Distinct NZ flavour to default KiwiSaver providers
In last month’s column, I outlined the changes the Government is making to the KiwiSaver scheme from December. The changes only apply to those KiwiSaver members who have not specifically chosen their manager and, as a result, have been allocated to a default fund.
Of the almost $80 billion of funds invested in KiwiSaver, just over $10 billion1 is held in default funds. The number of individuals who will be affected by this change is estimated to be 380,000, so it is not an insignificant matter.
The key changes taking effect from December 1 are:
Of the almost $80 billion of funds invested in KiwiSaver, just over $10 billion1 is held in default funds. The number of individuals who will be affected by this change is estimated to be 380,000, so it is not an insignificant matter.
The key changes taking effect from December 1 are:
1. Of the nine current default providers, only four have been reappointed. Those losing their default status are AMP, ANZ, ASB, Fisher Funds and Mercer2.
2. The reappointed default providers are BNZ, Booster, BT Funds (Westpac) and KiwiWealth.
3. Two new default providers have been appointed – Simplicity and Smartshares (NZX).
4. This means the total number of default providers has reduced to six, those being BNZ, Booster, BT Funds (Westpac), KiwiWealth, Simplicity and Smartshares (NZX).
5. The asset allocation of the default funds is changing. From December the maximum allowable exposure to shares and property will more than double from 25% to 63%. This can be characterised as a change from a conservative mix of investments to a more balanced approach. This change will automatically occur without any reference to the client’s risk profile or age.
6. There is a new requirement for default providers to have a responsible investing policy and specifically exclude fossil fuel production and illegal weapons.
7. The management costs offered by default providers will now fall within the 0.20% to 0.40% range3.
2. The reappointed default providers are BNZ, Booster, BT Funds (Westpac) and KiwiWealth.
3. Two new default providers have been appointed – Simplicity and Smartshares (NZX).
4. This means the total number of default providers has reduced to six, those being BNZ, Booster, BT Funds (Westpac), KiwiWealth, Simplicity and Smartshares (NZX).
5. The asset allocation of the default funds is changing. From December the maximum allowable exposure to shares and property will more than double from 25% to 63%. This can be characterised as a change from a conservative mix of investments to a more balanced approach. This change will automatically occur without any reference to the client’s risk profile or age.
6. There is a new requirement for default providers to have a responsible investing policy and specifically exclude fossil fuel production and illegal weapons.
7. The management costs offered by default providers will now fall within the 0.20% to 0.40% range3.
In last month’s column, I hinted at some of the investment matters those affected by these changes need to consider. This comment was accompanied by my usual catchcry that you need to seek qualified advice.
Some interesting themes are evident in these changes.
When looking at the list of those not reappointed and the two new appointees, a definite 'buy New Zealand-made' theme emerges. The funds management industry in New Zealand has come a long way in the 14 years since KiwiSaver was first launched.It points to a maturing of the industry that two-thirds of the new default provider panel are independent New Zealand-owned businesses.
When looking at the list of those not reappointed and the two new appointees there is a definite ‘buy New Zealand made’ theme emerging. The funds management industry in New Zealand has come a long way in the 14 years since KiwiSaver was first launched. It points to a maturing of the industry that 2/3rds of the new default provider ‘panel’ are independent NZ owned businesses. It is not just for parochial reasons that I am happy about this. I believe that there is a fundamental difference in managing capital for kiwis, by Kiwis, and not just operating as part of an off-shoot of an overseas corporation.
The second theme seems to be an implied preference for passive investing over active management. The new appointees are advocates of a index approach to investment. This contrasts with the approach taken by several of the outgoing managers whose management styles are more active. The debate between passive vs active investing continues but perhaps it is the drive for lower fees that has tipped the balance towards a more indexed approach for default providers. I still believe that it is possible to offer the best of both worlds, whether that be within the same fund or a parallel offering.
One of the criticisms of the existing default providers was that they had not done enough to educate their investors about the benefits of selecting an asset allocation which was more suited to their needs. This is the challenge of a dedicated low fee business model; the ability to deliver added value by providing investor education materials and tools can be limited by economic realities at play. It will be interesting to see how the new default providers meet this challenge. Although you might not be affected directly by these changes, they are also a timely reminder to review your own KiwiSaver account. Over the last few months you will have received your KiwiSaver Annual Statement. It is worth taking a moment to consider your contribution level and your asset allocation to make sure it is giving you the best possible chance to build the retirement you desire.
Some interesting themes are evident in these changes.
When looking at the list of those not reappointed and the two new appointees, a definite 'buy New Zealand-made' theme emerges. The funds management industry in New Zealand has come a long way in the 14 years since KiwiSaver was first launched.It points to a maturing of the industry that two-thirds of the new default provider panel are independent New Zealand-owned businesses.
When looking at the list of those not reappointed and the two new appointees there is a definite ‘buy New Zealand made’ theme emerging. The funds management industry in New Zealand has come a long way in the 14 years since KiwiSaver was first launched. It points to a maturing of the industry that 2/3rds of the new default provider ‘panel’ are independent NZ owned businesses. It is not just for parochial reasons that I am happy about this. I believe that there is a fundamental difference in managing capital for kiwis, by Kiwis, and not just operating as part of an off-shoot of an overseas corporation.
The second theme seems to be an implied preference for passive investing over active management. The new appointees are advocates of a index approach to investment. This contrasts with the approach taken by several of the outgoing managers whose management styles are more active. The debate between passive vs active investing continues but perhaps it is the drive for lower fees that has tipped the balance towards a more indexed approach for default providers. I still believe that it is possible to offer the best of both worlds, whether that be within the same fund or a parallel offering.
One of the criticisms of the existing default providers was that they had not done enough to educate their investors about the benefits of selecting an asset allocation which was more suited to their needs. This is the challenge of a dedicated low fee business model; the ability to deliver added value by providing investor education materials and tools can be limited by economic realities at play. It will be interesting to see how the new default providers meet this challenge. Although you might not be affected directly by these changes, they are also a timely reminder to review your own KiwiSaver account. Over the last few months you will have received your KiwiSaver Annual Statement. It is worth taking a moment to consider your contribution level and your asset allocation to make sure it is giving you the best possible chance to build the retirement you desire.
1. Morningstar – KiwiSaver Survey March 2021.
2. New KiwiSaver default providers FMA, 14 May 2021.
3. 'A closer look at how much of a task... etc' interest.co.nz, 15 May 2021.
2. New KiwiSaver default providers FMA, 14 May 2021.
3. 'A closer look at how much of a task... etc' interest.co.nz, 15 May 2021.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
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Peter Ashworth is a Principal of New Zealand Funds Management Limited, and a Financial Adviser based in Dunedin. The opinions expressed in this column are his own and not necessarily those of NZ Funds. His disclosure statements are available on request and free of charge.
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First published in the Otago Daily Times on 13 July 2021, as 'Distinct NZ flavour to default KiwiSaver providers.'
