Group protests $1b forgone by savers
A group of financial planners has issued a 10-point battle plan to overhaul KiwiSaver.
The current settings had cost savers in the giant ‘‘default’’ KiwiSaver funds $1 billion over the past six years, said the group, headed by John Cliffe.
Cliffe said the group was inspired to speak out after becoming incensed by the soft New Zealand reaction to the Australian royal commission of inquiry into banking misconduct.
In particular, the big Australian banks were all in a conflicted position regarding KiwiSaver, each borrowing a large amount of money from the KiwiSaver schemes they ran, he said.
‘‘Over 400,000 KiwiSavers who have invested in default funds have missed out an estimated $1 billion over the last six years,’’ the group said in an open letter setting out 10 changes they said must be made to KiwiSaver.
The $1b represented capital growth that savers in the default funds would have got from investing in higher-risk, higher-return growth funds.
Default funds are low-risk funds into which KiwiSavers who don’t pick their scheme are shunted by the tax department when they first sign up, with the lion’s share having gone into the default funds of the Australian-owned banks.
Much of the default fund money was invested in deposits at the big banks that ran them, with the advisers saying ‘‘$1.5b of their funds are invested in securities issued by Australian-owned banks and insurance companies’’.
The default scheme arrangement favoured banks, not investors, the group said.
The default KiwiSaver providers had proved themselves to be poor at engaging with default KiwiSavers, which earned them a blast from the Financial Markets Authority in October last year.
Rather than a telling-off, the banks needed targets for getting savers into more suitable funds, the advisers felt.
If default scheme providers failed to get a KiwiSaver into another fund within 12 months, they should lose them either to another default KiwiSaver manager or to a government-run balanced fund, Cliffe said.
‘‘These companies benefit when cash and bond securities are held by themselves or in each other. Their gain comes at the expense of KiwiSaver investors who effectively receive lower returns than they ought to be getting from a retirement investment,’’ he said.
‘‘These poor returns are suffered primarily by New Zealanders least equipped to make considered investment decisions.’’
Figures from fund research agency Morningstar show that in the 10 years to the end of March, the average yearly return for a default fund was 5.5 per cent, compared with 8 per cent by the average growth fund.
The advisers felt the conflict of interest in these arrangements was not adequately declared to KiwiSavers.
They also estimated that many KiwiSavers were on the wrong tax codes and had overpaid about $70m too much tax on their returns, something the Inland Revenue Department could sort out if ordered to by politicians.
‘‘Using publicly available data the group has, for the first time, quantified how default KiwiSavers are missing out,’’ Cliffe said.
The advisers who signed the letter were all authorised financial advisers. They were Cliffe, Phil Ison, Alistair Bean, Rachelle Bland, Michael Lay, John McLean, John Milner, and Tony Walker.