who moved the cheese
the impact of fees and returns across different QROPS in NZ
The FMA has done a great job standardising fund reporting, which now means that we can analyse the landscape of QROPS in New Zealand to provide a comparison of fees and returns.
We opened the bonnet on eight QROPS schemes in New Zealand that offer PIE funds (which are the vanilla form of investments in superannuation schemes). They were easy to get information on as they all have consistent fund fact sheets in respect of what must be reported.
The analysis is really pertinent at a time when returns on funds have suffered due to falls in equity markets. Fund fact sheets are quarterly so we took the latest ones, which are 31 December 2018 as our benchmark and looked at the last year of fees and performance.
To save us a bit of time, and in the name of relevance, we concentrated on conservative, balanced and growth portfolios. This is where the majority of the money ends up in QROPS schemes.
Risk indicator doesn’t mean return indicator
First up we grouped all the investments in the different schemes by their risk indicators. The risk indicator is a system developed by the FMA to tell you how risky the investment that you are getting into is. Most of the investments had an indicator of 3 or 4. Three means low to medium volatility and four means medium to high.
In each risk indicator category there was a big spread on the investment returns (after tax and fees) with an over 5% spread on returns on risk category 3. So how can low to medium investments have such large differences in returns? We guess because the risk categories actually traverse a wide range of risk.
So how the hell do you make sure that if you have come out low risk appetite for example, that you actually get an investment that works for you. Get a qualified investment professional to help is our simple answer, because not all funds have the same characteristics just because they have the same risk indicator number.
And remembering that big differences in returns can make big differences in your retirement, choosing the right investments that actually fit your risk profile is really important.
Figure 1: Return and fee profiles for risk indicator 3 and 4 investment funds
Source: New Zealand superannuation schemes fund updates as at 31 December 2018
Across all the schemes you can see a wide spread of after tax and fees returns, with no direct correlation between the fees that are paid on the funds and the results. Indeed some of the lowest fee funds had the most deeply negative performance (such as Scheme 2 in the analysis below).
Names don’t mean much – check the ingredients
Grouping the investments by the names that the funds have been given within the scheme provides some serious insight. The average returns for all the funds with conservative type names (like ‘conservative’ or ‘moderate’) was -1.34% after fees and taxes. But that was hugely skewed by a couple of the funds that returned -3.5% and -5.0% returns in the year.
Now how can there be such big differences between what are meant to be similar things. Well just like when you are shopping in a supermarket looking for pasta there are many different brands and types. So if you’re looking for spaghetti there is a big difference between spaghetti in a can, fresh spaghetti and dried spaghetti. What’s more at different times these different types of spaghetti may cost more or less. Depending on how you feel and what your budget is might determine which spaghetti you choose. They are all called spaghetti but it means different things at different times.
So just like your spaghetti you want to make sure that the funds you are invested in suit you at that time and that you are benchmarking them every year to ensure that they are giving you the best results.
Figure 2:Return and fee profiles by ‘descriptor’ of investment funds
Source: New Zealand superannuation schemes fund updates as at December 2018
This trend was consistent across all investment name types. So even if you describe yourself as balanced, you need to know what is actually in your balanced portfolio, because the proof is in the labelling.
So what’s the moral of the statistics, know your funds by getting a run down of the ingredients in them, if you are allergic to durum wheat get quinoa spaghetti, similarly if you don’t like some of the investments in your fund swap funds. And then make sure that you don’t develop any allergies to those ingredients in the future.
The best way to keep on top of your financial plan is speaking to a qualified adviser, as this may just save you from a heart attack in the future. If you want to know who the various schemes are please enter your details below and we will contact you.
get in the know
get a free detailed assessment and report on your
UK pension and what it means to leave it or transfer it
straightforward and painless
Until now I'd imagined my UK pension funds being locked away behind all manner of firewalls and bureaucratic hurdles to access on retirement. Before committing the one surviving official document of my English OE to the bin - a single page detailing my private pension details - I contacted you out of curiosity. The result feels a little like winning lotto.
very stress free
Thank you Cambel for your help and guidance throughout this process in getting my pension transferred (very stress free for me). It is greatly appreciated and I would certainly recommend you and Charter Square to others who are interested in transferring their pension.
You guys rock!
I just wanted to say a great big thank you to you and your team. You are all totally awesome. I received a cheque yesterday from the Prudential to apologise for the ‘recent inconvenience’ that I had experienced. Thank you for doing this for me. You guys rock!
Charter Square were professional, insightful and a pleasure to work with. They rose to the challenge of consolidating my overseas pensions and bringing them home with minimum fuss for me and maximum effort on their part.
thorough, professional and prompt
Very thorough, professional and prompt service from the team at Charter Square. Thanks for making the bewildering world of pension transfers super simple.
Best party to deal with
Thank you kindly for keeping in touch with me. For now, I will not be moving my pension. I will however be keeping your details and referring back to you when I wish to pursue. You by far are the best party to deal with, no nonsense, professional and in my opinion genuine. I do sincerely thank you for your advice to date.
Securing the freedom to use savings that are actually ours to work with has been stressful in the extreme. While I never planned on giving up there were many times when the current (UK) holder made the whole process seem well beyond my determination and ability. It’s easy to look at the 36 month history of this claim with the benefit of hindsight, but the conclusion is that employing Charter Square in the first instance would have been wise had I been able to anticipate the red-tape that appears to have been deliberately created to stall access.