Making sense of the government’s oddly-named Savings Working Group is something which is not that easy; nor is it easy to understand the reasoning behind it.

With a name like Savings Working Group you’d be forgiven for thinking that it is all about personal savings. You’d think it would be all about making New Zealanders save sufficient capital for a decent retirement.

Well that’s not the case. Finance Minister Bill English made it very clear to me that this group was mainly focused on looking at reducing the amount of money we as a nation borrow.

That’s a good thing. The numbers and the story around this suggests it is an important issue.

I wonder whether it is really a savings issue, as the name of the working group suggests. Added to that our offshore borrowings are made up of government, private sector and business and household borrowings.

The first one is something English and his government need to deal with. One could argue it is doing that and that on an international basis New Zealand’s government borrowing as a percentage of GDP is actually quite low.

Statistics NZ says that net core crown debt at June 30 was forecast to be $26.5 billion. If there was no change in net international liabilities in the three months ended June, government  debt would be just 15.9% of total net debt.

That brings into sharp relief the business sector. On this point you have to wonder how the government, especially one which believes in economic freedom and international markets is going to address this. Surely the government believes in free markets and the freedom of capital and labour to move globally? To try and stop New Zealand businesses borrowing overseas seems oddly contradictory to National party idealogy?

On the household sector the main part of this borrowing is the money we lend from banks to fund property investment and other things. With the Reserve Bank introducing the Core Funding Ratio and forcing banks to source more of their funds locally we must already be on the way to reducing our foreign borrowings?

Some comments from Statistics New Zealand suggest we maybe on the right track to fixing this offshore borrowing issue. It says:

“Overseas debt with a time to maturity of one year or less was 40.4% of the total at 31 March 2010, a decrease compared with 44.3% at 31 December 2009, and 43.0% at 31 March 2009. This was the lowest level since the time series began at June 2000. In general, overseas debt with a time to maturity of one year or less as a proportion of total overseas debt has been trending down from 31 March 2008. This is consistent with the Reserve Bank of New Zealand’s Prudential Liquidity Policy for banks which requires banks to hold longer-term foreign funding.” — Statistics New Zealand.

Back to retirement savings issues. It’s good that saving for retirement is not the group’s focus. Why? Well the government has taken off the table many of the key issues that need to be discussed. These issues relate to New Zealand Superannuation, the age of eligibility, even the rules around eligibility and the quantum of pension payments.

These are vital issues that need to be discussed and debated. Unfortunately this government is to gutless to address them.

The SWG has been given a bit of a brief to look at things like KiwiSaver and tax. What is interesting here is that these issues have already been debated at length and there is plenty of information out there.
Surely there is enough information for a government to make some policy decisions – as they should be doing, so why another taskforce?

This government has shown a predilection for these task forces. Generally they come out with some “radical” suggestions to start with then tone their comments down as they go along.

This group is likely to do just that. It’s likely to include comments around personal savings, although its main focus is elsewhere. Then the government will use its focus groups and polls to see what it can get away with.

I suspect English sees an opening for making some changes which previously he believed he couldn’t get away with.

Maybe the SWG is really some sort of Trojan Horse. We will find out in time for Christmas as the group is due to report then. Very suspicious!

One of the stories that has interested me in the past couple of weeks is around the types of investment products we should have for retirees.

The need for these sorts of products is, if you believe we need them, only a couple of years ago.

Jack Regan at AMP pointed out yesterday that in two and a half years’ time people will be at the point where they can start taking money out of KiwiSaver. Some of the figures being bandied around show that the sums involved run into the hundreds of millions of dollars. This is no surprise when you look at the age distribution of KiwiSaver members.

Figures show that the two main areas of concentration are children and young workers, along with the pre-retiree cohort.

Years ago I was a fan of annuities, but it seems getting that market going is pretty much impossible at the moment. One drawback is tax. The other is building up some sort of critical mass.

