KiwiSaver Chart Book

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KiwiSaver Chart Book

No

te: All net of tax fund returns shown in this report are calculated using the highest prevailing PIE tax

rate.

Collin Nefdt, October 2014

NZ T R E N D S

Independent research and analysis

October 2014

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Growth in KiwiSaver Scheme Assets

12 months to 31 March 2014 20.2% 25.9% 30.9% 114.0% Koinonia Smartshares FirstChoice (Clsd) ANZ Default Fidelity Mercer OneAnswer Staples Rodway Fisher Funds TWO Superlife Craigs Defined NZ Harbours Forsyth Barr Supereasy Lifestages AON Grosvenor ASB Fisher Funds Westpac MAS Craigs Select Kiwi Wealth Mercer ST NZ Funds BNZ Milford

Membership growth is slowing after a prolonged growth period. Asset growth, in contrast, occurs at a multiple of membership growth and remains

healthy. In the period under review total KiwiSaver funds under management rose 28%

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Growth in Assets of Major Providers

12 months to end March 2014

18% 22% 26% 28% 28% 31% 34% 40% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% AMP (1) Mercer (2) Fisher Funds (2) ASB (2) INDUSTRY Westpac (1) ANZ (3) Kiwibank (2)

The number of schemes operated by the provider is shown in brackets (alongside

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Ten Largest KiwiSaver Schemes by Members

At 31 March 2014

19.0%

18.1%

14.5%

11.3%

5.0%

_4.9%

4.1%

_3.9%

_3.6%

2.9%

The 5 largest providers represent almost 80% of all members. The industry has a

Herfindahl-Hirschman Index of approximately 1,500 which indicates a ‘moderately concentrated’ marketplace.

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Ranking of Ten Largest KiwiSaver Schemes

At 31 March and based on scheme membership

2008

2009

2010

2011

2012

2013

2014

1

ASB ASB ASB ASB ASB ASB ANZ

2

Westpac Westpac Westpac Westpac Westpac Westpac ASB

3

AMP AMP AMP Na tiona l Na tiona l Na tiona l Westpac

4

OneAns wer AXA Na tiona l AMP AMP ANZ AMP

5

_(TOWER)FF2 _(TOWER)FF2 AXA ANZ ANZ AMP Fi s her

Funds

6

_{Defa ul t}ANZ _{Defa ul t}ANZ ANZ AXA Fi s her

Funds Fi s her Funds FF2 (TOWER)

7

AXA Mercer FF2

(TOWER) Huljich AXA AXA Mercer

8

Mercer OneAns wer Huljich FF2

(TOWER) FF2 (TOWER) FF2 (TOWER) ANZ Defa ul t

9

Ki wi Wea l th _(GMK) Na tiona l Mercer Mercer Mercer Mercer Ki wi Wea l th

(GMK)

10

Na tiona l ANZ ANZ

Defa ul t ANZ Defa ul t ANZ Defa ul t ANZ

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Industry Contribution Index

77%

60%

55%

_54%

56%

Mar 09

Mar 10

Mar 11

Mar 12

Mar 13

Mar 14

While the dollar amount of employee contributions has increased dramatically the ‘contribution index’ or the percent of members

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Scheme Contribution Index

At 31 March 2014 32.4% 55.8% 58.5% 70.0% 78.0% 25% 35% 45% 55% 65% 75% 85% Fidelity Fisher Funds ANZ Westpac Grosvenor ASB AON ANZ Default Mercer Fisher Funds TWO Superlife AMP OneAnswer Staples Rodway Kiwi Wealth BNZ NZ Funds Mercer ST Craigs Select Craigs Defined Milford

Just like the entire industry, each scheme has its own internal contribution index that can provide

insights into nature of the scheme, the newness of the scheme and

profile of its members.

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Split of Single-sector Fund FUM

At 31 March 41% 54% 59% 61%

14%

13%

9%

13%

35% 26% _27% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014

Other

Socially Responsible

Property

Fixed interest

Shares

Cash

Single–sector fund investment is dominated by ’Cash’. The percentage invested in ‘Share’ funds has remained

constant while investment in ‘Fixed Interest’ funds have risen by 6%.

