Lifestages KiwiSaver Scheme Review

Updated 12 September 2019

Summary of Lifestages KiwiSaver

Funds: Lifestages offers two core KiwiSaver funds, one is focused on income-producing assets, and the other on growth. The scheme also offers age-driven funds which deliver 'life stages' (explained in further detail below). This means that as you get older, your KiwiSaver investment changes to protect the savings you have amassed. Lifestages has an automatic option to allocate increasing proportions of money into their Income fund as you get older.
Management and Fees: Lifestages states that they believe "markets are largely efficient, and engaging in active management or speculating in concentrated positions is only likely to increase volatility and costs. To minimise the costs of running the funds, Lifestages chooses to invest passively through a variety of trusted international funds". While this sounds promising, Lifestages has some of the highest fee charges in its fund classes.
Underlying Investments: Investments in the Income fund are predominantly low-risk cash and term deposits, with a number of investments with the SBS Bank. The Growth fund allocates its money into various funds, including the Vanguard International Shares fund, Harbour Asset Management fund, Ishares Emerging Markets fund and the and the AMP Australasian Property Index Fund. This gives investors exposure to global markets while minimising costs.
The Importance of the High Growth Fund: The scheme's returns are primarily driven by the High Growth Fund. This is because the key driver of returns for all lifestage funds is based on how this fund performs. If it beats other KiwiSaver growth-focused funds, the entire scheme is lifted, but if its returns are below average, the scheme is worse off. The Income Fund, by comparison, only invests in bank deposits paying the same or similar returns that other KiwiSaver income-orientated funds invest in.
Performance: The latest fund performance from our KiwiSaver comparison tool shows the Lifestages High Growth fund performing about average when compared to all KiwiSaver growth-type funds. To put this in dollar terms, a 1% or 2% difference in annual fund performance at the age of 35 can cost tens of thousands of dollars (or more) by the time you hit retirement for an average KiwiSaver member.
Fees: Lifestages charges a $24 annual membership fee for being part of the scheme. Each fund charges between 0.99% and 1.19% p.a. in management and administration fees. There are no joining fees or exit fees if you take your money to another fund, or switch funds within Lifestages.
No Performance Fees: There are no performance fees, presumably because Lifestages isn't an actively managed scheme.
Ownership: Lifestages is owned by Funds Administration of New Zealand Ltd, which is owned by SBS Bank Group (the Invercargill-based bank).

Understand this first - what is a 'lifestage' fund?

Rather than having to choose between a conservative, balanced, moderate, growth or aggressive fund (the five main categories of funds on the market), lifestage funds give you an asset allocation that is age specific and self-adjusting.
Modern investment theory has it that the younger you are, the greater volatility you can afford to tolerate. This means that growth funds are favoured for younger savers, because, over time, the returns will beat any other investment type. Many would argue that is particularly the case with KiwiSaver because it is a retirement saving vehicle, and you could be in it for 30 to 40 years if you enrol when you first join the workforce or graduate.
While the composition of lifestage funds varies from provider to provider (and from fund to fund), in general terms the younger you are, the greater exposure you'll most likely have to equities (shares of companies listed on the stock exchange).
Lifestage funds are offered by Generate, SuperLife, Fisher Funds, AMP and Lifestages. Stuff.cp.nz has an excellent article which profiles lifestage funds among KiwiSaver providers.

Source: Amanda Morrall, Interest.co.nz

Read this First: Fees, Performance and Understanding What's Best For Your Situation

A lot of media attention focuses on KiwiSaver fees, but this is only one thing to consider when picking the most suitable provider and fund for your retirement needs.
We believe that being comfortable with what you're investing in is the most important aspect of saving for your retirement, not the fee you'll pay.
While we don't focus on the latest returns, we encourage readers to make their own comparisons using our KiwiSaver fund comparison tool.
Ultimately, deciding upon whether Lifestages is right for you will most likely come down to your interpretation of the fund performances in the medium term, their investment strategy and their fees.

Our Review
In this guide, we outline what the Lifestages KiwiSaver scheme is, what funds it offers to KiwiSaver members, and how they're different to other funds, as well as looking at alternatives and the level of fees involved.

