ASB’s diversified KiwiSaver funds recorded the best calendar year returns ever in 2019, however perceptions have yet to catch up with the rebound according to the latest ASB KiwiSaver survey.
Looking specifically at the ASB KiwiSaver Scheme, record returns ranged from 7.3% in the conservative fund through to 20% in the growth fund after tax and fees – the highest since KiwiSaver started in 2007. Only the NZ cash fund didn’t enjoy strong returns, reflecting the incredibly low interest rate environment.
Other providers also enjoyed strong returns, courtesy of the solid performance from a number of asset classes that KiwiSaver Schemes invest in.
Despite this, just 13% of respondents in the latest survey viewed KiwiSaver as the best bank product for returns, up 2% from last quarter.
"Part of the reason share markets had such outsize gains last year was that they were coming off a pretty heavy drop at the end of the fourth quarter which had a lot of people nervous," says ASB head of KiwiSaver Aidan Vince.
"Even taking that recovery aside, the performance has been really strong over the last year, and we know this would have been similar across a number of other KiwiSaver providers.
"Given that it's been a phenomenal year for returns, it’s disappointing that this doesn’t seem to be having a huge impact on perceptions," says Vince.
Indeed, perception of KiwiSaver as being the bank product that will provide the best return has hovered around a steady low range, either just above or just below term deposits, which have been returning about 2.5% compared to the much stronger returns from diversified funds in KiwiSaver schemes.
"We're looking at this based on returns, but if you take into account some of the other benefits of KiwiSaver like employer contribution, and the government's contribution, it's hard to see why KiwiSaver wouldn’t stand out more,” says Vince.
He noted that although past performance was no guarantee of future performance, there was now more than ten years’ worth of data showing how KiwiSaver schemes perform in a range of conditions, including fairly turbulent periods such as 2018 or, stretching back further, the Global Financial Crisis.
Vince says while it may take time for people to change their perceptions, this has not been the case with housing, which after a buoyant Spring period and some signs of life, saw confidence in own homes as the best investment for returns jump – particularly in Auckland where it climbed from 14% to 23%.
"It would seem that three months is good enough for the housing market sentiment to turn around, but the best year ever doesn’t seem to be having the same boost for KiwiSaver confidence,” says Vince.
"So why is that important? Well when we look at the reason people will change KiwiSaver provider, better returns is the main reason. People will switch providers for convenience, for example to align their KiwiSaver account with their bank (22%), however more significantly, chasing performance is the key reason for switching, with 32% changing providers for better returns.
"So our message is we just really encourage people to have a look at their KiwiSaver account and see how it went over the last year. Hopefully KiwiSaver investors will get some satisfaction when they see the returns.
"It's also worth getting some understanding about why the different funds are doing what they’re doing. Making sure the fund you are in is the correct one is important, because the difference between the returns from a low-risk cash fund through to the higher-risk growth funds are significant, and accordingly, the fund that’s chosen will make a big difference to an investor’s retirement savings,” says Vince.
Respondent's understanding of KiwiSaver had also remained within the same range, lifting 1% from 22% to 23% this quarter, with satisfaction also remaining largely the same across all providers.
"This is too big a deal for people to not understand how KiwiSaver works and potentially be missing out on some great returns and a great success story," says Vince.