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.