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FMA concerned transfers between KiwiSaver providers have almost doubled over past 12 months

Investing
FMA concerned transfers between KiwiSaver providers have almost doubled over past 12 months

By Craig Simpson

In the year ending 30 June 2014, the Financial Market Authority has reported $3.57 billion worth of KiwiSaver member funds was transferred between managers, up 333% on last year.

At first glance this is staggering but if we account for the merger and acquisition activity which occurred during the review period, then approximately $1.4 bln worth of transfers occurred.

Even $1.4 bln worth of switches is nearly double what it was last year.

The frenzy of switching activity has not gone unnoticed by the regulator.

Switching practices had already been on the FMA's radar, (see more on this in our video interview with FMA CEO Rob Everett here), and was highlighted in a report on Qualifying Financial Entities (QFE) released last month.

Within this report the FMA indicated they had received several complaints about switching practices.

Page 10 of the QFE report provides some examples of where KiwiSaver customer interests have been disregarded, presumably in favour of making sales and hitting internal targets.

  • asking customers if they would like to be able to access their KiwiSaver information online alongside other bank account information, without explaining that this will mean the customers must transfer to the bank’s KiwiSaver product

  • stating that an application for credit (e.g. student loan, credit card, mortgage or other) will be more favourably considered if the customer transfers their KiwiSaver to the bank.

  • signing customers up for a credit card, personal loan or other products and providing a KiwiSaver transfer form alongside other documentation for signing, leading to customers inadvertently agreeing to transfer their KiwiSaver to the bank.

Whether any formal and meaningful action is taken against the QFE's who fail to place a clients interests first remains to be seen.

The table below illustrates the amount of switching activity occuring across the KiwiSaver spectrum.

FMA KiwiSaver Report 2014 - summary of the numbers (to March 31, 2014)

There is a swag of statistics presented in the report and I have highlighted what I see as some of the more important snipets of data below. The full FMA Annual KiwiSaver Report can be found here.

  • 2.29 million New Zealanders belong to KiwiSaver schemes (up 9.6%)
  • the number of Schemes reduced by 2 (45 to 43) - Amanah KiwiSaver Scheme was a new entrant in the 2013/2014 reporting period and  both National Bank and Tower schemes were closed.
  • Brook and Law Retirement Schemes are in the process of closing at the time of the report.
  • Total assets invested at 31 March 2014 exceeded $21.40 bln (up 29%) - of the $4.839 bln increase member contributions total $1.978 bln and investment earnings $1.50 bln.
  • 20% of all KiwiSavers are in default funds
  • 7 KiwiSaver schemes each have over $1 bln in assets, representing over 1.7 mln members, almost 75% of the total membership.
  • Approximately 25% of all schemes have between $200 mln and $1 bln in assets invested
  • Minimum required member contributions increased by 34.8% which partly reflects the increase in member numbers.
  • Voluntary member contributions (i.e over and above the minimum required) increased by 32% or $38.8 mln.
  • Inflows from other Superannuation schemes was $90.9 mln (up approximately 130% from last year).
  • Employer contributions increased by nearly 52% from the previous year - mainly due to the increase in employer contributions from 2% to 3%
  • Total Crown contributions during the year amounted to $731.1 mln (up $66.25 mln).
  • Significant financial hardship resulted in withdrawals of $31.2 mln, a slight increase from the previous year. The FMA believes these withdrawals reflect the continued weaker economic climate following the global financial crisis and the ongoing effect of the Christchurch earthquakes. Since KiwiSaver’s inception, 33,069 members have utilised this provision.
  • Withdrawals increased by almost $48.6 mln or 40% from 2013, with 13,821members withdrawing funds for this purpose.
  • There are more female members than male, which is similar to the previous year
  • Over 342,000 members are under 17
  •  In the year ending 31 March 2014, 28,026 members aged 65 or over withdrew $374 mln from KiwiSaver.
  • 55.5% of all KiwiSavers are making contributions to their accounts. 44.5% are either not contributing or on a contribution holiday. Undoubtedly many of the non-contributors will be children under 17.

KiwiSaver profile by age group

The following table summarises the total members by age group and shows the gender split within each bracket.

The data shows KiwiSaver has greater appeal in the under 40's and we presume this may be because many are using KiwiSaver as another mechanism for saving towards their first home rather than for pure retirement savings as was the original intention of the Scheme when it was established back in 2007. 

KiwiSaver Scheme numbers by strategy type

A majority of KiwiSaver members prefer diversified multi-sector portfolios compared to single sector offerings.

Socially Responsible and Property funds are less popular with investors, attracting less than 0.5% of the $17.744 bln in non-Default strategies.

Implementation of Financial Markets Conduct Act 2013

The FMA's Annual KiwiSaver Report also highlights the staged impletementation of the Financial Markets Conduct Act 2013 (FMC Act) between April 2014 and December 2016 and the changes which need to be implemented by KiwiSaver managers. The principal changes applicable to KiwiSaver managers and Trustees come into effect on 1 December 2014.

The upshot of the new Act is KiwiSaver Schemes and Managers will be subject to greater governance and there are powers of intervention granted for supervisors and the FMA.

This additional regulatory bite should provide KiwiSaver members with even greater levels of comfort that their funds are being managed professionally.

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