by Susan Edmunds
The FMA has released its latest KiwiSaver report, which shows that, for the first time, the number of people transferring between schemes was higher than the number of people joining KiwiSaver over the past year. In the year to March 31, 175,000 members transferred to a different scheme provider and 145,000 joined for the first time.
Investment returns of $1.3 billion were down from $3b in 2015. Investment management fees increased 28% as more members switched to active schemes.
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.”
But the FMA’s report said there had been feedback that its KiwiSaver sales and advice guidance could get in the way of members receiving the help they needed to make decisions.
Some said that the guidance invited a conservative interpretation of how they should engage with members, particularly on changing funds, and had led them to prefer to focus on written, information-only advice.
“We are currently reviewing our guidance, including our position on the use of incentives and expect to publish revised guidance before December. Changes to Code Standard 8 during the year mean our guidance on limited personalised advice is now out of date and will be removed,” the FMA said.
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.”
The FMA also asked KiwiSaver providers to report on what they were doing to meet their obligation to improve members’ financial literacy.
It said one of the measures to show how successful they were was the number of default members who made an active decision on the fund they were in.
The report showed 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).
The Booster model includes a focus on financial advice and takes members through a risk profile questionnaire to help them identify the right fund.
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.
The report said there had been huge growth in the number of people using KiwiSaver to help them into a first home. Nearly $500 million was withdrawn for that purpose in 2016, more than double the 2015 figure.
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