Please note: MoneyHub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of Lifestages as a KiwiSaver investment option.

This Guide covers:

The Specs of the Lifestages KiwiSaver Funds - fees, risks and explaining where your money is invested

Two funds drive the entire scheme, the Lifestages Income Fund and the Lifestages High Growth Fund.
Lifestage gives you the option to invest via its age-based funds automatically. The age buckets are 0 - 34, 35 - 44, 45 - 54, 55 - 64 and 65+. The performance of these funds is driven solely by the performance of Lifestages' High Growth Fund and, to a lesser extent, the Income Fund. We review these funds in more detail below.
Up-to-date fund performance data is available on the Lifestages website.
Each of the two core funds has a unique risk factor (1 = lowest, 7 = highest), which is driven by its distinct investments each fund makes.
Fees, returns, risks and the suggested investment timeframe differ between funds, as we outline below.

1: Lifestages Income Fund
This fund invests solely in income assets of a short term nature such as bank deposits, floating rate notes and money market securities with New Zealand-registered and overseas banks.

Average annual net return since fund launch (2015): ~2%
Annual fee: 0.99%
Risk factor: 3
Expected annual return: Not stated, but the fund's objective is to "provide a gross return which exceeds the return of the benchmark on a rolling three-year basis".
Suggested minimum investment timeframe: 2 years
Investment Composition: Cash and cash equivalents (10%–20%), New Zealand fixed interest (15%–35%) and International fixed interest (50%–70%)

We say: The Income Fund is the most conservative Lifestages fund, intending to provide stable returns over the short term, investing 100% of the fund into low-risk assets such as term deposits and on-call accounts. The Income Fund historically offers the lowest fees and reports the lowest historical return among all the Lifestages funds.

2: Lifestages High Growth Fund
This fund invests predominantly in growth assets, such as New Zealand and international shares. Smaller holdings are comprised of cash and term deposits. This fund is most suitable for long-term investors given Lifestages' suggestion of a minimum 7-year investment timeframe.

Average annual net return since fund launch (2015): ~7%
Annual fee: 1.99%
Risk factor: 5
Expected annual return: Not stated, but the fund's objective is to "provide a gross return which exceeds the return of the benchmark on a rolling three year basis".
Suggested minimum investment timeframe: 7 years
Investment Composition: Cash and cash equivalents (1%–10%), Listed property (2%–13%), Infrastructure (2%–13%), Australasian equities (10%–50%) and International equities (40%–75%)

We say: The High Growth fund is the flagship long-term Lifestages option, and drives the performance of the auto option funds (see below). As a standalone fund, it charges investors 1.19% p.a. to return around 7% on average, putting the fees up there with KiwiSaver schemes like Generate and Fisher Funds. Recent investments include various international funds, including the Vanguard International Shares fund, Harbour Asset Management fund, Ishares Emerging Markets fund and the and the AMP Australasian Property Index Fund.

We're unsure why the fees are so high for such a fund that doesn't require active investment judgement. Its 2019 returns were very similar to the Simplicity KiwiSaver Growth fund, yet the fees were around four times higher. Nonetheless, the High Growth fund performs historically in the middle of all growth-orientated KiwiSaver funds.

Funds 3-7: The Lifestages Auto Options

As outlined in the table below, the life cycle investment option offers a combination of the Lifestages Income Fund and the Lifestages High Growth Fund.
The exact ratio varies based on your age. The intention is to provide investors with an age-appropriate mix of the two core funds Lifestages offers.
The life cycle age-based stages and their respective investment composition, risk indicator and fees are presented in the table below.

