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Over the past ten years, KiwiSaver schemes have delivered less than half the returns the NZ Super Fund has, and in 2019 it was only marginally better

Over the past ten years, KiwiSaver schemes have delivered less than half the returns the NZ Super Fund has, and in 2019 it was only marginally better
'Where are the client's yachts?' Do fund managers really build wealth for their members?

Friday's release of Reserve Bank (RBNZ) data revealing the total amount invested in all KiwiSaver funds helps us understand the sort of return value the fund management industry brings to this important retirement savings programme.

As at the end of January, 3,021,543 people had active KiwiSaver accounts. That means that more than 60% of the population has an account, making them ubiquitous.

The RBNZ (T42) says they hold accounts worth $65.5 billion as at the end of December.

The IRD reports that they transferred $6.94 bln in contributions (from members, employers, and a now-small Government flow) in calendar 2019. That takes the all-time contribution transfer into KiwiSaver to $51.457 bln.

From this data we can easily calculate the after-tax, after-all-fees overall performance of this retirement savings scheme.

  end Value   Contributions Growth - Cont. average NZSF
  per RBNZ Growth paid via IRD = investment return return
  $ mln $ mln $ mln gain ATx AFees  
year to June ...       $ mln % %
2008 1,180 1,180        
2009 3,321 2,141        
2010 6,023 2,702 2,648 54 1.6% 15.5%
2011  9,581 3,558 2,911 647 10.7% 25.1%
2012 13,201 3,620 3,248 372 3.9% 1.2%
2013 17,464 4,263 3,070 1,193 9.0% 25.8%
2014 23,116 5,652 4,096 1,556 8.9% 19.4%
2015 30,114 6,998  4,802 2,197 9.5% 14.6%
2016 35,196 5,082 5,056 27 0.1% -1.9%
2017 42,399 7,203 5,585 1,618 4.6% 20.7%
2018 50,911 8,512 6,066 2,446 5.8% 12.4%
2019 59,572 8,661 6,681 1,980 3.9% 7.0%
Ten year average         5.8% 14.0%
             
calendar            
2019 65,470 10,229 6,974 3,255 5.9% 7.6%

And you will have noticed we have benchmarked the KiwiSaver returns with the other big public retirement savings fund, the NZ Super Fund.

Individual members will have their own specific return experience. But overall, it does appear the funds-management industry would only get a "could-do-a-lot-better" grade in 2019.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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16 Comments

My guess is two reasons.
1. Excessive fees.
2. Rightly or wrongly a lot of people in conservative.

More conservative choice than fees, I think. A quick glance at Morningstar tables for January shows several KiwiSaver Growth funds with 10-year average annual returns above 9% pa, with one hitting 12.73% pa. And those Growth funds, one supposes, have had a much more conservative spread of investments than the NZ Super fund, whose long-term returns are rivalled by a couple of KiwiSaver funds investing in a single asset (property or shares).

Nonsensical article.

First of all, you should have compared the Super Fund returns with Growth KS funds only. Most members are in balanced or conservative, and the Super Fund has an ultra aggressive risk profile and mandate.

Secondly, the Super Fund has the ability to invest in things like private equity and real assets, that Kiwisaver's can't because they are illiquid (that's an argument for another day).

Why the are the returns so low over the past two years? The markets have gone up significantly on top of good dividend returns. A lot of people must have moved from aggressive funds to cash funds, or made other poor choices.

I'm guessing a lot of people are still in default kiwisaver funds.

We should be careful when comparing the Super with kiwisaver funds.
Firstly the super has been around a very long time and some of it's long term investments have seen excellent long term growth

The super , due its need for cashflow is invested in interest bearing instruments like gilts which have done well in the falling interest rate environment

Kiwisaver funds chasing growth have taken bigger punts on equities which have done well but only in patches

Whilst I would agree with your concern about comparing Super with Kiwisaver funds.. your arguments are a little wayward.

The table shows the annual performance of the investments... the long term growth has nothing to do with it.
You will find fixed income investments are actually under represented in NZ Super relative to Kiwisaver... moreover, NZ super has no need for cashflow with the drawdown profile some years off.
Kiwisaver does take some equity positions but I would not suggest markedly different to NZ Super with 60% invested in developed market equities (if you count the NZX as a developed market).

The reason why the comparison is nonsensical is the differing investment objectives and ability for NZ Super to invest in illiquid investments.

Take a look at the NZ Super website.. but no Kiwisaver scheme could have :
11% in emerging market equities
5% in timber
5% in Private Equity
2% in Infrastructure
1% in Rural

Funny you should write about this issue. As an experiment, I set a few $ into the most internationally exposed super aggressive fund I could find on the kiwisaver schemes and it did fabulously. Pretty much the same firms I invest in directly but still, it can be done.

Have withdrawals such as retirement, hardship, and first home purchase been taken into account in this chart?
If not, and they are added back in, then it would show a very different outcome.

Further, the NZSF does not need to allow for withdrawals and has always had a very long term investment timeframe and is unlikely to be accessed for perhaps another 15 - 20 years. Accordingly it does not need to account for older clients and those who are looking to make first home withdrawals. This allows the fund to be invested aggressively over the long term also have exposure to assets that may not be generally appropriate for shorter term KiwiSaver investors.
A wider view is necessary rather than a narrow emotive one to sensationalise a hot topic.
Accurate, helpful information will do more towards educating NZers than dramatising only part of the story.
Correct me if I'm on the wrong track.

