On Wednesday, the National Party announced a new policy that would allow people who lost their job after March 1 to use $20,000 of their KiwiSaver savings to start a new business.
KiwiSaver advice provider National Capital called the idea of using KiwiSaver "terrible."
"The primary reason for small businesses failing is undercapitalisation. And here we have a policy which is encouraging someone who is unemployed to start a business using $20,000 from their retirement savings. It’s a recipe for disaster," director Clive Fernandes said.
KiwiSaver was intended as a retirement savings scheme and there was already an issue of people not have enough money to live on when they got there.
"Encouraging them to withdraw even more from their KiwiSaver accounts will only exacerbate the problem," Fernandes added.
New Zealand’s KiwiSaver sector has panned a proposal from National to allow unemployed people to tap into their accounts to start a business.
The scheme would give people a $1,000 voucher to get advice from a chartered accountant or “registered financial adviser” to talk about their ideas, put together a viable business plan and set up on a system such as Xero.
At that point they would then be eligible to withdraw up to $20,000 from their KiwiSaver account to get the business off the ground.
Adviser Clive Fernandes said it was a terrible idea – he said $20,000 would not be sufficient to get a business off the ground and most people would end up worse off than they started. “It’s a recipe for failure.”
“I support the concept of encouraging people to start a business but I don’t think this is the way to go about it.”
Listen to our interview on NewsTalk (starts at 1:43)
Withdrawing KiwiSaver funds on the basis of financial hardship compromises retirement and should only be considered as a last resort, a financial expert says.
COVID-19 has put an increasing number of Kiwis under financial strain. In May 2020, 1690 members withdrew savings totalling $13 million. As COVID-19 has caused share prices to fall and KiwiSaver balances to drop, withdrawing funds locks in those losses.
"For example, if a 50-year-old woman earning $60,000 a year were to withdraw $20,000 from her KiwiSaver [account], at 65 her total balance would be 25 percent less than if she had not touched it at all," director Clive Fernandes said.
"While retirement may feel like a lifetime away, it requires its own savings strategy and KiwiSaver is the best opportunity to ensure you can retire comfortably," Fernandes added.
A survey by National Capital indicates that two thirds of respondents aged between 45 and 54 thought they'd be in a better financial position than they are currently, while almost half were worried about the future.
However, only 20% of those surveyed see retirement saving as a priority and fewer than 1 in 7 are getting financial advice.
"We are going to reach a stage in which there are going to be a bunch of people retiring who just cannot afford to. The later these Kiwis leave sorting out their KiwiSaver, the worse it's going to be. As with any investment, the sooner you make the right steps to put that investment in place, because of compounding interest etc, the larger the difference is going to be" says Clive.
Research by National Capital has revealed that three out of four (71%) Kiwis are unsure how much money they will need to retire when the time comes.
The survey of more than 1,000 respondents (aged 18 - 65+) was designed to uncover attitudes and behaviours towards KiwiSaver, retirement planning, personal goals and financial security after discovering only 1 in 3 New Zealanders felt financially secure.
“KiwiSaver could and should be playing a more significant role in helping people retire with more, yet the research shows it is not being maximised,” said Clive.
Further highlighting the issue, over 37% of respondents said planning for retirement is not a priority because they are simply “too busy dealing with the now, to worry about (my) retirement”, with Clive explaining that greater priority needs to be given to retirement, so it becomes a more equal split.
According to National Capital's survey of 1000 New Zealanders, more Kiwi's are worried about losing weight than having enough money for retirement.
The survey showed that 67 per cent of Kiwi women aged 18 to 65 said weight loss was their top goal for the next six months. Only 28 per cent of them had planning for retirement as a priority.
And 57 per cent of men surveyed said weight loss was also their main goal, with only 19 per cent having retirement planning at the top of their to-do list.
National Capital founder Clive Fernandes said it was concerning that Kiwis were unprepared for retirement, when evidence shows that they aspire to achieve a better standard of living in retirement than can be supported by superannuation.