Maybe there isn’t a need for special products for this part of the market, rather retirees should just have a good fixed interest portfolio.

A couple of recent comments and stories illustrate that putting such a portfolio together isn’t that easy.

Rob Stock in the Sunday Star Times highlighted some of the problems in this area. Likewise, a discussion with some, what I would call, intelligent investors in Auckland recently reinforced the theme putting fixed interest portfolios together properly can be hard.

Their two concerns were perpetual securities where investors don’t really have much of an out, and reset securities. The basic argument here being when rates rise the issuer will buy them back as they become an expensive funding line and therefore investors miss out.

Overarching all this is that debt offerings often don’t provide enough return for the risk.
That, though, has been a common problem.

New Plymouth-based adviser Peter Hensley has written a “white paper” on the issue of suitable products and it’s worth reading. If you haven’t seen it you can read a copy here.

A couple of points he makes is that other countries have dealt with this issue are there are a range of products available. New Zealand is one market which hasn’t addressed this issue.

What is worrisome is that, although many people agree there is an issue, little appears to be happening.

I suggest time is running out and we need to look at solutions for clients, especially those who become eligible to take money from KiwiSaver.

Hopefully the stories we have run, and the comments so far, will help create some debate around this area. (In that sense it has been pleasing to read these comments.)

I attended the Morningstar Fund Manager of the Year Awards during the week and there was one topic on everyone’s lips. It wasn’t who was going to take out the gongs that night, but what was going on at Huljich Wealth Management.

A couple of people did wonder if Peter Huljich was going to turn up on the night. Who knows, before all this news broke of what had happened Huljich could have been in the running for one of Morningstar’s awards.

The unanimous theme is what had been done was wrong.

The funny thing though is that it was wrong, but wasn’t a situation where investors were being ripped off. The closest, I think you can come, is that people signed up to the fund under false pretences. They were sold on returns which it turns out are questionable.

There are still unanswered questions though. For instance, why didn’t Brash and Banks know what was going on in the business? They are directors and sign off accounts.

They are not scot-free on this one and have some explaining to do themselves – although I note an explanation is not likely to be coming anytime soon.

Brash makes a point in his press release that says “some of these allegations (made against Huljich) are unfair and some are untrue.”

It would be helpful if he explained them.

Secondly I don’t think changes in the rules around funds would ever prevent this sort of thing happening in the future. The only likely outcome is that penalties for anyone caught could be tougher.

I also note many people have jumped on this story to push their own agendas – particularly the business presses page three pinup Gareth Morgan. Surely we can find someone with less conflicts of interest?

Added to that, Morningstar used it as a hook to push its call for fund managers to disclose all their holdings.

I do have to defend the research houses though. They can’t be expected to audit every managers’ books to confirm the data sent to them. That is ridiculous.

The other oddity here is that Brash is now running the show and is chief investment officer. Sure he ran the country, and used to print money, but can he manage money for investors?

We will be watching the returns to see.

ANZ’s move to acquire the 51% of ING New Zealand it doesn’t already own is no surprise to the market, Goodreturns.co.nz publisher Philip Macalister says.

ING’s Dutch-based parent company has signalled that it wanted to sell assets, meanwhile ANZ, particularly in Australia, needed to pick up speed in the important wealth management market.

The move makes ANZ the biggest KiwiSaver provider in New Zealand with just under a quarter of the market.

A comprehensive survey published by Goodreturns.co.nz this week compared the funds under management for all KiwiSaver providers.

(Read the survey here.)

ING is the most successful overall provider with a total 212,732 members and $523 million (as at March 31) across the four schemes it manages – the ING default scheme, ANZ, National Bank and SIL.

Many questioned whether the ING brand had been damaged beyond repair following all the troubles the fund manager had with its CDO-backed Diversified Yield and Regular Income funds.

In its announcement ANZ says it has negotiated the right to use the ING brand for 12 months.

“The deal today most probably spells the end of the ING brand in New Zealand,” Macalister says.