My thoughts exactly, re withdrawals (which int.co have called out in other articles, but left unsaid here)
https://www.kiwisaver.govt.nz/statistics/monthly/withdrawals/
Approx $100m avg per month for FHB and $10m hardship... some $1.3b over the year. If this hasnt been accounted for, growth is more like 6.x%

kiwisaver everyone should be in kiwisaver ! i was with one provider who had 80 % shares and 20 % cash ! only problem! they sold out of shares and shifted every to cash ! during the last recession ! and sold a share when they made 20% profit ! instead of buying as the market was climbing were holding over 30 % cash ! and last year they only made 5.9% ! i swapped providers have 100% in shares mostly in s & p 500 and small caps ! and it has returned 28 % after taxes and fees this year so far ! that is nz $20000

Right, Kiwisaver was started by Labour, under National it would never have happened, quite a few people would have NO savings at all if it was left to them. I and many older people would remember back in the eighties, National DESTROYED the super scheme started by Labour.

They are stealth fully doing it again, example stopped the $1000 kick start and taxing other parts of kiwisaver. So without Kiwisaver many Kiwis would be much worse off later. National will never admit to that

A frankly embarrassing article and not up to the normal standard i have come to expect from interest.co.nz.

NZ Super are quite open about their investment strategy and the fact they benefit from investing in assets with an illiquidity premium.

Its a nonsensical piece of analysis. Completely different investment objectives for NZ Super to Kiwisaver yet putting the returns side by side. To say it is naive is generous.

Kiwibank, Z energy and multiple forestry investments are examples where NZ Super benefits considerably from investing with the knowledge that they could not exit these positions in a hurry but feel they are compensated by higher returns. Kiwisaver managers do not have this luxury. Moreover these investments are not unitised so how could a manager conform to the FMA requirements on reporting investments?

I do like reading David Chaston's contributions but on this case, and to borrow your phrase "could do a lot better"

To highlight the problem with the above analysis and comparison (and to educate the author) I would suggest one could look at the risk taken alongside the return.

A common way of doing that would be to use the Sharpe Ratio. If we assume a risk free rate of 0% for both Kiwisaver and NZ Super we have a Sharpe ratio of 1.61 for Kiwisaver and a mere 1.47 for NZ Super (the numbers represent the return per unit of risk.. thus a higher number is better).

Another way to demonstrate this would be to simply look at the range of annual results. Kiwisaver annual returns ranged from 0.1% to 10.7% whereas NZ Super ranged from -1.9% to 25.80%.

To look at the returns without acknowledging the risk is frankly moronic.... and if you compare the risk/return results via the Sharpe Ratio you would conclude the Kiwisaver funds have actually outperformed given the risk taken

Hi
Im new to this forum, I manage my own share portfolio and keep an eye on macro events.I have been quite defensive for about 3 years, possibly being a little
early but Im up about 60% over the last 11 months.I'm a medium to long term investor, not a trader.These percentages you are quoting for Kiwisaver are
not very impressive, same goes for most fund managers.Also, corona panic has had little effect on my portfolio.

Early withdrawal of KiwiSaver funds under COVID-19

KiwiSaver is a voluntary, work-based savings scheme, designed to help people prepare for their retirement. The primary legislative objectives of KiwiSaver are to:

• encourage a long-term savings habit and asset accumulation by individuals,
• increase individuals’ well-being and financial independence, particularly in retirement.

The policy drivers for the implementation of KiwiSaver were the perceived low levels of private saving for retirement and a concern that middle-income New Zealanders, in particular, were at risk of experiencing a substantial drop in their living standards during retirement.

However, an IRD study into KiwiSaver, found evidence to suggest that KiwiSaver has not been successful in improving the accumulation of net wealth for its members and that KiwiSaver members actually accumulated less wealth compared to non-KiwiSaver members.

The IRD cost and benefit analysis also showed that each taxpayer dollar the Government spent on KiwiSaver, only resulted in additional savings ranging from 20-38 cents for the target membership.

The study also showed that the primary incentive for people joining KiwiSaver was for the employer contributions.

For those made redundant under Covid-19 and facing long term unemployment, KiwiSaver has become a luxury that is neither consistent with their reason for joining, nor their changing priorities.

This raises an important question as to whether KiwiSaver members should have early access to their funds outside of the current withdrawal criteria which are; (a) reaching the age of entitlement for government superannuation (age 65 but likely to keep increasing), (b) first home buyers, (c) financial hardship, (d) moving overseas permanently (excluding emigration to Australia) and (e) serious illness/permanent disability.

Individual’s best interests can only be served if they get the best possible return on investment applicable to any given world economic scenario. The KiwiSaver rules are currently forcing people to remain exposed to a risky share market producing negative returns or to remain with cash tied up in a fund that isn’t working for them.

KiwiSaver funds have suffered huge losses recently and those losses are unlikely to be recovered in the share market within a long term economic recession.

In the current situation, the cost of debt far exceeds investment returns, so reducing or offsetting debt is a prudent alternative to continued exposure to the volatile share market.

Other alternatives to consider are; diverting KiwiSaver funds into businesses or other investments which are safer or afford more control and liquidity. Some have been forced to retire early and they should not be forced to wait for their retirement funds. Others might wish to invest their funds to re-train or up-skill for new careers.

In summary, my belief is that for many, KiwiSaver is no longer fit for purpose in the post Covid-19 recession. The IRD study showed that even in boom times KiwiSaver was out-performed by alternative investments and that for taxpayers, the costs of KiwiSaver out-weighed the benefits. There is no incentive for those no longer enjoying employer contributions. There are many ways in which KiwiSaver funds can now be put to much better use in order to achieve the original objectives of asset accumulation, individual well-being and financial independence.

If you are interested in pursuing early withdrawal of your KiwiSaver funds outside of the current rules, then please sign my government petition at:

https://www.parliament.nz/en/pb/petitions/document/PET_97690/petition-of...

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Days to the General Election: 39
See Party Policies here. Party Lists here.