KiwiSaver - Update 2016
It has been nearly 9 years since KiwiSaver was introduced (1 July 2007).
Not long after, the world experienced the Global Financial Crisis and many New Zealanders were questioning the merits of long term savings as the initial impact on investment returns was severely negative - with some funds experiencing losses of up to 50%.
Fortunately, KiwiSaver is a regular savings based scheme and for many folk their employer also made contributions based on salary. Added to that the Government ensured its success by providing a $1,000 Kick Start, a generous Member Tax Credit (up to $1042 per annum) and an Administration Fee subsidy.
The upside of this for many people was their account balances were usually greater than the total of their own contributions even though their funds weren't seen to be growing.
So while there were doomsayers about and plenty of negative talk - that's not to say the seriousness of the GFC wasn't very real - members were committed to the saving.
The upshot is that in the intervening period we have seen funds turn around those early losses and have posted significant gains. It hasn't all been plain sailing and KiwiSaver has probably done more to raise the financial literacy of New Zealanders than anything else. After all, with over 2.7 million members a good percentage of us have a vested interest in how our retirement is looking financially.
From the outset it was important to NZDIS to partner with an organization that was competent in both fund management and account administration. At the time we chose ING who over time rebranded as OnePath and today is known as ANZ Investments.
Through the OneAnswer KiwiSaver scheme our members have seen consistent investment performance. To the end of March 2016 the range of composite funds (Conservative through to Growth) has posted positive growth of over 60% (+6% p.a. compound) since inception and ranging from 6.82% p.a. through to 11.25% p.a. for the past 5 years.
While there are many Fund Managers with multiple investment options the consistency of performance across the full investment spectrum leads us to believe ANZ is still the best option for members.
This consistency has led to ANZ becoming the largest KiwiSaver provider with over $8 billion in funds under management ($2 billion ahead of the next biggest) and with over 700,000 members.
A quote from the recent Morningstar KiwiSaver Report - March 2016 reaffirmed this position. "... ANZ KiwiSaver continues to be at or near the top of most categories and is the most consistent performer across the board."
It is possible to find individual funds or investment sectors producing better returns in any given time period - after all there are in excess of 600 funds available to investors. What ANZ have demonstrated is the ability to perform year in and year out - and now with exceedingly large amounts of money.
We like the comfort of consistent performance across the entire investment sphere. Trying to determine the appropriate asset mix and then find the best performing fund manager in those asset classes is fraught with difficulty. For example, decisions made on historical performance which may not necessarily continue into the future would require greater monitoring to ensure performance is as expected or whether to re-balance.
The LifeTimes investment strategy available to ANZ members provides a default option where your account is "de-risked" as you advance through the ages towards retirement. This is a safety valve to ensure your savings are made more conservative as you approach retirement.
With KiwiSaver now nearly nine years old we are seeing a wave of people reaching age 65 and having access to their funds. Initially many folk were withdrawing their savings and closing their accounts.
We are seeing a reversal in this trend where with the funds now accessible people are using them as ongoing savings vehicles and making deposits into their accounts. The Management Fees tend to be lower than other investment options - such as Unit Trusts - and there is more or less instant liquidity. Withdrawal transactions are normally processed within a few days.
Given the low interest rates on Term Deposits a KiwiSaver account is now an attractive alternative investment vehicle for over 65's with access to the full range of investment options.
If you have a KiwiSaver account and it is not managed by NZDIS transferring is a relatively easy process. The Fund Managers arrange the transfer of your existing account and even advise IRD to redirect contributions if you make deductions through payroll.
Finally we are nearing the end of another financial year for KiwiSaver (30 June). If you have not contributed at least $1,042 in the preceding 12 months you will miss out on some of your Member Tax Credit entitlement from the government. For each dollar you contribute up to $1,042 per annum the government will contribute 50 cents, or $521 for the year. This has to be done by 30 June or otherwise the opportunity is lost. It is not something that can be done retrospectively.
Keep saving - we all need something to retire on. The option of working until we die is far less appealing.