On the back of the 2019 KiwiSaver product ratings, SuperRatings is pleased to provide a list of the top 10 providers on a Net Benefit basis across Conservative, Balanced and Growth funds. The Net Benefit figures have been calculated using investment returns minus fees and taxes for the 7 years to 31 March 2019. This represents the dollar amount credited to a member’s account and is the best approach to assessing the value that a scheme delivers to its members.
We note that the Financial Market Authority’s 2019 KiwiSaver Annual Report indicated a shift in their focus from pure fees towards value for money. SuperRatings welcomes this change and will continue to monitor progress in this area to emphasise the importance of this approach, drawing on our experiences across both the New Zealand and Australian markets.
“Despite a volatile financial year, the median performance for Conservative and Balanced funds improved over the 12 months to 31 March 2019,” said SuperRatings Executive Director Kirby Rappell. “Schemes had to navigate through increased volatility and geopolitical risks, particularly in the final quarter of the 2018 calendar year. Stronger equity markets in the following quarter helped recover losses, though the median 1 year return for Growth funds moderated slightly given the higher allocation to domestic and international shares”.
The median member fee remained at $30, while we observed a slight decrease in the total percentage-based fees for Balanced and Growth funds, though they continue to charge more than the median Conservative fund. “Net Benefit cuts through the issue of having to look at returns and fees separately. Our analysis shows that despite higher fees, Net Benefit outcomes for Growth funds continue to sit above Balanced and Conservative funds”.
Another insight is the relatively narrow range of outcomes being delivered for members investing in Conservative funds. Over 7 years, the difference between the best and worst Net Benefit provider was around $3,500, yet this represents almost 20% of the member’s starting balance. This compares to a difference of over $30,000 in the Australian market, driven by stronger investment earnings and higher contribution rates. “For KiwiSaver members, changing fund type rather than changing provider can have a bigger impact on their retirement savings,” said Rappell. “SuperRatings remains supportive of schemes providing education, advice as well as digital tools to empower members to make an active choice regarding their fund type. Whilst default funds may be appropriate for first home buyers and those nearing retirement, members using KiwiSaver as a long-term savings vehicle should be informed on the options available to them”.
SuperRatings’ Net Benefit methodology models investment returns achieved by each scheme over a seven-year period to 31 March 2019, as well as the fees charged over the period. The analysis uses a scenario of a member that has a salary of $50,000 and a starting balance of $20,000. It then assumes a contribution rate of 3.0% with a contribution tax of 17.5%.
*Net Benefit outcomes are calculated over seven years and assume a contribution rate of 3.00%, contribution tax of 17.50%, salary of $50,000 p.a. and a starting balance of $20,000.
**Russell LifePoints® Conservative Fund.
***Russell LifePoints® Balanced Fund.
****Russell LifePoints® Growth Fund.