Clive Fernandes
Auckland, July 4, 2024
Morningstar survey highlights growth
The latest report from American financial services firm Morningstar unveils a surge in the value of KiwiSaver assets during the initial quarter of 2024, riding high on the waves of global market optimism. According to Morningstar’s survey spanning the three months ending March, KiwiSaver assets witnessed a notable uptick, increasing by approximately $4 billion to reach a total of $108.6 billion.
The report also confirmed that the quarterly returns, after fees but before tax, exhibited a growth spectrum, ranging from 2% for conservative funds to a robust 8.8% for aggressive funds. Among the pivotal factors influencing New Zealand investors, Morningstar emphasised the impacts of inflation and global interest rates.
Morningstar highlighted, “Central banks, including the Reserve Bank of New Zealand, took a wait and see approach, holding interest rates steady. This signalled some progress in taming inflation, although concerns remained.”
The report underscored the commendable performance of international shares during the quarter, supported by strong corporate earnings in the US and investor enthusiasm for technology stocks. On the economic front, while New Zealand’s economic growth trajectory appeared subdued, the US economy continued to emanate optimism as a beacon of resilience.
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Optimistic Trends
“Overall, the first quarter offered a chance for cautious optimism. While inflation remained a concern, global growth prospects improved, and equity markets delivered strong returns, particularly for unhedged holdings due to the weaker NZ dollar,” Morningstar remarked.
Over the last decade, aggressive KiwiSaver funds emerged as the top performers, offering investors an annual return, after fees but before tax, of 9.1%, followed by growth funds at 8.4%, balanced funds at 6.8%, moderate funds at 4.8%, and conservative funds at 4.3%.
In terms of market share, ANZ retained its lead with $20.4 billion in assets, trailed by Fisher Funds at $16.7 billion, ASB at $16.6 billion, BT-Westpac at $10.7 billion, and Milford Asset Management at $8.6 billion, maintaining their positions among the top contenders in the KiwiSaver landscape.
Commerce Minister’s Call for KiwiSaver Reform
In spite of this global market optimism, Consumer Affairs and Commerce Minister Andrew Bayly, has laid out his vision for reforming KiwiSaver against the backdrop of soaring financial hardship withdrawals from the scheme. Addressing delegates at the Retirement Commission Te Ara Ahunga Ora’s Auckland strategy conference, Mr Bayly delved into his plans to evaluate the adequacy of KiwiSaver contribution rates in light of recent developments.
Despite KiwiSaver balances surpassing the $100 billion milestone, Mr Bayly drew attention to the substantial gap compared to Australia’s superannuation savings, which have significantly bolstered living standards across the Tasman. “I plan to turn my mind to the ongoing debate about whether the KiwiSaver contribution rates are appropriate,” he informed delegates, acknowledging the surge in financial hardship withdrawals to an all-time high.
Recent figures from Inland Revenue Te Tari Taake indicated a staggering $29 million was withdrawn due to financial hardship in March alone, marking the highest recorded withdrawal over a month. In further discussion, Mr Bayly contemplated the feasibility of raising the employment contribution rate beyond the current 3%, albeit recognising the challenges posed by the prevailing cost of living crisis. “This is something I am willing to seek feedback on,” he affirmed.
Addressing Inequities & Financial Literacy
Expressing concern over inequities within KiwiSaver, Mr Bayly highlighted segments of the population, including women, older individuals, younger workers, and some ordinary workers, who he believed were not receiving equitable treatment. He expressed intentions to explore whether employers should be mandated to contribute to the KiwiSaver accounts of individuals aged under 18 or over 65, aligning KiwiSaver policies with demographic shifts.
Moreover, he voiced apprehension regarding the impact of maternity leave on women’s KiwiSaver contributions, labelling the current situation as unjust, and then underscored concerns surrounding “total remuneration” employment packages.
Instances have been highlighted where young individuals, particularly in sectors like hairdressing, were dissuaded from enrolling in KiwiSaver due to employer practices linked to total remuneration packages. Highlighting the imperative of bolstering financial literacy among the youth, Mr Bayly emphasised ongoing efforts to integrate financial education into school curriculums, aligning with National’s campaign promises.
Mr Bayly positioned KiwiSaver reform as a pivotal component of broader efforts to overhaul New Zealand’s financial landscape, alongside initiatives to ensure fair insurance practices and enhance consumer data rights.
Challenges and Scrutiny
While Mr Bayly’s reforms have garnered support, they haven’t been devoid of scrutiny, with concerns raised by budget mentors regarding potential funding cuts amid escalating mortgage arrears and financial distress reminiscent of the Global Financial Crisis. He clarified that the Government’s financial support for budgeting services hadn’t been reduced but acknowledged that time-limited funding instituted during the Covid-19 pandemic was nearing its expiration.
Optimising Your Own KiwiSaver Journey
To stay on top of your own KiwiSaver assets, and make valuable decisions, consult a financial advisor who can provide insights into how you can tailor your contributions to your financial needs. Consider submitting a KiwiSaver Healthcheck through National Capital, a KiwiSaver advice firm. You can use this information to help create the ideal path for your unique financial situation and ensure your future is supported in the best way possible.
Clive Fernandes is the Director of National Capital, a financial advisory firm that provides personalised investment advice, primarily focusing on KiwiSaver.
Disclaimer: The views expressed in this article are the author’s views. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