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Average Asset Allocation

By multi-sector fund category at 31 March 2014

Underlying data: FMA KiwiSaver Annual Report 2014

21%

8%

_6%

6%

14%

22%

12%

31%

47%

4%

8%

9%

27%

16%

5%

30%

21%

8%

0%

20%

40%

60%

80%

100%

Conservative

Balanced

Growth

Cash

Australasian Shares

Int Shares

Property

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KiwiSaver Leakage

Leakage from KiwiSaver is well contained. The rate of members existing (excluding ‘end payment’ and death) is shown alongside while the split of all leakage to date

is shown below. Leakage is a major problem in retirement systems in many countries.

0.11% 0.28% 0.55% 1.03% 1.39% 1.33% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 2009 2010 2011 2012 2013 2014 First home purchase, 57% Mortgage diversion, 0% Serious illness, 6% Permanent emigration, 18% Financial hardship, 18% As at 31 March As at 31 March 2014

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Selections When Switching out of IRD Default Funds

Cumulative since 2008

Underlying data: FMA KiwiSaver Annual Reports 20 229 29 457 19 550 3 920 2 352

0 5 000

10 000

15 000

20 000

25 000

30 000

35 000

2008

2009

2010

2011

2012

2013

2014

Conservative Balanced Growth Cash Shares

To date a total of 65,299 members, originally allocated to IRD default

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Selections: General Fund Switching

Figures are cumulative and net (switches in less switches out)

-15 000

-10 000

-5 000

0 5 000

10 000

15 000

2008

2009

2010

2011

2012

2013

2014

Active default

Conservative

Balanced

Growth

Cash

Shares

‘Cash’ funds are the leading destination for general (or non-default) fund switches.

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Multi-sector Fund Category Total Expense Ratios

Box-plot at 31 March 2014 Median 0.55% Median 0.94% Median 1.05% Median 1.17% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50%

Default Low Equity Medium Equity High Equity

qtr. 1

qtr. 2

qtr. 3

qtr. 4

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Single-sector Fund Category Total Expense Ratios

Box-plot at 31 March 2014 Median 0.55% Median 0.85% Median 0.86% Median 1.12% Median_1.20% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50%

NZ Income NZ Fixed Income Intnl Fixed Income Intnl Equities Australasian Equities

qtr. 1

qtr. 2

qtr. 3

qtr. 4

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Different Fund Return Layers

In arriving at net (of tax and fee) fund returns, contributing layers are involved: performance at a ‘gross’ level, the impact of fees on the ‘gross return’ and the impact of tax on the ‘net of fee, gross of tax’ return. Understanding fund results from this ‘deduction’ framework is insightful and the next slide, which profiles balanced funds on this basis, shows that no fund succeeded in achieving a first quartile position at all 3 levels.

Gross 6.53%

Net fees 6.21% 95% of gross

Net fees & tax 4.77% 73% of gross Less management fees Less maximum PIE tax

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Gross, Net of Fee & ‘Net of Tax and Fee’ Return Analysis

Medium equity or balanced multi-sector funds - 3 year period ended March 2014

Fund Gross Return* Qtr.** Fees (Avg. TER) Qtr. Gross-Net Qtr. Tax Efficiency Qtr. Net-Net Return Qtr. AMP LS Blncd 7.69% 3 1.013% 2 6.68% 3 68.3% 4 5.37% 3 AMP LS Mdrt Blncd 6.89% 4 1.017% 2 5.87% 4 67.0% 4 4.72% 4 ANZ Balanced 9.00% 2 1.077% 3 7.92% 2 78.6% 2 7.20% 2 ANZ Blncd Growth 10.16% 1 1.127% 3 9.03% 1 79.4% 2 8.22% 1 ANZ Default Blncd 8.21% 2 0.630% 1 7.58% 2 76.9% 3 6.42% 2 ANZ Default Blncd Growth 9.12% 1 0.680% 1 8.44% 1 77.5% 3 7.20% 2 Aon - Blncd LP Russell 9.20% 1 1.207% 4 7.99% 1 88.0% 1 8.17% 1 Aon - OnePath Blncd 9.09% 2 1.233% 4 7.85% 2 85.9% 1 7.90% 1 Aon - Tyndall Blncd 6.84% 4 1.313% 4 5.53% 4 84.8% 1 5.86% 3 ASB Balanced 7.10% 4 0.627% 1 6.48% 3 77.2% 3 5.57% 3 Fidelity Blncd 5.32% 4 1.103% 3 4.22% 4 68.5% 4 3.70% 4 Fisher Funds TWO Blncd 7.17% 3 1.087% 3 6.09% 4 86.3% 1 6.24% 2 Grosvenor Balanced 4.77% 4 1.210% 4 3.56% 4 73.2% 3 3.53% 4 Mercer Balanced 7.88% 3 0.837% 1 7.04% 2 65.1% 4 5.26% 3 Mercer ST Active Blncd 7.90% 2 1.017% 2 6.88% 3 63.0% 4 5.11% 4 Mercer ST Moderate 7.38% 3 0.790% 1 6.59% 3 60.9% 4 4.62% 4 Milford Balanced 11.55% 1 1.197% 4 10.35% 1 89.1% 1 10.41% 1 OneAnswer Balanced 9.05% 2 1.060% 2 7.99% 1 78.6% 2 7.24% 2 OneAnswer Blncd Growth 10.30% 1 1.110% 3 9.19% 1 79.3% 2 8.32% 1 Smartkiwi Balanced 5.89% 4 0.777% 1 5.12% 4 81.8% 2 4.87% 4 Staples Rodway Blncd 9.63% 1 1.413% 4 8.22% 1 82.6% 1 8.07% 1

