KiwiSaver

KiwiSaver fees for the next round of default providers will be significantly lower than those charged at by the schemes at present, particularly for savers with smaller balances.

The new nine default providers, assigned a seven-year term starting on July 1, are required to keep fees “reasonable”.

Sources said the restrictions on default schemes’ fees had been a sticking point for some in negotiations.

The nine default schemes will be run by AMP, ANZ, ASB, BNZ, Grosvenor, KiwiBank, Mercer, Fisher Funds and Westpac.

AMP was charging an annual fixed fee of $35.40 and 0.53% in variable fees for its default scheme last September. From this July, it will charge $23.40 and 0.39%.

OnePath’s default KiwiSaver scheme was charging $33 a year and 0.44% in variable fees. In its new term as a default provider, it will charge $24 and 0.6%.

Mercer’s KiwiSaver fees will change from $34.20 and 0.53% to  $30 and 0.56%.

No default provider will charge more than $30 a year in fixed fees of 0.6% in total variable fees in the new default term.  Those figures include an estimate of any underlying fund fees and expenses.

Bruce Kerr, of Workplace Savings NZ, said there would be pressure on providers to keep fees reasonable. “Whether they have to cut them much depends on the regulator’s view of reasonable.”

Some industry sources suggested that the requirement to provider investor education would be welcomed by the default schemes because it would give them the chance to move savers from low-fee conservative default funds to more expensive options. Many growth funds are charging up to 1% in variable fees and up to $50 a year in fixed fees.

John Berry, of Pathfinder Asset Management, said default providers should be required to pay for the status, and the money used to pay for the regulatory activity of the FMA.

“The benefit is now not as great as it was at the start but the next big thing will be if and when it becomes compulsory. If it’s made compulsory there will be massive value in being a default scheme.”

KiwiSaver funds’ fees stand in the way of them being given a gold rating in Morningstar’s research, its Australasia co-head of fund research says.

Morningstar has just finished its latest round of research, covering nine KiwiSaver providers managing the bulk of the country’s KiwiSaver funds.

Chris Douglas said overall,  New Zealanders should be optimistic about KiwiSaver’s ability to help them save for their retirements.

Morningstar’s research assigns funds with ratings of gold, silver, bronze, neutral or negative. The funds are ranked on their people, process, parent, price and performance.

Douglas said it had never handed out a gold rating to a KiwiSaver fund in the three or four years it had been researching them.
He said part of that was due to the large amounts of movement among the decision-makers in each scheme.

Another issue was fees. “They’re still a bit too high in some cases, especially for a conservative fund. In many cases, you’re paying more than 1% for a conservatively managed KiwiSaver product looking to get mid to high single digit returns. That’s a decent chunk out of someone’s savings.”

Five schemes were awarded silver or bronze awards.

Douglas said that was an increase from the last review and an indication of Morningstar’s increased conviction in them.“We believe there are very good reasons for New Zealanders to be optimistic about KiwiSaver’s ability to help them save effectively for their retirement income.”

AMP KiwiSaver and ANZ KiwiSaver (including OnePath and OneAnswer) were given Morningstar Analyst Ratings of silver, the highest ratings of the strategies covered.

Douglas said Morningstar analysts were impressed by AMP KiwiSaver’s strong investment team, close relationship with the firm’s Australian investment team, and widely-diversified portfolios of assets.

“We believe these characteristics should provide the foundation for strong future performance. The AMP KiwiSaver assets are managed by the former AXA KiwiSaver team, which had an Analyst Rating of bronze before it was closed following its acquisition by AMP.”

Mercer KiwiSaver, Milford KiwiSaver (Conservative and Balanced), and Westpac KiwiSaver received Analyst Ratings of bronze.

Milford Active Growth KiwiSaver was given a rating of silver.

Douglas said none was given a negative rating. He said there were likely some KiwiSaver schemes in the market that deserved one, but not those in Morningstar’s database.

New Zealanders are becoming much more engaged with KiwiSaver as their balances creep up, says ANZ’s head of wealth, John Body.

The bank today released its latest Retirement Savings Confidence Barometer, which showed that people were a lot less confident about reaching their savings targets when they were adjusted for inflation.

The bank has changed the way it asked survey respondents about their level of confidence.

Instead of asking how much people wanted in addition to the pension in retirement, and then working back to show how much they needed to save to achieve that, then asking how confident the saver was of getting there, this time the amount they need to save as a lump sum was inflation adjusted.

Then, the same questions about confidence were asked.

The survey found only 39% of those with a retirement savings target were confident they would get there once the lump sum targeted was adjusted for inflation. That’s down from 50% in October.

But they were willing to take action to fix the problem.

A quarter of male respondents and 32% of female said they would increase their KiwiSaver contributions after seeing the impact of inflation on their goals. Another 58% said they would not change immediately but would need to save more in future.

“The results show that many people have not factored inflation into their savings plans. If you’ve got more than 10 years before you retire, then you’ll need to think about how inflation will impact the buying power of your savings,” Body said.

Confidence fell most sharply among those aged 24 to 44. Only 38% were confident compared to 54% in October.

People earning more than $100,000 were also less confident, down from 66% to 50%.

ANZ calculates that a 30-year-old earning $50,000 and contributing 3% using a life stages investment approach could have enough in their account to deliver $200 a week in 35 years’ time when adjusted for inflation.

Body said people needed to be putting more aside – “the more contributions the better” – but also to make sure they were in the right fund for their circumstances. Returns above inflation are likely to be higher for growth and balanced funds than for default conservative options.

“One of the ways to beat inflation over the long-term is to be in the right fund.”

He said advisers should be having the conversation with investors about what they needed to do to get to the required amount in retirement, taking into account the fund the investor was in.

He said it was also incumbent on providers to provide information.

But he said people were becoming a lot savvier. “Think about where we were two years ago versus where we are now. Retirement savings are on the minds of most people. We’re seeing action, people are engaging with KiwiSaver, they see their balances have grown to something reasonable and they’re starting to make decisions.”

Kiwibank is hoping to send out details of the merger of its two KiwiSaver schemes by the middle of this year.

Kiwi Wealth Management, owned by Kiwi Group Holdings, which also owns Kiwibank, bought Gareth Morgan Investments Ltd Partnership, including its  KiwiSaver scheme, in 2012.

It has planned to transfer members over from the AMP-managed Kiwibank KiwiSaver scheme to the Gareth Morgan scheme, to be known from next month only as KiwiWealth KiwiSaver, for some time, so that the bank only has one scheme.

Kiwibank acting chief executive Tracey Berry said the move needed FMA approval or member consent.

She said the Kiwibank KiwiSaver scheme closed to new members in December 2012 but was still operating as usual.

“Once details of the proposed transfer have been confirmed the manager of the Kiwibank KiwiSaver Scheme will write to all members with a comprehensive communications pack which will provide information relating to the transfer process.  Members will then have the opportunity to assess all options and decide whether they wish to participate in a transfer to the Gareth Morgan KiwiSaver Scheme.”

She said it was expected that the details of the transfer would be confirmed and communication packs would be sent out to members of the Kiwibank KiwiSaver Scheme at some point in mid-2014.

AMP directed inquiries to Kiwibank.