National Capital, a financial advice firm providing digital KiwiSaver advice, has announced the appointment of James McKelvie as head of advice logic.
McKelvie will play a crucial role in the design and delivery of personalised KiwiSaver advice to Kiwis. His role will focus on developing the financial strategy underlying the KiwiSaver advice provided, refining and improving the advice logic to ensure better retirement outcomes.
McKelvie said, “National Capital has identified a way to bridge the advice gap between New Zealanders and their KiwiSaver accounts. I look forward to working with Clive and the team to develop advice logic that can be digitised to deliver personalised advice on a large scale.
When Covid-19 hit, fuelled by declining KiwiSaver balances, misinformation and a lack of advice, an estimated 50,000 Kiwis panicked and moved KiwiSaver funds, with most moving into a more conservative fund under the guise that they would be minimising further losses. The longer these members stay out of Growth/Balanced funds, the bigger the potential loss."
"These figures show those KiwiSaver members who had greater access to advice were less inclined to switch, suggesting the value of advice - quite literally - particularly in a time of uncertainty," Clive said.
"We need to ensure that Kiwis end up better off in the long run. Just aiming to have the lowest fees to attract new clients is not in the long term interest of KiwiSaver members. The Industry, FMA and the Government need to take the 'value of advice' into consideration; and not just have a myopic focus on fees," Clive said.
Financial adviser Clive Fernandes crunched data from quarterly KiwiSaver fund updates, and found panic-switching, and withdrawals, by around 50,000 savers was most intense at banks' KiwiSaver schemes, and less pronounced at KiwiSaver providers like Milford whose savers were more likely to have had financial advice.
Fernandes estimated the panic-selling could cost those who succumbed to it a collective $3.5b in lost retirement savings, after markets staged a recovery.
Fernandes, who owned the National Capital online KiwiSaver advice business, said about 50,000 people with money in KiwiSaver growth and balanced funds switched into cash and conservative funds in March prompted by drops in global sharemarkets prompted by the spreading economic impact of Covid-19.
National Capital, a financial advice firm providing digital KiwiSaver advice, has announced the appointment of David Anamosa as investment research lead.
Clive Fernandes, authorised financial adviser and director of National Capital, said: “In this role David will be instrumental in helping National Capital refine our advice model which uses principles of behavioural finance and good investment research to empower New Zealanders to get better outcomes from their KiwiSaver investments.
“David’s expertise will allow us to bolster the support National Capital can provide its clients and help people do the most with their money throughout their lives. Already we cover more than 100 KiwiSaver funds in our research and with David’s help, this will only increase, allowing National Capital to cover as many funds and providers as possible.
It is one of only four companies in New Zealand so far to receive a digital financial advice exemption from the Financial Markets Authority which has been issuing the exemptions since February 2018.
National Capital will use computer algorithms to decide what type of fund a person should be in based on information they give about assets and liabilities like their mortgage or other loans, tolerance for risk and volatility and select the best provider for them.
In a just-published note, the regulator says: “The FMA is satisfied that National Capital has the capability and competency to provide personalised services to retail clients through a digital advice facility, and that its directors and senior managers are of good character.”
On his LinkedIn page, Fernandes says the National Capital robo-advice system would help clients find “which KiwiSaver fund works best for them to achieve their goals, based on their situation”.
“With the focus on an ‘accountable algorithm’ and good client outcomes, this service will not only help Kiwis get the advice they need but do that in an ethical manner,” the posting says.
Behavioural economists from Victoria University, with the support of a group of financial advisers have published a report as part of a submission to the Retirement Commissioner's 2019 Review of Retirement Income Policies, encouraging the government to implement changes to make it easier to implement this plan here.
Clive Fernandes, one of the four financial advisers pushing for changes, says, "Simply telling Kiwis they need to save more is not enough. The government needs to encourage behavioural nudges which have shown to help people save more, almost unconsciously.