We have a series that looks at the long and medium term track record of each KiwiSaver fund on a standardised basis.
That reveals their return performance.
This look is who we are supporting; who has the most funds under management.
For each of our risk categories, this is where the funds were as at December 31, 2017 (the last time the RBNZ's T43 industry totals were compiled).
| Dec-2016 | Dec-2017 | growth | share | |
| General risk category | $ mln | $ mln | % pa | % |
| Aggressive funds | 8,003.6 | 11,013.6 | +37.6 | 23.2 |
| Growth funds | 7,625.8 | 10,024.8 | +31.5 | 21.2 |
| Balanced Growth funds | 5,069.4 | 6,337.9 | +25.0 | 13.4 |
| Moderate funds | 5,928.4 | 7,039.4 | +18.7 | 14.9 |
| Default funds | 7,863.4 | 8,767.4 | +11.5 | 18.5 |
| Cash & Conservative funds | 2,267.5 | 2,576.8 | +13.6 | 5.4 |
| Funds we don't cover* | 1,926.9 | 1,618.1 | 3.4 | |
| ------------------------------ | ---------- | ---------- | ---------- | ---------- |
| Total KiwiSaver fund value (T43) | 38,695.0 | 47,378.0 | +22.4 | 100.0 |
* These include closed funds, company-specific funds, and some very small funds.
Growth in the above table comes from two general sources: Contributions (net of withdrawals), plus net fund earnings. As we have seen in our earlier analysis, higher risk funds have been posting earnings far higher than lower risk funds. But we have also seen that fund size growth is highly dependent on contributions. All we can say from the above data is where the weight of current investment is.
And 57.8% of our exposure is in Growth, Balanced Growth, and Aggressive funds. In a year that share had risen from 53.5%.
Our exposure to Default funds has fallen from 20.3% of all funds to 18.5%.
Our least exposures are in Conservative (5.4%) and Moderate (13.9%) funds, and our support is falling in both.
This same data shows that banks have essentially captured most of the money under management in KiwiSaver. The results are startling.
| as at December 2017 | Totals | Banks | share | Others |
| General risk category | $ mln | $ mln | % | $ mln |
| Aggressive funds | 11,013.6 | 7,025.6 | 63.8 | 3,988.0 |
| Growth funds | 10,024.8 | 6,381.3 | 63.7 | 3,643.5 |
| Balanced Growth funds | 6,337.9 | 4,241.7 | 66.9 | 2,096.2 |
| Moderate funds | 7,039.4 | 5,127.4 | 72.8 | 1,912.0 |
| Default funds | 8,767.4 | 6,897.3 | 78.7 | 1,870.1 |
| Cash & Conservative funds | 2,576.8 | 2,005.6 | 77.8 | 571.2 |
| Funds we don't cover* | 1,618.1 | 83.9 | 1,534.2 | |
| ------------------------------ | ---------- | ---------- | ---------- | ---------- |
| Total KiwiSaver fund value (T43) | 47,378.0 | 31,762.8 | 66.9% | 15,615.2 |
More than two thirds of all KiwiSaver funds are in a bank scheme.
ANZ alone has attracted $11.4 bln or 24% of all KiwiSaver funds. They probably think that is below their 'natural' market share because they have 29% of all New Zealand banking. But that is an out-sized share given all the other non-bank fund managers competing for KiwiSaver. Banks have a huge natural advantage because they can display the customer's KiwiSaver fund balance as just another account in their banking apps. For this advantage alone, banks will continue to grab market share.
You can also see from the table above that banks' KiwiSaver balances are skewed towards the low-risk end of risk spectrum, more into Cash & Conservative, Default, and Moderate funds. This is the end where customers have been getting the most modest returns, and in the Conservative area we have seen that returns are almost always lower than bank term deposits - even though many of these funds are just invested in bank term deposits. "Conservative banker talk" at the teller and customer-facing exchanges may not actually be helping customers with the best outcomes. This is only speculation of course because what is best for a customer can only be assessed individually. But in aggregate, it smells.
All this begs the question; does our support actually flow to funds who outperform? Does leaving your funds with a bank KiwiSaver fund turbocharge or hinder growing your retirement nestegg? We will look at that in a separate review.
6 Comments
So banks hold 66.9% of KiiwiSaver fund value. This is 78% in the conservative and default funds.
Why? Banks have been trusted?
Important that banks maintain this apparent preference, especially among conservative investors who value trust highly.
An exposure of similar Australian practices by NZ-based banks could hurt this.
I think this shows that people are not always rational actors and most people do not understand compound interest. Without knowing the details it seems very likely that at least some people are in the wrong risk profile and tending to the conservative. This of course means cheap funding for the banks but means some people's retirements will not be as comfortable as they had anticipated.
One of the key points under the Financial Markets Conduct Act is "suitability" of a financial product. I wonder if the advice for many people fits the definition of suitability. How could anyone young person be in a conservative fund? A small tweak to the system would be that there are different risk profiles for the default providers and a person is placed into one of those categories based on age.
Why we don't have self managed KiwiSaver funds? The Australians do (SMSFs). That would surely keep a lid on fees, and perhaps be even better than Peters' idea of a government run scheme. An SMSF is no more complicated than running a family trust by the looks of it. I see Martin North has just published a video on why superannuation scheme fees are such a big deal. I know you guys at Interest.co.nz agree that fees are a big deal because you've written several articles about it.
Here's Martin North on the topic.
The fact that the banks's customers appear to be more conservative than the Others holding could be due to the following:
- Many bank customers are Default. Before the 5 to 9 a few years ago I think the only non-bank provider was Mercer? Now Mercer, Grosvenor (Booster) and Fisher? Fisher possibly there before...point stands.
- If you are changing to a non-bank provider it seems likely that you upping your growth allocation, or at least holding it constant. Hurting the banks' growth ratio and improving the other.
The point about conservative banker talk - unsure if this is just an availability bias thing. I don't know a single person that signed up to a bank scheme and ended up in bonds/cash only - though none of them are approaching retirement. Banks make more in both first order (initial fees & margins higher) and second order fees (assets expected to grow larger over time) when you are in 'growthier' options, so their incentive should push them that way.
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