to help people buy their first home. KiwiSaver is a long-term savings vehicle and the benefits accumulate as you contribute over time so it’s important to start contributing to KiwiSaver again once you’ve made a first-home withdrawal.”

KiwiSaver account-holders who go bankrupt will not have to hand over their retirement savings, a court has ruled.

The Court of Appeal has decided that a bankrupt’s KiwiSaver account is off limits to the Official Assignee.

The decision has a potentially wide impact – in January there were 5559 bankrupts with KiwiSaver accounts worth more than $27 million.

The court was asked to look at whether the Insolvency Act 2006 entitles the Official Assignee to access KiwiSaver balances and whether bankruptcy automatically satisfies the significant financial hardship test for withdrawing KiwiSaver funds.

It decided the answer to both questions was no.

The Court also considered the KiwiSaver Act’s (KSA) purpose statement, which is to encourage a long-term savings habit and accumulation of funds to provide retirement security.

“There is nothing in the KSA 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 KSA would be undermined and the burden of providing for the welfare of individuals would fall back on the state.”

It follows a High Court ruling last year that money could be put aside for creditors but they could not have it until the bankrupt person was eligible to access their KiwiSaver, typically at 65.

Law firm Chapman Tripp said the Court of Appeal decision provided much more clarity but there were still questions, such as what creditors could do if someone who was about to go bankrupt put extra money into their KiwiSaver accounts.

“There may also be a question mark now over any KiwiSaver balances which the Official Assignee was able to access prior to this decision.  Is anyone liable to the affected members?”

Some trustees initially accepted applications from the Official Assignee to withdraw money on the grounds of significant hardship but then started to decline them.

It had been argued that going into bankruptcy alleviated substantial hardship, because the bankrupt person was no longer able to be pursued by creditors.

Australian moves to limit retirees’ ability to withdraw their superannuation savings as a lump sum have prompted mixed reactions from New Zealand KiwiSaver providers.

Australian Treasury executive director and chief operating officer John Lonsdale said recommendations from the financial system inquiry to overhaul the country’s superannuation scheme were likely to be adopted.

A key finding was that people should no longer be given access to their superannuation savings as a lump sum when they retired. Instead they should be transferred automatically to a default fund designed to provide a stream of income.

Ana-Marie Lockyer, general manager, wealth products and marketing at ANZ, said she would support mechanisms such as limits to lump sum withdrawals being considered alongside the development of retirement product solutions.

She said it would not be a pressing concern until balances were bigger but providers had a responsibility to ensure that KiwiSaver members used their savings to enjoy a more comfortable retirement.

“There is no silver bullet for a post retirement product to ensure the savings will last during retirement and this is a challenge the world over.  Knowing this and looking forward a few years it is important that the industry takes adequate time now to consider a number of solutions to ensure the security of members’ KiwiSaver savings for the long term.  There will be no right solution for all members but success will be a combination of solutions and mechanisms in place,” she said.

But Jonathan Beale, general manager of wealth at ASB, said restricting lump sum access was the wrong attitude to take. “It seems to imply we don’t trust people to make the right decisions.”

He said a better solution was to improve pre-retirement education so people understood what they needed to save and that it would have to last. “If you focus on the education you hope they wouldn’t spend it all on a boat and a bach.”

Sean Donovan, of Milford, said the scheme had been sold to the public on the basis that they would have full access to the funds at 65. To change that would undermine the scheme, he said.

“The bulk of contributions are done by the individual and their employer. It seems unfair for the government to have the ability to limit how much of your money you can access in retirement.”

He said the financial services industry was capable of developing products to help clients decumulate sensibly.

In Britain, the rules have changed this month so retirees are no longer obliged to purchase an annuity when they retire.