KiwiSaver

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.”

Labour’s proposal to apply a capital gains tax to investments in shares – unless they are part of KiwiSaver – could encourage people to move out of more liquid investments, one fund manager says.

David Cunliffe told media yesterday that the 15% capital gains tax his party is proposing would not apply to KiwiSaver but would apply to other investments in shares.

New Zealand PIE funds are not taxed on capital gains or losses at present.

Pathfinder’s John Berry said that would create a huge tax advantage for the Government retirement savings scheme. “As I understand it the point of Labour’s CGT policy is to discourage investment in housing and redirect investment into more productive areas of the economy.  However I’m not sure putting the same tax on housing and shares does much to drive investors out of housing and into shares – on a relative basis you haven’t changed anything.”

The CGT under Labour would apply to net gains. The only exemptions are for the family home, personal assets, collectables, small business assets and payouts from retirement savings schemes.

It will be apply to gains accrued after the tax is implemented and tax will be applied on realisation. Capital losses will be able to be carried forward and offset against future capital gains.

Share traders will continue to be taxed at a marginal or business tax rate.

Berry said the proposal created a risk that investor funds would move from liquid investments, such as PIE funds, to KiwiSaver funds, which are locked up until retirement.

“I think it would be really unhelpful if there was asymmetry between managed funds and KiwiSaver. That would encourage people, because it would be tax-advantaged effectively, to take their money out of managed funds and put it into KiwiSaver.”

He said PIE funds worked well as they were. “When you’re investing in New Zealand shares, there’s no CGT. Traders outside PIEs do pay capital gains tax. That’s a helpful structure. We invest in international shares and I don’t know what this would mean for the FDR. Would they keep the FDR and not apply a capital gains tax, or apply a capital gains tax?”

Governments need to stop tinkering with KiwiSaver, one banking commentator says.

Claire Matthews, of Massey University, said it was disappointing to see National proposing further changes to the scheme.

It announced last week it would  increase the amount of money available as a deposit subsidy to first-home buyers purchasing a new home, and allow them to withdraw their member tax credits as well as their savings.

Matthews said: “KiwiSaver has been in place for seven years now. Politicians of all hues need to accept it is good for the country, and recognise that it is designed to help New Zealanders prepare for retirement and stop trying to use it to achieve other objectives. When it comes to KiwiSaver, the key message to all parties is they should stop messing with it.”

She said first-home buyers who withdrew money for a deposit were disadvantaged in terms of their retirement savings.

Politicians are going into the election with a range of different proposals for the retirement savings scheme.

Labour would make it universal and use contribution rates as a monetary policy tool . It would allow the Reserve Bank to increase KiwiSavers’ savings rates instead of increasing the official cash rate.

The ACT party wants contribution rates for both employers and savers to be set on a voluntary basis. Spokesman Robin Grieve said the system as it was encouraged oversaving among young people and undersaving in those closer to retirement.

United Future wants a form of flexi-super, where people could claim a smaller pension from the Government if they retired at 60, or a larger one if they worked until 70.

NZ First would allow money to be withdrawn for education and to buy a first home. Matthews said that could significantly disadvantage members at retirement, especially if they were funding the education of other family members.

Mana’s John Minto said all political parties should give some thought to what their policy would be in the event of a KiwiSaver fund’s failure.

Many conservative KiwiSaver funds aren’t delivering returns to justify their fees, Morningstar’s co-head of fund research says.

The firm released its KiwiSaver survey yesterday, which is designed to help investors assess the performance of their KiwiSaver options.

Morningstar Australasia co-head of fund research Chris Douglas said global markets had bounced back in the quarter and the best-performing sectors were outside New Zealand.

“This again illustrates the importance of a well-diversified portfolio, as KiwiSavers in domestically-focused schemes will have lagged.”

Aon KiwiSaver Russell was the strongest performer in the balanced and conservative categories, while AMP KiwiSaver Lifesteps came out on top in the growth-oriented categories of growth and aggressive. Milford topped the league table in the moderate category.

But the report made note of fees.

Douglas said he was concerned that fees for conservative funds were high compared to the returns they were generating.

The survey showed a total expense ratio (TER) for conservative funds of 1.05%. Douglas said, considering those funds were aiming for mid-single digit returns, “there’s a meaningful chunk out of that performance the investor receives. I do worry about that.”

He said Morningstar paid attention to fees because they were the one constant that could be controlled. Over time, higher fees would erode performance outcomes.

Douglas cited the AON cash fund, charging 90 basis points, and Staples Rodway charging 1.19%. “Staples Rodway returned 3% and charged a 1.2% fee, the reality is there’s $19 million in there, it’s not a lot of money, but that’s pretty pricey.”

He said most KiwiSavers did not understand the fees they were paying. “If you look at the conservative peer group, there’s a number of funds charging more than 1%. That’s a very high fee to be paying for mid-single digit returns.”

Douglas said there was a risk that investors would realise after a number of years that they had been paying a high fee and had not had the returns they expected. “They’ll have had a bad experience and we hope they would leave and go to a better option, It’s the same thing as buying a car or anything but it’s more significant with KiwiSaver because it’s your retirement savings, you want to save as much as you can, every basis point counts.”

But he said there was choice available – ASB’s conservative fund’s TER is 0.34%.