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KiwiSaver no good for the nation but New Zealanders 'silly' not to take advantage, says SuperLife's Michael Chamberlain

KiwiSaver
KiwiSaver no good for the nation but New Zealanders 'silly' not to take advantage, says SuperLife's Michael Chamberlain

Personal Finance Editor Amanda Morrall talks to SuperLife principle Michael Chamberlain about KiwiSaver

He may not be known for mainstream opinion but SuperLife's Michael Chamberlain's views on KiwiSaver are nonetheless jarring.

His contention is this:  That KiwiSaver is a half-baked idea that will bring ruin to the economy but is still somehow good for New Zealanders. (For another view on why KiwiSaver is a bad idea read our raw interview with Bruce Sheppard.)

It stands to reason that Chamberlain, as a KiwiSaver provider himself, would endorse the scheme as a worthy retirement savings vehicle. What's harder to fathom is his assertion that the much vaunted programme of which he is now commercially embedded with more than NZ$800 million under management is an economic blunder that will do little if anything to solve our national debt woes. 

So why bother with KiwiSaver? In short: because who in their right mind would refuse free money?

"You'd be silly not to go into KiwiSaver while we have it,'' he said.

"The issue is whether KiwiSaver is a good thing or a bad thing for New  Zealand. New Zealand didn't have a savings problem, still doesn't and KiwiSaver was a bad idea.''

The opinion may come as cold comfort to the 1.6 million New Zealanders' already invested. But Chamberlain's KiwiSaver sales pitch has a cheerier spin. He boasts of being the cheapest KiwiSaver provider bar none in the market.

Doesn't believe reports on fees and expenses

You'll have to take his word for it. Chamberlain disregards all published reports on fees and expenses, claiming no one has been able to produce a meaningful lick of information on that front. Instead he relishes in lambasting his competitors for duplicitous behaviour and fee gauging, portraying SuperLife as the low-cost kind of dream default model that the Savings Working Group has proposed we create anew.

"To the extent the Savings Working Group have said we should have a universal fund, what they've really said is we should have SuperLife and SuperLife should be the fund because that's effectively what they've recommended.''

While he made the claim on the basis that SuperLife would fulfill the objectives laid out by the Savings Working Groups, Chamberlain said he was philosophically opposed to the creation of one KiwiSaver provider.

"It's wrong for the government to legislate one universal provider. It's effectively creating property rights and giving taxpayer's money to one commercial body.''

While Chamberlain admitted SuperLife was making a profit through its KiwiSaver he downplayed its business interest.

"We have a different philosophy than most providers and industry players,'' he said.

"What we do is designed to be in the interests of the members i.e. to maximise the members net of tax return and increase the likelihood that the return is as expected i.e. it is explainable.''

Under the SuperLife's co-operative style KiwiSaver model, money is ostensibly only ever spent where there is a benefit to the membership as a whole.

"We set the fees on the basis of what we expect it to cost and a small margin for profit.   We take the view that if you want to make NZ$1 million you can do so by making NZ$10 a member based on 100,000 members and do not need to gauge.''

Well before SuperLife entered the KiwiSaver market, Chamberlain was operating in the business of retirement savings. Before the national saving scheme was launched, he was the second or third largest provider of employee superannuation plans in the country.

Since the introduction of KiwiSaver, many employees, given the choice, have elected to go with KiwiSaver in order to cash in on the NZ$1,000 kick start and tax credits. Yet some of the corporate schemes on offer can be just as competitive if not more, when you factor in bonus features like free life insurance.

For those weighing their options, Chamberlain has this advice:

"It comes down to the rules of the employer. Some employers allow  you to reduce the contribution to their scheme and pay them to KiwiSaver in which case you should do both. Other employers say either/or in which case it's whichever has the higher contributions taking into account Government subsidies and KiwiSaver as well.

So it's the employers and Government contributions under KiwiSaver versus the employer's contributions under a normal scheme."

'Get your fund right'

A more complex choice when it comes to KiwiSaver is choosing the right fund. On that question, Chamberlain concurs with what most in the industry will tell you which is this: the longer away you are from retirement, the greater risk you can afford to take and therefore your fund should have a higher exposure to growth assets, i.e. property and shares.

