KiwiSaver

There are calls for a law change to provide clarity on what happens to a KiwiSaver account when someone is declared bankrupt.

The High Court recently ruled that bankrupts’ existing savings in a KiwiSaver scheme are available to be distributed by the Official Assignee to creditors, but only after the KiwiSaver member qualifies to withdraw the money – usually at age 65.

And in doing so, it created almost as many questions as it answered.

The case went to court after the Official Assignee requested the trustee of a KiwiSaver scheme release the funds of two bankrupts under the significant hardship provisions.

One of the men had debts of $26,254 and a KiwiSaver balance of $11,860.46. The other had debts of $9,583 and a balance of $10,805.98.

The Official Assignee argued that bankruptcy was inevitably the result of significant financial hardship and so would be a qualifying event for early withdrawal.

But the Court said the applications had to be decided on an individual basis.  It said the first man had become significantly better off upon bankruptcy because he no longer had to pay his debts. Even if he used his KiwiSaver account to pay off some of the debts, he would still be bankrupt so his situation would not be improved.

But the other would be able to clear his debts and could have his bankruptcy annulled. The Court suggested that might be enough to satisfy the financial hardship criteria.

Emma Dale, of Chapman Tripp, said:  “The case doesn’t take this any further. The court has left it up in the air for trustees to decide whether it will alleviate hardship.”

She said the case did not address what happened to the returns, fees and losses of the ringfenced KiwiSaver account between the time the person was declared bankrupt and when the money could be accessed, and created a situation where there were two separate sub-accounts within a scheme, one holding money for the Official Assignee and the other holding the investment the person made  after they were released from bankruptcy.

There were arguments for and against making KiwiSaver money available to creditors, she said. On one hand, it was specifically retirement savings but on the other, people might use their KiwiSaver accounts to stop creditors getting money. “It calls out for legal clarification either way.”

The Law Retirement KiwiSaver Scheme (LRKS) which is managed by Diversified Wealth Management closed to new members on April 1.

The scheme, for legal professionals, has two funds, with just over $5 million in funds under management and 382 members.

Orginally Diversified was the adviser to the scheme but took over managing it around 18 months ago. Director Vicki Watson said various options were being considered for the scheme’s future and no firm decisions had been made.

She said the increasing regulatory burden of running a KiwiSaver scheme had made LRKS uneconomic to run. Previously she thought critical mass was around $25 million funds under management, but now it was more likely to be around $100 million. Watson says this is likely to increase as new licencing requirements are introduced.

“The compliance costs have become too great for a small fund to survive,” she said.

The Law Retirement Balanced fund has $3.3 million in FUM and 206 members according to its quarterly disclosure statement for the three months to December 31. The average return of the fund was 1.54% annually since March 2009.

The Dynamic Fund has $2.24 million in FUM and 176 members, and an annual average return of 1.15%.

ANZ Investments has received a silver rating for all of the multi-asset class funds in its three KiwiSaver schemes, from research house Morningstar.

“ANZ Investments’ KiwiSaver schemes continue to set the standard for multi-sector investing in New Zealand…we believe they are among the best KiwiSaver options in New Zealand,” Morningstar says.

ANZ Wealth managing director, John Body said: “This is a fantastic achievement and recognises the experience and disciplined processes of our investment management business. Whether investors chose a conservative, balanced or a growth fund, ANZ Investments funds have a silver rating, ranking them among the best in the country.”

Until this year, bronze was the highest rating achieved by multi-asset class funds in a KiwiSaver scheme.

Morningstar said it consider the firm’s knowledge and stable team and the time-tested and repeatable investment process to be truly competitive advantages. “We believe these will continue to add value and provide the foundations for healthy future performance.”

ANZ Investments is New Zealand’s largest KiwiSaver provider in terms of members and funds under management, with more than 585,000 members and $4.8 billion in funds under management.

ANZ Investments has a gold star rating from Morningstar for its single-asset class, International Share Fund in the OneAnswer KiwiSaver scheme.

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.”