KiwiSaver

KiwiSaver members are being told to consider the impact of tax on their investments.

Morningstar has released its latest KiwiSaver survey, covering the period to September 30.

KiwiSaver schemes with international exposure performed best over the September quarter. Those that made an active decision to allocate capital to growth assets also benefited as equities outperformed bonds.

The falling NZ dollar helped funds that left international investments unhedged.

There were no standout performers across the categories, but Milford KiwiSaver came out on top of the balanced and moderate categories and ASB was solid across the board.

OneAnswer KiwiSaver was very strong in the international equities category.

Over a longer term, Aon KiwiSaver Russell was at or near the top of all five categories. 

ANZ KiwiSaver continued to be the strongest of the default providers across the board.

Morningstar said investors should not forget about the impact tax could have on their investments.

“Not all investments are subject to tax and some parts of the market are significantly more tax-efficient than others. For example, capital gains tax is not charged on New Zealand and Australian shares, whereas international shares are treated differently and typically will pay more tax. Other factors that can affect the tax paid include fees and the impact of foreign exchange.”

Morningstar included a survey of funds’ tax-cost ratio, representing how much a fund’s annualised return was reduced by the taxes members paid.

Of the balanced funds, AMP KiwiSaver LS Balanced at the highest tax-cost ratio, of 1.68%.

The least taxed was Westpac’s balanced fund.

Morningstar said tax would have a direct impact on the growth of KiwiSavers’ retirement nest eggs.

“However, investors should not select investments solely on the basis of the level of taxation, as that can lead to poor investment decisions.”

Online KiwiSaver advice offerings will never replace personalised advice, says the founder of one that went live this week.

SavvyKiwi launched on Monday.

It offers a free tool that allows people to see how their KiwiSaver funds are performing against others that are similar.

It also offers premium memberships, for $89 for one year, $159 for 24 months and $209 for 36 months, to match a saver to the right fund, provide expert views on the fund, ongoing information and educational videos.

Founder Binu Paul said most people were signing up for 12-month subscriptions at present but he hoped they would eventually become long-term clients. “Ultimately, that’s what we’re trying to provide.”

SavvyKiwi holds regular one-on-one meetings with fund providers and would send emails to members about any developments.

Paul said: “We have interaction with the fund to find out what’s going on and it’s up to us to decide what’s relevant.  If a manager moves on, we go in and find out what that means. If it’s not a big deal, we let you know. In the alternative scenario, if it’s a pretty big move, we’ll give you some alternatives to consider.”

Meetings would be held with the people managing the money every three months.

Paul said the offer would probably not appeal to the vast majority of KiwiSavers at the moment. But there was a group who wanted more information about their KiwiSaver investments.

“Most people don’t understand the value-add but there are people who do value and understand it and that group is growing. Over the next few years, people may be surprised at their KiwiSaver balances and sit up and take notice.”

Clients who had a face-to-face meeting with a financial adviser would get more value than from an online service, he said. “They can talk about the mortgage, whether you’re saving for kids’ education, whether you need a holiday, what insurances you have and what you want your retirement lifestyle to be like. We’re probably in a slightly different space, we don’t get into personalised advice.”

But clients who met an adviser face-to-face would need to pay much more, he said.

SavvyKiwi would narrow down the choices of funds to three for each person. Out of those three, it was up to the individual to decide which was best.

Videos would give them extra information, such as about what a passive or active approach would mean. “We don’t want people making a choice without knowing what it means,” Paul said.

More than twice as many KiwiSaver customers switched provider in the past year than in the same period the year before – prompting the FMA to warn that transfers must be done in the best interest of the customer.

The FMA has released is KiwiSaver report for the year to June 30. It shows the number of customers changing scheme in the year has almost doubled.

Total KiwiSaver FUM has increased 29% to $21.4 billion, of which 47% is in low-risk, conservative or cash funds, down from 50% in 2013.

Growth in member numbers slowed from 14% year-on-year growth in 2013 to 10% this year.

That has meant that providers looking to grow their portion of the KiwiSaver market have increasingly looked to entice members from other firms.

During the year, $3.57 billion was transferred into schemes from other schemes, up 333% from the 2013. FMA director of compliance Elaine Campbell said the AXA to AMP and ANZ to National Bank mergers represented $2.2 billion of those funds transferred. “But there is still a large percentage growth [in switches[ even when you strip out those mergers… the remaining portion is still 33% more scheme changes in this period.”

Between 2012 and 2013, the rate of transfer growth was just 11%.

Campbell said the statistics supported the messages the FMA had given the industry in its QFE report. “With these numbers of KiwiSaver members switching providers it really does emphasise the importance of ensuring that the switch experience is undertaken with customers’ interests in mind… Providers have to put the interests of the customer first when having a switching discussion.”

She said:   “It is critical that members receive appropriate advice and support when they are encouraged to transfer their KiwiSaver scheme. We are concerned that some of the sales practices we have discovered through our monitoring activity do not put the customer’s interest first and this reflects poorly on some providers’ attitude towards their customers.”

The FMA was encouraging consumers to arm themselves with more information about their risk profile, the performance of funds and fees, she said. Tools such as Sorted’s KiwiSaver comparison offer would help.

There were 55,000 switches within funds during the year, which Campbell said indicated that people were looking at their options within their providers, and thinking about whether they were in an appropriate fund. Fewer were choosing to remain with the default scheme.

Standardised reporting by all providers about their KiwiSaver fees and performance was introduced during the reporting year. These Quarterly Disclosure Statements must be available online for investors to read. They make it easier for investors to compare and contrast how their fund is performing, where their money is invested and help people to make more informed decisions about their retirement savings.

AMP has announced it will offer a free accidental death benefit up to $100,000 to existing AMP KiwiSaver scheme members and those who join before the end of 2014.

If an eligible members dies as a result of an accident between September 1, 2014 and December 31 next year, AMP will make a lump sum payment to the person’s estate that matches the amount in their KiwiSaver account, up to $100,000.

Chief customer officer Jeff Ruscoe said: “Since KiwiSaver started in 2007, more than two million New Zealanders have begun saving for their retirement and understanding the importance of looking after themselves in their ‘golden’ years.  This is a fantastic start to thinking about their financial wellbeing… Today’s announcement delivers even more value to our members and will hopefully encourage people to think ever further or talk to an adviser about how they can protect themselves and their loved ones.”

He said it was not designed to replace comprehensive life insurnace but could go some way towards helping a person’s family in the event of an accident.