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• The gross return obtained by a fund is generally a very good predictor of the ‘net of tax and

fee’ result.

• 15 funds kept their quartile ranking position from ‘gross’ to ‘net-net’.

• Of the 7 remaining funds 4 improved their quartile positioning:

–

Aon-OnePath Balanced

(from 2 to 1) due to high tax efficiency

–

Aon-Tyndall Balanced

(from 4 to 3) due to high tax efficiency

–

ASB Balanced

(from 4 to 3) due to low fees

–

Fisher Funds TWO Balanced

(from 4 to 3) due to high tax efficiency

• The following 3 funds lost ground in terms of quartile positioning:

–

ANZ Default Balanced Growth

(from 1 to 2) due to weaker tax efficiency

–

Mercer ST Active Balanced

(from 2 to 4) due to weaker tax efficiency

–

Mercer ST Moderate

(from 3 to 4) due to weaker efficiency

• Funds with weaker gross returns but low fees (quartile 1) generally did not make up the

return shortfall.

• Balanced funds in the AMP and Mercer schemes struggled with tax efficiency.

• The Aon funds in the analysis recorded high tax efficiency.

• All the funds provided by ANZ (ANZ, ANZ Default and OneAnswer) showed ‘net of tax and

fee’ results in the first 2 quartiles.

Gross, Net of Fee & ‘Net of Tax and Fee’ Returns

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New KiwiSaver Member Growth via ‘Joining Route’

12 months to end June 2014

9.9%

4.5%

10.5%

9.5%

0%

2%

4%

6%

8%

10%

12%

Active Choice

Opt-in (via employer)

Auto enrolled

Total

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Average Multi-sector Category ‘Tax Efficiency’

Based on returns for the 2-year period ended March 2014

79.0%

81.5%

84.4%

86.4%

74%

76%

78%

80%

82%

84%

86%

88%

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Average Single-sector Category ‘Tax Efficiency’

Based on returns for the 2-year period ended March 2014

71.9%

76.4%

86.1%

87.9%

95.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NZ Income

Intnl Fixed

Interest

Intnl Equities

Hybrid Equities:

Intnl &

Australasian

Equities

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Factors Impacting Retirement Planning in New Zealand:

Increasing Longevity

19.1

21.4

0

5

10

15

20

25 Ye

ar

s

Life expectancy at age 65 - Male

Life expectancy at age 65 - Female

Underlying data: Statistics New Zealand

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Factors Impacting Retirement Planning in New Zealand:

Transfer of Investment Risk to Individuals

75.8 24.2 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Chile Czech Republic Estonia Greece Hungary Poland Slovak Republic Denmark Italy Australia (1) Mexico New Zealand (1) Iceland United States (2) Israel Korea Portugal Canada (2) Germany (3) Finland Norway Switzerland

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Factors Impacting Retirement Planning in New Zealand:

Overall pensions assets low relative to gross replacement ratio of New

Zealand Superannuation

New Zealand 15.8, 38.7 0 10 20 30 40 50 60 70 80 90 100 0 20 40 60 80 100 120 140 G ros s replac emen t rate from the p u b lic s ys tem (%)

Pension fund assets as a % of GDP

Pension fund assets compared with the public pension system's gross replacement rate, 2011 (Source: OECD)