KiwiSaver

A strong local bias in KiwiSaver and non-KiwiSaver investments is leaving New Zealand investors vulnerable in the event of an economic crisis, one fund manager says.

KiwiSaver funds have a strong local investment slant.

According to the Reserve Bank, there is $10.6 billion of KiwiSaver funds invested in New Zealand assets, compared to $11.7 billion in offshore assets – a strong bias to New Zealand assets considering New Zealand represents just 0.1% of global sharemarkets by capitalisation.

Default funds with high cash and NZ bond balances affect the overall allocations.

Morningstar estimated that 27.4% of KiwiSaver allocations are to international shares while 13.2% is to New Zealand and Australian shares.

Pathfinder Asset Management’s John Berry said this was a clear indication of home country bias. “If all of New Zealand’s listed companies were combined into one mega-corporation, that company would still only rate as number 61 in the S&P500.  There are 60 listed companies in the US alone that are bigger than NZ’s entire market.”

But he said it was not uncommon to favour assets close to home. Concerns have been raised in Australia about self-managed superannuation funds investing only in Australian cash, property and equities. They are being encouraged to seek professional advice to reduce their concentration risk.

Berry said: “Investors in all countries tend to suffer a home bias – we naturally want to invest in what we understand and what is familiar to us.”

Berry said it created a potential risk for New Zealand savers. “In aggregate the KiwiSaver savings pool is overexposed to New Zealand cash, bonds and shares.  Given we are such a small economy and investors are already exposed to the NZ economy through non-KiwiSaver investments, including housing, more diversification away from New Zealand risk would be sensible.  If New Zealand was to face an economic crisis, many investors could suffer by having both their KiwiSaver and non-KiwiSaver eggs in one concentrated basket.”

He said if KiwiSaver investors were getting advice, the asset allocation of the $20 billion in KiwiSaver would look quite different.

A lower Kiwi dollar may make KiwiSaver funds invested internationally look more appealing.

Since July, the Kiwi dollar has fallen from US88c to hover around US77c.

Research house Morningstar’s survey of the retirement savings scheme providers found those with international exposure had been standout performers over the September quarter.

It said the sharp fall in the dollar meant all major stock markets around the world produced positive returns in NZ dollar terms.

The OneAnswer International Share fund produced an 18.5% pa return over the past three years.

NZX-owned Fundsource reported performance in the quarter was correlated with allocation to global equities.

The growth category, with an average 46.5% allocation to global shares, had returns of 3.62% over the quarter, compared to 2.88% for the balanced category, which has just under 30% exposure.  Funds with 100% allocation to global equities returned an average 5.8%.

Fundsource’s Sam Stanley said the decision for investors was not as simple as moving their money to a manager who would invest it offshore because different managers would have different levels of hedging. He said this would make a big difference to the funds’ performance.

NZX-run Smartkiwi is one of the few that is completely unhedged.

David Boyle, of the Commission for Financial Capability, said if investors could see currency risks being managed, movement in the dollar should not be a reason to change funds. He recommended investors ask their provider what their processes were.

There’s a suggestion New Zealand KiwiSaver schemes could face a fee crackdown similar to that being suggested in Australia.

Australia Financial System Inquiry chair David Murray has set a deadline of 2020 for the MySuper default super regime to produce results, and says if it doesn’t, it should be replaced.

Among the inquiry’s 44 formal suggestions are potential shake-ups to the default fund selection process. Murray said the Government should see the impact of MySuper on fees.

“We have recommended that MySuper be replaced with a competitive mechanism for allocating default members to the best funds if MySuper has failed to deliver significant fee reductions by 2020,” Murray said.

“This represents a challenge to the superannuation industry because we still believe that 120 basis points of average fees is too high and limits the accumulation over time.”

David Boyle, of the Commission for Financial Capability, said there was a way to go before New Zealand’s super saving industry encountered that level of intensity of scrutiny.

“However it may come a lot sooner that it has taken in Australia if things don’t change.  Remember they have had nearly 25 years of compulsion – not withstanding a significant amount of regulatory change for that matter – and with average balances far larger than say our KiwiSaver ones, the impact of fees are very material in real dollar terms.”

In New Zealand, the average annual fee for default providers on a balance of $7000 is $69.

He said it should be expected that with market competition, increasing average balances, greater transparency around disclosure and fees, and their impact on total returns, investors would be driven to seek the best overall solutions in the market.

Allan Rickerby, who deals in super saving on both sides of the Tasman dismissed the recommendations as “noise”. “It’s such a political hot potato bouncing around. I see this as noise and chatter. The fees for most MySuper products are well under 120bps.”

Women are feeling less confident about reaching their retirement savings goals, according to ANZ’s latest retirement savings survey.

Overall, 44% of Kiwis feel confident that they are saving enough to pay for their retirement, but women are much less confident than men.

The survey of close to 700 people, conducted in October, found 34% of women felt very confident or confident of saving enough for their retirement. By contrast, 55% of men were very confident or confident.

ANZ Wealth General Manager Product and Marketing Ana Marie Lockyer said around two-thirds of people overall were confident of reaching their retirement savings goals.

“It is not surprising that some women are less confident about their retirement savings than men – they have every reason to be concerned. Women are paid less than men, while 85% of New Zealand women take time out from the workforce to raise families. Further, women tend to retire two years earlier than men and live longer. So, it is harder for women to save as much and their money has to potentially last them longer. That’s the reality for many women.”

She said women were, on average, retiring with less money than men. 

“The average KiwiSaver balance for women aged 25-40 is 23% lower than men of the same age and this is expected to widen by the time they are 65.”

She said it was important for people to look at what they needed for a comfortable retirement and whether they were on track to save enough.

“Taking a career break can create quite a hole in your retirement savings plans but there are a number of things you can do to catch up,” she said. “For example. you can increase your regular contributions, make a lump sum payment or consider moving your money to a higher growth KiwiSaver fund – it all depends on your personal circumstances.”

Lockyer advised anyone feeling uncertain about their retirement savings plans to talk to their KiwiSaver provider and get some professional financial advice: “It’s much better to get some advice and take the necessary steps than it is to turn around at age 65 and find out you haven’t got a hope of reaching your goals.”