Retirement savings providers tipped to shine

Superannuation funds and KiwiSaver providers are expected to be among the outperformers as the economy recovers from Covid-19, a new report suggests.

Thursday, July 16th 2020, 6:38AM

Sam Stubbs

IBISWorld senior industry analyst Matthew Reeves said the closure of international borders would constrain economic recovery in the current financial year and beyond.

But there would be some industries that would “fly” in 2020 and 2021 regardless, he said, and retirement savings were one of them.

“The superannuation funds industry is anticipated to rebound strongly from the Covid-19 outbreak to record revenue growth of 104.8% in 2020-21, to $14.2 billion.

“Revenue in the industry is derived from investment in global financial markets, which are expected to recover as investor sentiment improves and fiscal stimulus supports economic activity. Industry assets, which are a more accurate indicator of overall industry performance, are expected to grow by 10.3% in 2020-21 to $101.2 billion, outperforming growth of only 5.0% in 2019-20.”

Sam Stubbs, founder of KiwiSaver provider Simplicity, agreed the future was bright for KiwiSaver providers.

There were two mega trends that would boost them, he said. The population was ageing, which would mean more people were focused on retirement savings, and people were more likely to save during a recession.

Beyond that, the Government was increasingly friendly to KiwiSaver and the brand was growing.

In the medium term, interest rates were likely to stay very low, which would drive money from bank deposits into other investments. “Super funds are a natural home for that.”

But he said the industry had to face questions of its “excess profitability” and what might come of that. He said fees were likely to top $500 million this year and, for every extra dollar providers made, about 80c or 90c was profit. If the regulators and consumers were more focused on that, it could put pressure on providers, he said.

For some managers, the only way to justify their fees would be to boost returns by investing more heavily in shares and direct investments, he said.

Tags: fees KiwiSaver