WHAT . . . is unit-pricing?
MOST, BUT not all, KiwiSaver funds are ‘‘unit-priced’’.
The common perception of KiwiSaver is that savers’ money goes in and it buys a spread of assets like bonds, shares and property.
Individual savers don’t own those bonds and shares, however. Those are owned, or ‘‘vested’’ as the jargon would have it, in the trustee. Every scheme has a trustee. They can be thought of as the safe pair of hands that is independent from the scheme, and is there to own the assets and make sure the fund manager complies with all the scheme’s rules.
In fact, what KiwiSavers buy with their contributions are ‘‘units’’ in the fund they have chosen. Those units are like IOUs. The amount owed is the unit price, which is calculated daily.
The unitholder has the right to cash that IOU in with the fund.
This happens if they shift to another fund, or cash up at the age of 65, or later, if they so choose.
The rises and falls in the value of a unit reflect the income and capital gains a fund makes on the assets that have been invested in. Each unit shares equally with all other units in the capital gains (or losses), and the income earned.
As AMP’s KiwiSaver prospectus puts it: ‘‘Member’s contributions are applied to purchase units in their chosen funds, and the value of those units change to reflect the returns attributed to those funds (either positive or negative), as well as the scheme’s fees and expenses.’’
Is unit-pricing foolproof? New Zealand has a history of stuff-ups with unit-pricing although some professionals specialise in helping fund managers reverse those errors with minimum fuss.
PriceWaterhouseCoopers says on its website: ‘‘Unit pricing is a complicated process, especially when something goes wrong. We can help you fix errors, calculate compensation to investors, and improve underlying process to reduce the risk of future errors. We can give you advice on systems and methodologies, and help with other compensation processes including calculating the refunds of foreign exchange fees on credit cards.’’
Not everyone unit prices. Kiwibank bought its KiwiSaver scheme from Gareth Morgan. He was no fan of unit-pricing. ‘‘We do not assign units like many other KiwiSaver providers do. Instead your reports show you the shares, fixed interest and cash assets that make up your interest in Kiwi Wealth KiwiSaver.’’