One of the biggest challenges for ANZ will be to win over the independent financial adviser market.

Currently ING distributes most of its funds and life insurance via the independent adviser market. ANZ doesn’t deal with this market and will need to learn how to manage it to be successful with ING.

So Morningstar has given New Zealand’s funds management industry a D- essentially calling us the dunce of the world.

Well I think this is unfair. Australia got a C and the United States, that place where you have had Bernie Madoff and the sub-prime crisis, gets an A.

Sorry this just doesn’t compute.

Now let me be quite clear, I am not saying New Zealand is perfect, or the best of the 16 countries Morningstar surveyed. Yes, there is room for improvement. Yes, striving for “global best practice” (whatever that is) sounds like an admirable goal.

But are investors really getting such a bum deal from the funds management industry? No.

Here’s what I think. Do away with Investment Statements. They tell investors nothing meaningful.

They are glossy, bland documents which tell you little useful.

Increase the resources of regulators and make sure the Securities Commission is really providing investors with protection. I struggle to think of an instance where it has done anything to help retail investors in managed funds.

Acknowledge that KiwiSaver encourages long-term savings and has some incentives. Apparently we got marked down because countries like Australia have tax systems which encourage long-term savings.

Hey, Morningstar, didn’t you notice New Zealand is one of the few places without a capital gains tax?

The PIE tax regime is a huge plus for investors. Apparently that didn’t count much as around one third of the funds in the market are not PIE compliant.

That is an issue for the industry. I have argued for years that fund managers need to get rid of crappy legacy funds.

One thing the industry needs to do urgently is have a clear set of rules for reporting on fees. There is no industry standard these days and managers can massage fees and therefore performance willy nilly.

When you are at it, make it in dollar terms please.

The final point, of course, is that Morningstar wants full disclosure of portfolio holdings.  Yes, it’s a point of frustration, but it’s probably more frustrating for the researcher than investors as it needs that information for its fund manager analysis.

Do you thing a D- is an accurate rating? What do you think the funds management industry needs to do to improve its practices?

Survey on Fund Managers too harsh

At the risk of getting another earful from some readers I am going to venture into politics again! Before I start though a few reasons why.

This site is about personal finance and financial advice. This is an area of intense interest this election, particularly in the wake of the National Party’s economic package released this week.

It is quite reasonable, and I would suggest responsible, to discuss what each of the political parties are offering investors and advisers in the run up to November’s election. (For the record I don’t belong to, nor am I affiliated with any political party).

John Key firmly put KiwiSaver on the agenda this week. This is an issue worth discussing.

I don’t have a hard and fast view on National’s tax cut plans at the moment, but it seems to me raiding KiwiSaver to provide personal tax cuts isn’t the smartest idea in the world.

Clearly KiwiSaver has been popular with New Zealanders. Can you tell me another product in this country which has amassed more that 800,000 customers in less than a year? To take away some of the appeal of the scheme so everyone can get a little bit extra cash in their pocket doesn’t, on the face of it, seem to add up. (Happy to hear contrary views on this).

Also I wonder whether encouraging more consumption, and no doubt more debt, is a great idea when financial markets are falling down around the world due to credit issues.

Likewise encouraging savings over consumption is at the heart of what a lot of this industry is about.
Therefore it has been fascinating to watch the string of press releases on National’s plans and KiwiSaver and observing some strongly divided views. Even among industry bodies there seems to be contrary opinions.

The ISI is disappointed with what is being proposed while ASFONZ is supportive. Unions, understandably are lining up with Labour on this, although National is proposing to lower the contribution rate to 2% (something the unions argued strongly for), and business groups tend to say the ideas are on the right track.

Also this industry is based around long-term thinking. While much of the media comment is about the short-term immediate impact of the proposals, there was a piece of news I caught last night which took a long term view.

I’m seeking the numbers now, but from memory the difference in how much a KiwiSaver would have in their account at age 65 under National and Labour was around $200,000.