Competition between providers for customers’ KiwiSaver funds increases rapidly

 

Media Release
MR No. 2014 – 032
1 October 2014

The Financial Markets Authority (FMA) is calling on KiwiSaver providers to put the interests of customers first, as the amount of money transferred by customers changing their KiwiSaver scheme, has almost doubled in a year[1].

The FMA today released its KiwiSaver report for the twelve months to 30 June 2014, as part of its statutory obligations under the KiwiSaver Act 2006. The report shows that total funds have grown 29 per cent to $21.4 billion up to 30 June 2014.

$10.1 billion, or 47 per cent, of total KiwiSaver funds is in low risk, conservative or cash funds, compared to 50% in 2013.

235,730 new members joined during the June 2013-2014 year. Total member numbers grew by ten per cent to 2.3 million; growth in KiwiSaver members has slowed from 14% two years ago, in 2012

Elaine Campbell, FMA Director of Compliance said, “KiwiSaver is an increasingly important focus for the FMA, as peoples’ retirement savings continue to grow and funds invested become a larger part of the national economy.”

In the year to 30 June 2014, $3.57 billion was transferred into schemes from other schemes. This is up 333 per cent from $825 million in the 2013 report. The year on year growth in transfers of members’ money from 2012 - 2013 was 11 per cent.

A large proportion of this growth can be explained by the merger activities at two of the largest providers, comprising transfers of approximately $2.2 billion of funds. Apart from these two mergers, approximately $1.4 billion was transferred between schemes as members changed provider.

Elaine Campbell said “The year on year growth in transfers is huge and demonstrates the rise in competition between providers for market share and funds under management. The FMA’s concern is that this competition should not be at the expense of KiwiSaver members’ experience, or providers focusing on supporting individual investors to more fully understand how to maximise their retirement savings potential.”

460,000 members transferred their KiwiSaver scheme this year compared to 127,000 in 2013, with about 290,000 members involved in transfers as part of corporate mergers, there were still 33 per cent more member scheme transfers in this reporting period.

Within individual accounts, KiwiSavers made 55,000 switches to their investment fund options this year, with approximately $573 million dollars moving into different funds. This was up from 39,000 investment fund switches in 2013 report.

“As well as our obligations under the KiwiSaver Act, the FMA has responsibility for the Financial Advisers Act and we have provided clear guidance to the industry about our expectations for the sales and distribution practices providers must use for KiwiSaver.

“It is critical that members receive appropriate advice and support when they are encouraged to transfer their KiwiSaver scheme. We are concerned that some of the sales practices we have discovered through our monitoring activity do not put the customer’s interest first and this reflects poorly on some providers’ attitude towards their customers.”

Standardised reporting by all providers about their KiwiSaver fees and performance was introduced during the reporting year. These Quarterly Disclosure Statements must be available online for investors to read. They make it easier for investors to compare and contrast how their fund is performing, where their money is invested and help people to make more informed decisions about their retirement savings.

“The introduction of these reports is a major step forward in providing transparency and better information about KiwiSaver. We will be paying close attention to these reports in the future to ensure that fees and performance are being reported consistently across the board,” said Elaine Campbell.

Click here to view the 2014 KiwiSaver Report.

Ends

Contact:
Andrew Park
09 967 1215
021 220 6770
andrew.park@fma.govt.nz


[1] Based on figures in Appendix 1 of report- excluding compulsory transfers resulting from mergers.