Age Range	Fund Name	Lifestages Income Fund %	Lifestages High Growth Fund %	Total annual fund charges (estimated)	Risk Indicator (1 to 7)
0-34	Lifestages Auto Option Age 0 - 34	0%	100%	1.19%	5
35-44	Lifestages Auto Option Age 35 - 44	20%	80%	1.15%	4
45-54	Lifestages Auto Option Age 45 - 54	40%	60%	1.11%	3
55-64	Lifestages Auto Option Age 55 - 64	60%	40%	1.07%	3
65+	Lifestages Auto Option Age 65+	75%	25%	1.04%	3

Data correct as at 12 July 2019. Information extracted from the Lifestages KiwiSaver Scheme Product Disclosure Statement (as at 13 April 2018)

Lifestages Auto Option Must-Know Facts

Just because you're in a Lifestages fund does not mean you have to invest in the automatic life cycle investment funds.
You can join one any of the five funds above, regardless of your age now or in the future.
The lower the percentage of Growth fund allocation, the lower the annual fee, and vice versa.
To compare the alternative lifestage options beyond Lifestages, we suggest looking at the funds offered by Generate, SuperLife and Fisher Funds.

Lifestages in the News

Recent media reports highlight the following:

"For a 25-year-old investing 3 per cent of a $45,000 salary over 40 years with matched employer contributions, the most expensive fund currently over five years is the Lifestages Growth Portfolio.
The dollar figure is $76,490, which amounts to 44.7 per cent of your total investment by retirement".

- Diana Clement: KiwiSaver fees are a necessary evil, NZHerald, August 2018

An article in interest.co.nz isolated Lifestages as offering 'relatively high fees but poor performance' for a now-closed fund. The article, driven by FMA data, suggested Lifestages was a high-fees scheme overall, but noted that the funds listed were closing and new 'low fee' funds were opening.
The funds outlined in our review are the 'low fee' funds referred to.

- Jenée Tibshraeny, KiwiSaver providers unapologetic for charging the fees they do, interest.co.nz, November 2017

Who is Lifestages KiwiSaver Scheme Suited To?

Ultimately, our view is that Lifestages offers a middle-of-the-road KiwiSaver scheme, but significantly better options can be found elsewhere.

Lifestages has a history of high-fees producing average returns. While it has committed to introducing lower-fee funds, the legacy of high-fee/average-return remains. We're most uncomfortable with the Income Fund, Lifestages' low-risk conservative fund, which commands ~1% p.a. in fees. With around $80 million invested in this, we believe much better choices are available to current members.

While lifestage funds are useful, we take the view that the fund offering could be better. Specifically, the historical returns struggle when compared to the bulk of similarly structured KiwiSaver funds.

In our view, it's an average offering, and better options are out there with specialist lifestage providers such as Generate, SuperLife and Fisher Funds.

Standout Features:

Unlike most other banks' KiwiSaver schemes, Lifestages is New Zealand owned and operated (the other being Kiwi Wealth)

Pros

Seven funds that offer a sliding scale of risk and return based on age, all of are clearly defined in investor statements.
Investments are diversified and include cash deposits, NZ government bonds and NZ corporate bonds, New Zealand shares and global equities.
Up to date fund performance and balances are available 24/7 via the Lifestages website.

Cons

High fees matched with average returns. As an example, SuperLife's Age Steps charge around half as much as fees and have reported the similar (or better) results in recent years.
The High Growth Fund's 1%+ fee is close to four times what low-fee, index-following fund Simplicity charges for its growth fund, and also reports similar (or better) results in recent years.
Recent data from our KiwiSaver comparison tool, which uses Financial Markets Authority data, reported Lifestages' Income Fund as having one of the lowest returns among all income-orientated funds, yet some of the highest fees.

Be aware:

As with any investment, markets go up and down. The Dotcom bubble in the early 2000s sank global sharemarkets, as did the 2008 Global Financial Crisis. While many global sharemarkets are now at record highs, this is no guarantee of future earnings.
Lifestages doesn't have any ethical or responsible investing policy. This means it can freely invest in companies involved in tobacco, controversial and nuclear weapons, whaling and whale meat processing, companies with highly unethical behaviour or involved in, defence and firearms, gambling services, thermal coal, nuclear power or palm oil.
Lifestages' Income Fund currently makes up around one-third of the scheme's total balances, which suggests that Lifestages' members are risk-averse, relatively older and not looking for growth-orientated funds, and/or not informed or actively encouraged by Lifestages to switch into better-performing funds. This means unaware savings are likely to lose out on potential returns by staying with the Income Fund.