"From a theoretical point of view if you are saving on a regular basis it is better to save into a volatile fund than one that is not volatile. You'll end up with more wealth at the end of the day.''

With a 10-15 year time horizon or longer to go, a more aggressive fund should serve the KiwiSaver well, he added.

Given SuperLife's relatively low fees on its growth and aggressive funds, KiwiSavers with higher exposure in these areas would seem well placed to profit from higher risk.

According to research gathered by interest.co.nz tallying the fees and expenses on the various funds, SuperLife ranked among the top three least expensive funds in three categories of funds: moderate, Growth and Aggressive. (For more see story by Amanda Morrall.)

Chamberlain challenges the accepted industry view that growth funds (which contain a heavier weighting of shares and property) cost more to manage.

"At the end of the day if you're making decisions about investments you need intelligent people and intelligent people get paid the same whether they're making decisions about fixed interest or shares. You don't need to charge more, it's just the industry allows you to charge more and so some providers do.''

Fisher Funds Carmel Fisher rejected the argument and stood by the industry claim.

"There are additional costs involved in managing growth portfolios (compared to conservative portfolios) because of the nature of investment analysis,'' said Fisher.

" Fixed interest investments require credit and risk analysis which is no more simple or complicated than the company analysis required for share market investments, but is less expensive because it does not entail travel, multiple analysts to cover the range of corporate sectors etc.  To properly analyse companies it is important to visit their operations, meet management, talk to customers and competitors etc. Obviously this analysis comes at a cost, particularly if a growth portfolio invests offshore.''

'We do research too'

Chamberlain insisted that SuperLife was no less rigorous in its research but was able to keep fees down by using large fund managers, who had large economies of scale and through negotiating strategies.

"We then pass those economies of scale savings onto our members.''

Fisher suggested that strong performance by good active management would more than compensate for higher fees. At least, she maintained that was the case with Fisher Fund Management.

"I can't speak for all active managers but the Fisher Funds NZ Growth Fund has beaten the NZX50 Gross Index in eight of the  past 13 years, and the years of outperformance had a far bigger impact on  cumulative returns than the underperformance  ie. when we did well, we often did very well.''

"Proponents of passive investing suggest that passive funds are better because they are cheaper and the annual fee saving (of say 0.5%-1%) will make a large difference to returns over time.  From our experience, active management can result in outperformance’s that are multiples of the 1% fee saving and can therefore make a very large difference to returns over time.''

Chamberlain insisted fees, over the long-term, were not inconsequential and that all existing performance data now available was unreliable.

He suggested a better starting point for Kiwis' new to the investment sphere was just taking a basic interest in their fund. He surmised that 80% of the population couldn't or wasn't interested in taking a more active role in managing their money which made it easier for the fund management industry to charge whatever it wanted to.

 

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28 Comments

That's just it though. It is NOT free money!. Not in the slightest. It's funded by taxes, other peoples taxes, your future wage increases if any, and government borrowing. This is now a government subsidised private industry. Ask any Physio, they know how it works

I REALLY appreciate his honesty about this. Nice

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The main two reasons I havn't signed up (there are others too)

1.  I don't value $1 sitting in a Kiwisaver account at anything like the value of $1 in cash or a bank account.  Losing the use of that dollar for the next 30-40 years plus by then at best I'll have to buy an annuity with it means I'd rather have 10c in cash than $1 in Kiwisaver.

2.  It would be hypocritical of me to be so against it and sell my principles for a few thousand dollars that in my retirement might buy me a new lounge suite or something but not contribute in any meaningful way to my other savings.  I'd rather be able to sleep at night.

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How could it benefit NZ?  The 'wealth' that is tied up is a promise that in the future it can be swapped for services and products.  Is that 'capital' going into industries that can be built upon into the future that can add value?  

What can we value anymore?

Banking? Finance? 

Property investing? Vintage cars?

Actually the 'capital' is being sent overseas and we are relying on the other countries to show 'foresight' to how best to use it.  

I wish I knew what was value or not - I guess that is the question that investors are always asking themselves.  A decision best made by an individual to meet their perceived 'values', products/services that they may require when it come to drawing on the investment.

 

 

 

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That's a question that applies equally to all forms of managed funds, not specifically to KiwiSaver.  Some people are very confident that they know where the value is and so how best to invest their money.  Others aren't, which is why they prefer to leave it to professional fund managers.

