MR No. 2016 – 28
5 October 2016
Total money in KiwiSaver funds continues to grow, but at a much slower pace than the previous two years as both returns and numbers of new members decline.
Investment returns in the year to 30 March 2016 were a smaller proportion of the overall growth, as markets fell back from earlier double digit performance. Total members in KiwiSaver have also grown, but at the lowest level since reporting began, 4% increase this year compared to 14% in 2012.
For the first time, the level of people transferring between schemes was higher than people joining KiwiSaver. Over the course of the year, 175,000 members transferred to a different scheme provider (compared to 177,000 in 2014-15), while 145,000 new members joined (compared to 245,000 new members in 2014-15).
These statistics were released today in the FMA’s annual KiwiSaver report, published as part of the FMA’s obligations under the KiwiSaver Act 2008.
Rob Everett, FMA Chief Executive, said “as new membership is slowing, it’s logical that providers will continue to look to transfers to grow the size of their schemes. The FMA will be paying attention to how transfers occur, making clear our expectations to providers and giving clear information to KiwiSaver members about how to prepare for those circumstances and what they should expect from providers.”
The number of default members continues to decline from its peak of 465,000 in 2013 to 445,000 in 2016, now representing 17% of the total members.
Since 2014 the instruments of appointment for the nine default providers have included an obligation to provide financial literacy initiatives to their members. For the first time, we have asked them to report on their activities in this area, for this 12 month reporting period. In particular we are looking for default providers to demonstrate how they help their members make well-informed decisions about which scheme and which fund they should be in.
One of the measures developed for this year’s report is the number of default members who have made an active decision to switch from the default funds into a fund more appropriate for their circumstances. No targets have been set for these initiatives, but this first year’s report provides a baseline for assessing progress, which will continue to be reported.
The reporting about default providers is shown at the individual provider level rather than by aggregating across all schemes, which is the typical format of the report under the KiwiSaver Act.
The reporting shows the relative success of the various providers in engaging with their members and helping them to make an active choice about the type of fund they are in. There is a range of success in terms of customers making active choices from 1% of default members in the case of ASB, up to 22% of the scheme’s members in the case of Grosvenor (now known as Booster).
Mr Everett said "providers have told us there are barriers to encouraging their default members to make an active choice, however it is clear from the level of transfer activity by the same providers that these barriers are not insurmountable when encouraging other providers’ members to transfer to their schemes".
One of the barriers that providers have highlighted to the FMA is the way they have interpreted our guidance on sales and advice for KiwiSaver, particularly around transfer activity.
The FMA is about to issue updated guidance to ensure providers begin to engage with their customers in a more meaningful way about the benefits and options available to them in KiwiSaver. The FMA is keen for its guidance to make it easier for people to get the help or advice they need to make good decisions about KiwiSaver, particularly when they are being asked to consider transferring their scheme.
In another first this year, the FMA has made available the results of the report in Tableau format. Providing open access to some of our KiwiSaver data allows investors and other interested parties to track the major trends and examine key statistics for themselves.
The FMA in its co-regulatory role over KiwiSaver continues to focus on majority of its strategic priorities that have direct relevance to the integrity and security of KiwiSaver investments. These are: governance and culture, conflicted conduct, capital markets growth, sales and advice, investor decision-making.
The FMA’s KiwiSaver report details the wide range of activity it has been involved in to address these challenges throughout the reporting period.
Full report available here
Tableau report here
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