Lifestages - The Bottom Line

We are not huge fans of Lifestages, but continue to monitor the fund performance closely and update our scheme review as necessary.
Right now, we don't see the High Growth Fund offering value for money, nor delivering market-leading returns or making the most of global market opportunities.
It is likely that, regardless of your KiwiSaver balance, funds in other KiwiSaver schemes may well charge lower management fees and show a history of better returns. They are worth checking out (our KiwiSaver scheme summary outlines what's available right now).
Banks in New Zealand make a lot of money from KiwiSaver, and Lifestages is no exception, despite the commitment to introduce funds with lower fees.
It's important to keep in mind that no two funds are directly comparable, so it's essential to shop around and compare fund objectives as well as fund fees if you're serious about having the biggest KiwiSaver nest-egg possible.

5 things to know about the Lifestages KiwiSaver scheme

Lifestages may be an SBS Bank-product, but it's tiny in comparison to ASB, ANZ and AMP, and most other bank KiwiSaver schemes

Most Lifestages funds only launched in 2015, but since then the scheme has managed to amass around $400 million of investments. We believe most members have come from direct marketing to SBS customers, as the marketing drive and general promotion to get new members is relatively quiet. Lifestages has less than 1% of the total KiwiSaver funds under management, a fraction of ANZ's ~25%, as a point of comparison.

No matter what your employer's default KiwiSaver provider or fund is, you are entitled to select Lifestages as your KiwiSaver scheme

Your employer may offer another default KiwiSaver provider, but you are free to choose Lifestages as your provider if you feel it's right for you. You don't have to go into an aged-base auto option fund either.

Signing up to the Lifestages scheme is easy, but you’ll need to decide your fund first. The two options, Income or High Growth, are clearly defined, which makes the choice easier.

Generally, if you're looking for a safe investment with the lowest risk of seeing your original investment fall, an income fund could be a suitable option. But many investment professionals would suggest being in a growth fund for the long term. If you're looking for a higher return and are prepared to have your money in higher risk investments, the High Growth fund (or an Auto Option fund with a decent portion allocated to that fund), could both be suitable options.

Unsure? Don't worry, you're not alone.
Deciding what invest in isn't easy, but our MoneyHub's KiwiSaver fund comparison tool highlights the seven Lifestages funds, as well as 200+ others.

There is no minimum investment, and it's easy to take contribution holidays

As a Lifestages member, you'll pay your fund's management fee, and a membership fee of $24/year. If you stop contributing for any reason, these fees will still be charged. If you want to contribute to your fund at a level above your fixed salary contribution, you can do this via the online banking or manually by contacting the client services team.

Dividends your fund receives are reinvested, meaning more cash is invested on your behalf

The Lifestages High Growth fund invests in shares, some of which will pay dividends. Any fund which has a percentage investment in the Lifestages High Growth fund will earn some level of dividends. These cash payments represent the profits from companies returning it to the shareholders, i.e. you. When a company declares a dividend, your fund will receive money, and it is re-invested into more shares, growing the value of your fund.

Despite being a cash payment, and as is the case with ALL KiwiSaver funds, there is no option to take this money as cash until you turn 65.

The performance data is easy to follow, and updated regularly

Fund performance details are published on the Lifestages website monthly. As a member, you can also check a fund balance 24/7 by logging in to the Lifestages website.

Our Conclusion

Lifestages charges you a premium for its services - the fees you will pay each year are double or triple what low-cost providers like Superlife and Simplicity charge, despite reporting consistently similar or lower returns.
With six of the seven funds, investors can get exposure to the New Zealand sharemarket, Australian sharemarket, emerging markets, local and global bonds, global property as well as New Zealand cash deposits.
With every fund offered, the higher the weighting of growth assets vs income assets, the higher the annual management fee. This is expected to be offset by the long-term performance of the fund.
Ultimately, our view is that the Lifestages funds are adequate, but significantly better options can be found elsewhere despite the lower fees coming into effect.

Do you have experience with Lifestages' KiwiSaver scheme that you would like to share with our readers? Email our research team who would be delighted to hear from you.