In fact KS funds do invest in New Zealand equities, the money isn't all going overseas.  However, they're not under any obligation to invest for the good of New Zealand; their remit is to invest in the best interests of their customers.  

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The simple fact is this: When a fund collapses it hardly matters how much many tax dollars augmented your (and your employer's) contribution.  No money changes hands.  A computer entry from Government to fund is not cash in hand.  Anyone who tries to convert their plan into cash will find those entries transferred back onto Government balance sheets.  The only relevant issue is whether the economic model experiences real asset growth or is dependent on an ever increasing number of people entering the scheme (See PONZI).

Can the government backstop the retirement savings of 1.6 million kiwis?  Inflation will confiscate any returns.  The Government can sell KiwiSaver at any time to private interests.  Never bet against the House.  The plan is pure fiction.

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Doug the government can't sell what it doesn't own such as kiwisaver. It only provides the funds to it like Justice says to commercial providers.

i stll beleive that this is a great scheme though.

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Well before Kiwisaver far too many people just couldn't or couldn't be bothered to build up an independent financial situation that could provide for them when retired.  Far easy to leave it to nanny state once 65 years and expect a constant tax payers payment in the form of national super. There's a huge number of pensioners now that 'depend' on the handout and have very little personal provision, and everyone is surely beginning to realise that can't go on for ever and a day- although denial is a strong sentiment.

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Muzza, KS is a "handout!" FFS man.  Those of us that actually pay taxes are funding YOUR account

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KS was Michael Cullen's gift to the utterly useless underforming monkeys who run the fund management industry in NZ ......... He corralled the populence into their arms , so they could over-charge and under-deliver just as their ancestors , the life insurance industry screwed our parents and grandparents before them ...........

London-to-a-brick , that over the next 20 years , at least 80 % of all KS fund managers achieve returns less than the broader NZX stock indices . ...... But that won't matter to them , they got your munny , they take their fat fees , they're living good . Stuff you !

.......... And Labourites claim that the Nats are in bed with the fat cats from finance .......

Haaaaaaa , bloody ha !

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Justice, I am in KS and so is my wife and two children. The $1,020 I get back on my KS and the same for my wife (I pay $20 per week and get this matched by Govt) is the only tax break or benefit / WFF etc I have got in 25 years of full time emplyment.

In my job I see plenty of others beating the systen under the table with cash jobs, false income splitting in businesses (spouse paid as office manager when she does nothing at all), using family trusts etc to claim WFF while trust pays private school fees and overseas holiday.

At least I am doing it honestly and yearly credit to KS from Govt I get is still less then one of my  fortnights PAYE.

 

 

 

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Point 1:  Knowingly turning a blind eye to fraud and tax evasion is a crime.

Point 2: Why would you want government playing any role in your personal finances?

Point 3: Paying tax does not entitle ANYONE to Government compensation as the tax we all pay should be directly equivalent to what is taken/needed from us in the first place. Taking more than what is required and then giving it back is not only inefficient but down right corrupt and equal to government stealing as you could of used that income to serve your purposes not to mention lost of interest. Notice IRD never pay YOU interest?

Have a think about what i have said. Do you wish to be financially independent or dependent?

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There are circumstances where IRD DOES pay you interest Justice.  Being late in paying you a gst refund is one. :-)

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Yeah, but what's the rate CO? match the banks or RBNZ's OCR?

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I am working towards being financially independant of which KS is one of the tools. Other being commercial property based on real cashflow and personal debt retirement. I won't look at residential property due to the poor yields and already exposed to this sector as I my own home.

In regards to KS the govt involvement at this point is a yearly credit to my KS. My money is with a major default provider and given my age I am in a more growth fund (and I understand Risk and Return) but understand if some people would only place their KS in a cash fund.

PS

Much of the tax aviodence is legal but immoral. I know of one such person who gloated that his income was written down to reduce his tax bill then bleat when his bank would not lend him any money because on "paper" he couldn't service the debt. Can't have it both ways.

 

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Using  a government benefit system (KS) that exploits real taxpayers to become as you call it "financially independent" is hardly worthy of praise Money Man. Why not save your own money instead of stealing part of mine and others via yet another government handout? ;-)

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I would still be in KS or workplace super scheme even if Govt incentives won't there as my employer pays my 2% without any effect on my salary (use it or lose it).

