KiwiSaver

Women need to be encouraged to think about their retirement savings plans, and regularly check they are on track, ANZ’s general manager of wealth products says.

Ana-Marie Lockyer said there were big challenges for women planning their retirements.

“Women are coming from behind in saving for their retirement,” Lockyer said. “On average, women live longer and retire earlier, meaning their retirement savings need to stretch further.”

She said that nearly eight years into KiwiSaver, average balances for women members of the ANZ KiwiSaver Scheme were almost 28% lower than men at $8918 and $11,396, respectively.

She said the gap was getting bigger – a year ago it was a 26.5% difference.

“There is little to suggest that women will close this gap – in fact, it could widen over time as 85% of New Zealand women typically take career breaks to raise a family. We estimate that women on average are likely to retire with $144,000, compared to $203,000 for men – that’s significantly less money, particularly when you consider it potentially needs to last longer.”

Lockyer said some action would need to be taken if women were to have equal opportunity to save for their retirement.

Providers, employers and advisers should encourage women to have a plan and regularly check whether they were on track, she said.

Women could start making bigger contributions early in their career to make up for any periods out of the workforce, she suggested.

But she said from a national perspective, it was also important to think about how women were supported during maternity leave from an employer or government perspective.

Lockyer said it was not something that any country had worked out an adequate solution for yet.

Possible solutions could include shared contributions, so if one half of a couple was off work, their KiwiSaver contributions could be spread across both parties.

“We have to start thinking at a national level,” she said.

Questions are being asked about whether KiwiSaver members are switching providers without understanding the consequences.

In the last two months of 2014, more than 30,000 KiwiSaver members changed provider. On an annual basis, that increased from 126,000 in 2013 to 149,407 in 2014.

Commission for Financial Capability group manager investor education David Boyle said he expected those numbers to grow over the next five years as the market matured. “My concern is around people switching and not understanding the reasons why.”

Some might be chasing return, he said. But that did not take into account the fact that past returns did not indicate future returns – or that the risk profile of the high-performing fund might not be right for them.

Boyle said people who were in a conservative fund by default and saw strong returns from a growth fund needed to understand that they would be moving to a riskier option if they shifted.

“It may not be appropriate for their circumstances. We need KiwiSaver members to be aware of what the fund they are in before looking to another provider. The fund itself determines return a lot more than the provider. If you look at conservative funds today, it doesn’t matter who the provider is, growth funds would have outperformed.”

There was also a risk that people were changing because of factors such as being able to see their balance online alongside their banking, he said.

“It has to be a well-informed transfer. There should be more emphasis on providers ensuring the information is getting to customers before they switch so they’re switching for reasons other than convenience.”

It would become more important as balances grew bigger, he said, and advisers could play a role. “Lots of New Zealanders don’t see the value in an adviser so we need to drive that awareness. With a plan or strategy, the outcome can be a lot better.”

FMA spokesman Andrew Park said issues around the way KiwiSaver products were sold was a key focus for the regulator this year.

In its Strategic Risk Outlook, the FMA says it wants to address the mis-selling of financial products including KiwiSaver and insurance.

“Competition for KiwiSaver business is expected to intensify. From a regulatory perspective, we are concerned that members receive appropriate advice and support when they transfer their KiwiSaver. Some of the sales practices we have discovered through our monitoring activity do not reflect the best interests of customers. With this in mind, KiwiSaver mis-selling and particularly KiwiSaver switching sales processes and advice will be key monitoring themes for our team.”

The managers of New Zealand’s first Islamic KiwiSaver fund are keen to talk to advisers who would like another option to offer their clients.

The Amanah KiwiSaver Plan has been registered for business since mid-last year but barrister Brian Henry, who operates the fund, said it had been collecting members on the basis of word-of-mouth referrals.

Saturday marked the official launch of the fund with fewer than 200 members so far. Henry said there had been a delay putting the finishing touches on the Islamic advisory board, which includes two sheikhs.

“There’s a gap in the market and we believe we can fill that gap.”

He said Amanah had already been talking to one group of advisers who wanted to be able to provide it as an option to their Muslim clients. “We will work with advisers around the country who want to offer it as a second option, it’s a genuinely different option,” he said. “Most other KiwiSavers tend to be much the same with a different stirring pot. We’re quite different. It’s something we’ve worked on for years to put together.”

Henry said the fund’s biggest difference was that it did not deal in interest-based products such as term deposits or other bank lending products.

It also has an ethical mandate not to invest in companies that produce pork, alcohol, tobacco or pornography. It avoids derivatives because of the Sharia prohibition on gambling.

The fund will pay purification payments to charities on any interest returns.

Investments must involve a shared risk, such as shares that would rise or fall with the company’s fortunes. It is currently invested in stocks such Apple, Facebook and Google. Henry said: “It’s a very back-to-basics investment style. We invest in companies that are making something that people want, real estate that is debt free and farming.”

He said there was a benefit to non-Muslim investors who wanted a KiwiSaver fund that did not use financial gearing. “It’s not at risk to the banks… it should appeal to anyone looking for an ethical fund that doesn’t get involved in money lending, people who want a fund that over a number of years will steadily grow.”

The main fund is targeting 10% to 14% growth in US dollar terms year-on-year.

New Zealand’s boutique funds managers are set to benefit from the growth of KiwiSaver, even if they do not operate funds themselves.

Many big providers are outsourcing parts of their KiwiSaver products, such as stock selection, to smaller operators.

AMP announced this month that it was to outsource its New Zealand equity management to a third party. Big banks, such as ASB, also have aspects of their KiwiSaver investments managed externally.

Stephen Bennie, of Castle Point Funds, said it meant the country’s boutique managers were not shut out from the KiwiSaver flow of investment.

“They’re not in-house managing the money, that’s going to funds managers in some cases like ourselves. You saw the example of AMP recently – that’s the way a lot are going. That’s the favoured approach to getting the best decision made at a stock selection level.”

John Berry, of Pathfinder Asset Management, said: “That’s something I think will happen with time. The large managers may reach capacity with the assets they’re managing and others are outsourcing more and more functions.”

He called for KiwiSaver providers separate their platforms and funds management so investors could get access to a wider range of products.

But he said that might require a regulatory push.

“KiwiSaver investors want what is the best solution for any particular asset class. They want their KiwiSaver provider to say ‘I’m giving you the best solution in the market’. If the KiwiSaver manager has the platform and manages the product they’re likely to just choose their own.”

He said if providers were going to stand by their claim that their product was giving clients the best options in the market they should have to consider third-party options. “They don’t have to choose the third-party options if theirs it the best but they should test the market and make the call.”

The Financial Markets Conduct Act has introduced a licensing regime for funds managers, imposing a level of regulation not previously seen.

Berry said it would not drive smaller operators out. “If you look at where we’ve come from it was a situation where anyone could set up as a fund manager regardless of their qualifications and infrastructure. That was unacceptable from an investor perspective. We need minimum standards and to make sure that people offering products have robust systems.”