KiwiSaver

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.

ANZ Investments says KiwiSaver members missed out on $400 million in member tax credits from the Government in the last year.

Each year, the Government will provide up to $521 as a Member Tax Credit to every KiwiSaver member who contributes a minimum $1042 in the year to June 30.

ANZ Wealth New Zealand managing director John Body said it was great to see more people taking advantage of this benefit but many people were still missing out because they did not contribute enough during the year.

“Our analysis indicates that 56% of possible Member Tax Credits were paid out in the 2014 financial year, up from an estimated 50% in the prior year. Based on this, KiwiSaver members nationally missed out on an estimated $400 million that could have been claimed if they had contributed the minimum amount,” he said.

“It’s great to see more KiwiSaver members making the most of this benefit, but there’s still a fair way to go before everyone gets what they’re entitled to. This year, ANZ Investments contacted our KiwiSaver members to remind them of the benefit. We found that many people didn’t know they were entitled to this and were keen to contribute more in a lump sum in order to claim the benefit.”

He said members of ANZ’s three KiwiSaver schemes made $24 million in voluntary contributions between May and July, earning them $33 million more in member tax credits.

“Members actually called to thank us for reminding them – in a number of cases, they had taken a contributions holiday but moved to top up their contributions for the year so they received the benefit.”

Body advised KiwiSaver members to set up a direct debit to ensure they contributed enough to qualify for the Member Tax Credits next year: “We suggest members call their KiwiSaver provider and consider setting up a direct debit. It’s a lot easier for people to contribute $20 a week than find $1000 at short notice. In return, you get 50 cents for every $1 you contribute up to $1042 which is going to help you reach your retirement savings goal sooner.”

KiwiSaver advice does not need to be particularly time consuming for financial advisers, one provider says.

Many advisers have said it is hard to make a living from KiwiSaver, and the amount of time spent on helping clients with the Government savings scheme was not reflected in the commission they would earn.

Advisers get, on average, a trail commission of a quarter of a per cent of the fund balance and an introduction fee of about $25. That means an adviser whose client had $10,000 in KiwiSaver would earn $25 a year from that client.

But Henry Tongue, of Generate, which deals with RFAs, said most people would not feel the need to talk to their adviser every year, especially if the communication from their provider was good.

“Some people, particularly those with large balances, will want to discuss their KiwiSaver more regularly perhaps as part of a wider asset portfolio review…Advisers can make KiwiSaver as big or small part of their business. The advisers we work with generally find their clients very receptive to taking KiwiSaver advice, especially when they find out that the advice they are going to receive could have a meaningfully positive impact on their retirement.”

Massey University banking expert Claire Matthews said it would come down to individual preference. “I wouldn’t think any more than every six months would be required.”

Advisers might also need to check in with clients in May, to make sure they put enough into their KiwiSaver accounts to get the full member credit from the Government. “There’s no point doing a review in August and saying ‘by the way, you missed out’.”

Matthews said advisers should not be encouraging members to change KiwiSaver scheme or fund on a regular basis. “But every 12 months you could ask: Are you still in the right fund, with the right provider?”

She acknowledged there was not a lot of money in KiwiSaver for advisers. “That’s one reason why you wouldn’t want too frequent reviews but in large part it’s because clients wouldn’t want them.”