And I am a real tax payer. No WFF, tax returns, benefits or any other hand out as you call it in 25 years since I left school and started work. Only KS tax credit which I can't get until age 65.

I even the company which owns my property pays tax.

If I am not a real tax payer please educate me where I am amiss?

 

 

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Another way to encourage people to save is to not tax the interest that is earned on cash deposits in the bank.  It wouldn't cost the govt the kiwisaver incentive and would have a HUGE effect in absolute investment returns for individuals and thus a boost to a really simple way of investing.

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Chrissy, why not just get rid of KS and remove RMT on all savings accounts and leave it at that?

When will these governments learn the motto "simplicity leads to efficiency"?

I remember when they introduced RWT and the absolutely dumbass silent majority that let it happen. Very sad day for NZ savers who at the time where providing a service allowing local banks like 'TrustBank" etc to "loan with funds from home".

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I can't understand the above comments. Surely if money goes into your kiwisaver it is yours. Apart from a few months at IRD if the money is in your account and working for you whether it is from you, your employer, or the government. It is in an ASB cash account or a Superlife growth account. IF may go up or down according to the value of the underlying shares, the provider could increase their fees but you could switch. If they go belly up or decide to stop providing the service you go to another provider. I guess if a employee defrauded the company and they couldn't afford to pay it back might be issues but when it is as tranparent as superlife you can see you have 10 grand in gemino, 10% of that is Lynas corp (LYC ASX) so you have a grand in LYC so if that increases 10 times you should have 19 grand all else being equal. You can only access the money at 65 or buying a house for the first time or severe financial hardship, you could lose some of the government money but probably not the interest you earned if you emigrated - but it is all fair enough and an excellent deal. If the rules change and you don't think it's worth it, want to pay some debt - just freeze it.

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What if the outfit 'managing' your money loses it all before you even hear about it? How are you just going to go change provider when it's too late? These people have proved time and time again that they cannot be trusted AT ALL and they won't lose a wink of sleep about misusing and abusing other people's money.

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Stick to one of the default providers in a cash fund. 

Dedault providers have and will no doubt continue to be closely monitored.

These guys aren't like the local shoddy money lender who has lent out all your hard eaned cash to his mates.

I think you will see over short to medium term the number of KS providers reduce (can't make any money on low numbr of KS clients) and the remaining will be stronger and more transparent (which will be good).

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Superlife is very good. ASB is quite cheap for cash only but for knowing exactly how much you have, what iit is invested in,  switching it in a flash (I cant work out if it is weekly or a bit faster) , updating the exact investments down to the last share monthly, and being the cheapest fees they are unbelievably good.

I'm not sure where they come from - I have a feeling they ran the old fletcher challenge employment super scheme or something like that.

The only thing i would like to see is even more range of investments eg in gold ingots, rental properties, cash in various currencies. The only risk is from switching too much and getting it wrong investment wise eg switching out of shares at the bottom of the crash but that is your own responsibility.

 

 

 

 

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After viewing the video the thought occured that Superlife don't spend much on  marketing, presentation, and not sexy ... eg their website is practical and information filled but doesn't grab you like a Hujich Salesman at the door... but thats a good thing. My dad had some UK super money from the 50's in a pension fund called Scottish Widows and it always did very well but the name always made me smile as I thought of these drab old laddies cannyly counting the pennys - they probably were young foreign exchange traders with huge expence accounts!

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So if you have $10 000 in kiwisaver you would pay $150 a year more (1.5%) for the high fee fund. It might be worth it for a Brian Gayner or Gareth Morgan ... but I don't know.

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Nite people, I'm off to bed. Talk tomorrow

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The article implies through the use of the words "commercially embedded" that Superlife look after $800m in KiwiSaver funds.  it's nowhere near that amount  - it's more like $90 -$100m.   

Presumably, the Superlife master trust (which is separate to KiwiSaver and has been in operation for many years) looks after the other $700m - which is how we get to the $800m figure perhaps.

 

 

 

 

 

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Can a Kiwisaver provider go bust?  Can I still get  my money back if the provider go bust ?  Is there a possibility that I would get back less than what I put into kiwisaver?

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The answers are the same as for other managed funds.

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