KiwiSaver

OnePath has had a positive response to its “plain English” KiwiSaver investment statement, says ANZ’s head of wealth and private banking, John Body.

He said there were a number of people with KiwiSaver accounts who could not explain exactly how the system worked. ‘

Many people who received the OnePath document responded well to the way it explained what funds were included and how investment gains, taxes and fees affected a KiwiSaver balance. The statement was awarded the WriteMark Plain English standard earlier this year.

It comes after two KiwiSaver providers were asked to change potentially misleading statements to investors or face court action by the Financial Markets Authority.

The FMA has reviewed 15 schemes’ public offer documents, including investment statements, prospectuses, financial statements and information on websites.

Others were found to be providing information in a way that was too vague for investors to comprehend the risks involved. In some cases, returns were being reported in different ways.

The FMA noted some schemes would have to change their reporting to avoid confusing people, such as in situations where returns were measuredly differently before and after the new requirements.

It did not disclose which providers had been spoken to but Body said  OnePath was not one of the schemes that had been warned.

He said effective disclosure was important because it could help people to understand what asset allocations they should be in. That would make KiwiSaver more effective.

“The risk I see around KiwiSaver is of people thinking ‘because I’m in KiwiSaver, I’ve got my retirement savings sorted out’.”

He said people should also be thinking about whether they were in the right sort of fund for their stage in life, and whether they had the capacity to contribute anything more to the scheme.

KiwiSaver should be adjusted so that money cannot be withdrawn in the event of any hardship, in order to clear up confusion about bankruptcies, says one provider.

The system is in the spotlight because the Official Assignee, part of the Insolvency and Trustee Service, has started High Court litigation to clarify its rights to withdraw money from KiwiSaver accounts when people are declared bankrupt.

It has taken $440,000 out of KiwiSaver accounts to repay the creditors of 165 bankrupts since KiwiSaver began, but most of those have been people aged 65 or older, whose funds are readily available.

A spokesman for the Ministry of Business, Innovation and Employment (MBIE) under which the ITS operates, said: “ITS is seeing an increasing number of bankrupts with KiwiSaver accounts. One of the ITS’ responsibilities is to realise a bankrupt’s assets to meet the claims of their creditors, and ITS considers KiwiSaver accounts an asset that should be available for creditors.”

But ITS has to use the financial hardship provisions in the KiwiSaver Act, and it is up to each KiwiSaver provider to consider early withdrawal applications on their merits.

It has been reported that most providers do not think they can open accounts up to ITS.

But Milton Jennings, the chief executive of Fidelity Life, said that, given that the KiwiSaver scheme was designed to pay hardship claims, it seemed fair that it should be used to pay creditors in bankruptcies.

“That is the flaw in the system, they should change it so that no hardship claims are payable and then all KiwiSaver funds should be protected from creditors until retirement. Once the funds are on call at retirement then creditors could have a go.”

AMP Wealth KiwiSaver members will be transferred to the AMP KiwiSaver scheme in August.

The move was first proposed in February and AMP says the scheme will incorporate some of the benefits of the Wealth scheme but will offer lower fees and a wider range of investment options.

It is still awaiting FMA approval.

The proposed transfer follows a realignment of AMP’s investment proposition. This includes a review of strategic asset allocation for AMP diversified funds and a move to a consistent investment philosophy across the AMP product offering.

It follows the AMP merger with AXA.

AMP has more than 260,000 KiwiSavers and 16% of the KiwiSaver funds under management.

Jack Regan, AMP’s managing director, said:  “AMP’s core focus on investment, extensive network of professional qualified advisers, and scale to invest in ongoing product and service development to meet the needs of members is a real point of difference in the KiwiSaver market.”

Many KiwiSaver investors are choosing to leave schemes run by their banks, new research shows.

For the year ended March 31, the five major banks collectively had 28,139 members transfer out of their KiwiSaver funds, which represented 58.7% of the number that transferred in.

“The negative association between fund and member flows and the KiwiSaver provider being a bank was a real surprise,” said Dr Claire Matthews, Massey’s director of financial planning.

It follows her research reported earlier this month by Good Returns, which suggested that being able to see a KiwiSaver balance online was both a benefit and a drawback.

She said: “This might mean that members are constantly monitoring their account and their funds’performance – and choosing to move when performance is poor.”

Dr Matthews said the research showed the immaturity of investors in KiwiSaver and the need for education and advice to ensure they were making appropriate investment decisions.

“While investors do appear to be chasing returns and avoiding fees, that’s not always the best approach to a long-term investment,” she said. “Both returns and fees are important but it’s a sign of an immature market when investors chase historic returns with an expectation that they provide some indication of future returns, which of course they don’t.”