KiwiSaver

Grosvernor, which bought the Fidelity Life KiwiSaver scheme last year is planning to merge its scheme with the life company’s one – rather than the other way around.

Grosvenor chief executive David Beattie says the proposed merger is being done this way around as the Grosvenor scheme is smaller. This, he says, makes it easier from a communications point of view as the company only has to communicate with 35,000 members rather than 60,000.

He also said that Grosvenor has a very good database of its members’ details. This is important as the Financial Markets Authority could turn down a merger proposal if a scheme has too many “gone no addresses”.

If that happened members would be allocated to default providers.

Beattie says after the proposed merger the nine Fidelity fund options will be available along with four funds brought over from Grosvenor.

These are: International shares, Trans-Tasman shares, an Ethical share fund and its, high octane Geared Growth Fund.

Beattie says since Grosvenor bought the Fidelity scheme it has brought $125 million of funds in house and the remaining $250 million has remained with outsourced managers.

Also NZ Guardian Trust is stepping down as Grosvenor’s trustee this month and both schemes will then have the same trustee, Public Trust.

He says the merger is due to be completed by June 30.

Grosvenor is also seeking to become a default provider. The government is due to announce who the default providers will be by the end of this month.

Advisers aren’t surprised at New Zealanders’ low levels of understanding about KiwiSaver.

Mercer has released its latest KiwiSaver Sentiment Index, which shows that while a third of New Zealanders think they have a good understanding of KiwiSaver, there are still some big gaps in their knowledge.

Only 31% of working New Zealanders confidently understood that the Government’s maximum tax credit is $521 a year. More than 60% were unsure whether that was the right amount or not.

Most KiwiSavers miss out on the full tax credit because they do not contribute enough to their own accounts to qualify.

More than half the respondents also thought that a new employer would automatically start to contribute to their KiwiSaver accounts.

And only 28% realised that more than one tax rate applied to KiwiSaver investment earnings.

Financial adviser Carey Church said she was not surprised at how few fully understood the tax credit. “I actually think the real number could even be lower than 31%.”

She said financial information was not a high priority for many people.

“Many people just want to know that their balances are increasing and they aren’t getting ripped off. Is it that important that they know how much they are getting in detail from the Government?”

She said it was more important that people understood the type of investments their funds were investing in and the risks around them.

“But again, I think a lot of people don’t want to know.  Unfortunately, with the banks promoting that if people move their KiwiSaver to them they can see their balance, the focus will be short-term, on whether their balances are increasing. Therefore, communication will be required when markets and values fall, after the horse has bolted.”

She said more workshops and seminars would add value for KiwiSavers.

“When we do seminars in the workplace, people want to attend – as it is convenient and it is free.  Are many seminars provided these days?  It seems that these have gone out of fashion. If people aren’t interested, they won’t read, or do anything unless it is made easy for them.”

Don Stewart, of Share, agreed. “It does not surprise me as the level of advice and KiwiSaver education, given to consumers at time of joining a KiwiSaver scheme, is not provided. A consumer who has been enrolled into a default fund or simply over the counter at a bank may be given an investment statement which very few will read.  Those consumers who have used an adviser will have a higher level of advice and understanding of KiwiSaver maximum tax credits and their PIR. “

Schemes chosen as the new crop of KiwiSaver default funds this year may find there’s demand from investors who want to opt in, one financial services lawyer says.

One of the conditions of being selected as a default provider for the next seven years is that the scheme must be open to people who choose to join, as well as those who are automatically enrolled.

That has not been a requirement of default schemes in the first seven years of KiwiSaver’s existence and some are only open to default subscribers.

A decision on which funds will be selected as defaults is expected soon.

The change means schemes such as ANZ’s OnePath KiwiSaver default scheme, which last year stopped anyone entering who wasn’t there by default, will have to change its approach if it is to remain a default option.

Some commentators have questioned the requirement, asking why people would actively choose a scheme that was designed to only be a “holding pen” for KiwiSavers who had not yet made a decision about the best fund for them.

But Emma Dale, of Chapman Tripp, said there could be good reasons for actively choosing a default scheme.

She said if someone wanted a conservative fund, for example a young couple wanting to withdraw money within a few years for a first home, or someone nearing the end of their working life, they might choose a scheme based on fees.

On that criteria, many of the default schemes would appeal. Default schemes have some of the lowest fees because they have prescribed fees agreed with the Government.

She said: “There are a number of factors that people consider when choosing a KiwiSaver scheme and a fund within a scheme, and fees is one factor.  If people were looking to choose between conservative funds, all things being equal, they might make the choice to go into a default fund having comfort that the fees have been the subject of agreement between MBIE and the provider.”

 

KiwiSaver has changed New Zealand’s managed funds industry but it has had little effect on household finances so far, a superannuation researcher says.

Michael Littlewood, co-director of Auckland University’s Retirement Policy and Research Centre, analysed the impact of KiwiSaver on New Zealanders’ finances, based on data from the Reserve Bank.

“With 2.2 million members and more than $19 billion in assets, it seems that KiwiSaver might have made a real difference to New Zealanders’ saving habits,” he wrote in the latest edition of the RPRC’s Pension Briefing bulletin.

“However, apart from those headline numbers, we do not really know whether New Zealanders are saving more; or even whether KiwiSaver has helped to lift the aggregate numbers.”

Littlewood used two sources of data from the RBNZ: the managed funds survey (MFS) and the key household statistics survey.

His analysis covered the period from December 2003 (when the RBNZ changed the methodology of the MFS) to September 2013.

Based on the data, he concluded KiwiSaver was a “relatively insignificant influence” in New Zealanders’ financial lives, although that could change.

“In summary, KiwiSaver, despite its growth from a standing start in July 2007, still plays a very small part in New Zealand households’ financial affairs and there may be offsetting behaviour in other parts that reduce even that small impact,” Littlewood said.

Littlewood found total managed funds in New Zealand increased by 55% ($33 billion) to $88 billion during the ten-year period, with 58% of the increase ($19 billion) attributable just to KiwiSaver.

However, managed funds represented only about a third (34%) of New Zealanders’ total financial assets, which stood at $256 billion as at September 2013.

“Since KiwiSaver started, gross household financial assets (including KiwiSaver) have grown by $66.2 billion from $189.5 billion to $255.7 billion, up 35% in six years,” he said

“Of that increase, just $19 billion (29%) can be attributed to KiwiSaver. What we do not know and can never know, is whether financial assets might have grown by that $19 billion without KiwiSaver’s intervention.” 

And while financial assets nearly doubled from $139.4 billion at December 2003 to $255.7 billion at September 2013, their value relative to household incomes only increased from 1.7 to 1.88 in that time.

Managed funds actually fell as a proportion of both household assets and disposable income between 2003 and 2013, although they had improved since 2008 when the GFC hit.

Littlewood also highlighted the extent of taxpayer subsidies to KiwiSaver ($4.9 billion) and the high amount invested in fixed interest (53.6%).

“If continued, savers will probably end up at retirement with significantly lower balances but they also face an increased risk from unexpected inflation. Growth assets are normally the best protection for that.”