Experts are urging Kiwis to exhaust all other avenues before dipping into their KiwiSaver funds to deal with financial hardship brought on by Covid.
The advice comes as the number of financial hardship withdrawal applications, and the amounts being withdrawn, begin to rise as Kiwis feel the effects of the pandemic.
The advice for Kiwis to try and leave their KiwiSaver alone comes in the wake of a controversial election policy proposal from the National Party, which encouraged those with an idea for a new business to dip into their KiwiSaver to help fund their start-up.
National Capital founder and director Clive Fernandes said taking KiwiSaver funds to start a small business during an economic recession was a “terrible idea”.
“We already have a problem, that even with KiwiSaver, a large proportion of Kiwis will not have enough money to retire on. Encouraging them to withdraw even more from their KiwiSaver accounts will only exacerbate the problem,” Fernandes said.
The Financial Markets Authority just-published it's 'value for money' report which showed there wasn't a correlation between investment style and fees.
Since there has been much talk about value for KiwiSaver, there has been a slow upward trend in fees.
However, the single-minded focus on fees could dumb-down KiwiSaver, according to Clive Fernandes, founder of robo-advice firm National Capital.
However, the single-minded focus on fees could dumb-down KiwiSaver, according to Clive Fernandes, founder of robo-advice firm National Capital.
“There’s a much bigger problem in KiwiSaver than whether members are in active or passive funds,” Fernandes said. “Just having advice to move from a conservative to a balanced fund, for example, could lead to much better outcomes for members than whether they paid a few basis points more or less in fees.”
An Auckland based financial advisory firm is offering free advice on KiwiSaver, especially to lower income groups and people who are largely unaware of its benefits and use.
National Capital, established in 2018, uses computer algorithms to determine the type of KiwiSaver Fund that would be the best suitable to people depending on their specific circumstances.
An IT professional with experience in development websites, Mr Fernandes moved to New Zealand in 2010 and wanted appropriate financial advice to launch his career here.
“I tried to get financial advice and there was a big difference between the advice for the wealthy and for the rest of us. I was motivated to establish National Capital to fill the gap,” he said.
Fees charged by KiwiSaver providers may not reflect how actively they manage their investment funds, a new study has found.
Across 26 public KiwiSaver providers, two-thirds said they were "mainly active". But the results showed varying degrees of how active they were.
"Based solely on activeness and fees charged, there are a small number of providers that appear to be poor value for money relative to other providers," says FMA director of regulation Liam Mason.
Clive Fernandes, director of KiwiSaver advice provider National Capital, said the focus should be on advice, not fees. As the impact of COVID-19 was unpredictable, even the most active fund managers couldn't have picked the extent of the market drop.
"Clients with access to advice ended up making better decisions and should have better retirement outcomes than those who did not," Fernandes said.
The Government is working through the process of appointing default providers for the next term.
Being a default scheme is understood to give providers a reputational boost, but it comes with increased scrutiny and regulatory restrictions, particularly on the fees that can be charged.
Clive Fernandes, an AFA who specialises in digital advice, says the review of default provider settings ahead of the appointment process had focused on the wrong thing.
“Now that most Kiwis are already signed up to KiwiSaver and new signup numbers each year are lower, the 'default scheme' idea is no longer required.
“Instead, people should be given access to personalised advice right as they are signing up. We should be encouraging new entrants to make an active choice to best set them up for their future and specific goals. This would help to solve a lot of issues and would be in the best interests of members vs providers,” he said.
At the time of signing up for KiwiSaver, Kiwis are placed into one of nine low-risk default funds. Auto-enrolling members into default funds was a good idea when the goal was to onboard millions into KiwiSaver quickly, but it's not needed anymore.
National Capital director Clive Fernandes said default fund providers were not making the effort to educate customers after they had been automatically placed in a fund.
"The best way to fix the problem is to make sure people don't go into default funds in the first place. Give them advice at the time they are signing up ... at the time when they are most likely to be engaged with their KiwiSaver."
Fernandes said generally new sign ups would be younger people getting their first job, who would be happy with free digital advice.
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MBIE and the Treasury are reviewing default provider settings as approximately 715,000 New Zealanders remain in default KiwiSaver funds.
Clive Fernandes says the approach being to review the default scheme isn’t the right area of focus.
“The KiwiSaver default scheme concept was required when three million Kiwis needed to be onboarded as KiwiSaver members in a short period of time,”
“However the situation has now changed significantly. Now that most Kiwis are already signed up to KiwiSaver and new signup numbers each year are lower, the 'default scheme' idea is no longer required."
“Instead, people should be given access to personalised advice right as they are signing up. We should be encouraging new entrants to make an active choice to best set them up for their future and specific goals. This would help to solve a lot of issues and would be in the best interests of members vs providers”.
National Capital was the first financial advisory firm in New Zealand to be awarded a digital advice exemption (robo advice license) by the Financial Markets Authority; allowing National Capital to create a hybrid system where computers assist the authorised financial advisers to create and implement recommendations for the best result.
"By merging the best of human Authorised Financial Advisers, but maximising the benefits and automation in key areas by using smart technology and AI, we are able to offer more Kiwis personalised advice at no cost to them," said Clive.
"At National Capital we believe technology is the key to democratise financial advice, however we understand there is no substitute for human perspective, especially when making key financial decisions."
"Being able to have the unbiased power of technology combined with the human-to-human interaction means we are able to provide our clients with the utmost service."
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.
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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.”
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.
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.
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.