New Zealand Defence Force KiwiSaver Scheme

New Zealand Defence Force KiwiSaver Review

Updated 5 July 2019 (Draft, awaiting review)

Summary of the NZ Defence KiwiSaver

The New Zealand Defence Force KiwiSaver Scheme is open to anyone working in the NZ defence forces, such as the Army, Navy, Air Force and other defence organisations.
There are special benefits for paid members of the NZ Defence Force - we like that the NZDF offers its employees a 4% employer contribution, $1,000 bonus payments and monthly prize draws, all of which makes signing up for KiwiSaver even more compelling for NZDF employees.
The scheme has over $100m invested, and over 7,000 members, making it one of the smaller KiwiSaver providers in the market. It offers seven funds, all of which are managed and administrated by Mercer (and are exactly the same as Mercer’s funds).
We review the Mercer KiwiSaver scheme here and do not include any fund analysis below given the funds are, effectively, Mercer funds with Defence Force branding.

Our Review
In this guide, we outline what the NZDF KiwiSaver scheme offers by way of its funds, its fees, performance and essential must-know facts.

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 the NZDF KiwiSaver scheme as a KiwiSaver investment option.

This Guide covers:

Know this First - What Makes the NZDF Different?
Unlike other KiwiSaver schemes, only current members of New Zealand's defence forces can join. For this reason, our review of the scheme has omitted the comparisons to other schemes as it's not open to the general public. There are two other key differences with this scheme.

1. The funds offered are managed entirely by Mercer

The selection of funds offers investors a spectrum of risks and return. Funds range from the ultra-low-risk cash fund (which invests 100% of its money in bank accounts) to the aggressive shares fund (which has a target to invest close to 100% of its money in international share markets).
The funds are 100% the same in composition as Mercer's respective fund, i.e. the NZDF High Growth Fund is the same as the Mercer High Growth Fund, in that NZDF money feeds into Mercer.

2. The return on your investment depends solely on how Mercer performs, but you will earn slightly less

As the funds feed into Mercer funds, you would expect the returns to be the same. However, they are not.
Mercer’s management fees are lower, by 0.21% per fund, than the Defence Force’s KiwiSaver Scheme, because they incur costs, i.e. administration, on behalf of the 7,000 members currently signed up.

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. Being comfortable with what you're investing in is the most important aspect of saving for your retirement. Fees are important, but should not be the deciding factor in your decision-making.

NZDF KiwiSaver Fees, Pros and Cons

Fees

There are three types of fees:

$2.50 per month is charged for being a member of the NZ Defence Force KiwiSaver scheme, and
Management fees - 0.57% to 1.14%, depending on the fund invested in, and
Performance fees, which are included within the management fee estimates (above). The performance fees can be applied to the Cash, Conservative, Moderate, Balanced, Growth and High Growth funds. Performance fees arise because external managers (i.e. investment banks, wealth managers and hedge funds) apply their own performance fees to the funds Mercer invests in (on behalf of the NZ Defence Force). The fees range from 0.02% to 0.07% p.a - as an example, a KiwiSaver fund with a balance of $10,000 will be charged $2 to $7 if a performance fee is applied.

Switching between any NZ Defence Force KiwiSaver fund is free. There are no joining fees or exit fees if you take your money to another fund.

PROS

Seven clearly-defined funds that offer a sliding scale of risk and return
Mercer, who manages the scheme on behalf of the NZ Defence Force, is a trusted KiwiSaver provider which has won multiple awards within the industry
Market-leading returns reported by the 'Active Growth' fund
Investors get an actively managed fund, aimed at beating market returns year after year

CONS

Higher-than-standard management fees - this is due to the costs associated with running actively managed funds and the external fund manager performance fees.
While the funds on offer are the same as those offered by Mercer's KiwiSaver scheme, investors pay 0.21% p.a. more in management fees due to the extra administration costs of operating the scheme.
There is no age-based investment option, meaning there is only a choice of seven funds (or a mix of all of them) but no option to gradually move money into more conservative investments as members get older.

The specs of the NZ Defence Force KiwiSaver Fund, and where your money is invested

Because the funds available are the same as those offered by the Mercer KiwiSaver scheme, we would like direct readers to the fund by fund analysis within our Mercer KiwiSaver Review. This will explain and help you understand where your money is going, and explore the funds' composition and performance in detail.

7 things to know about the NZ Defence Force KiwiSaver Scheme

The scheme is only open to NZDF members, family members and Veterans who are less than 65 years old

The NZDF makes its benefits clear on its website, and we have summarised them below:

The NZDF is not making a profit from the fund - fees charged go to Mercer (the manager, who does aim to make a profit) and the NZDF (for the administration costs of running the scheme).
Members of NZDF who contribute to the scheme will receive from Chief of the Defence Force a one-off employment retention payments of $1,000 (before tax) after years 1, 4 and 7 of contributions. These payments are only paid to member accounts in the Scheme.
Eligibility across the funds for monthly rewards of $250 prezzy cards and two larger rewards each year, to a total value of $50,000 per year.
New Zealand Defence Force KiwiSaver Scheme members can continue contributing to the Scheme after they leave NZDF (but the $1,000 bonus payments won't be applied).

It doesn't matter what your employer's default KiwiSaver provider or fund is - you can select NZ Defence Force as your provider

We can't see any reason for doing this if you no longer work for the NZ Defence Force, given the same funds are available from Mercer at a lower annual management fee. Furthermore, ex-NZDF members won't receive the workplace KiwiSaver benefits of current NZDF members, such as bonus contributions for long-service leave.

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

As an NZ Defence Force KiwiSaver member, you'll pay the $30 annual membership fee to participate in the scheme. This gives you the freedom to invest as you like. And if you want to contribute to your fund at a level above your fixed salary contribution, you can do this by contacting the client services team.

Dividends your fund(s) receive are reinvested, meaning more cash is invested on your behalf

The dividends received from a fund's investments will be re-invested in shares, which may themselves in-turn pay 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. 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 NZDF KiwiSaver offers an actively managed growth fund intending to pick market-beating investments

Mercer, as the manager of the NZ Defence Force scheme, is a trusted KiwiSaver provider which has won multiple awards within the industry. It has also produced market-leading returns in its Active Growth fund. Best of all, while the fees are higher than index-based funds like Simplicity, investors get an actively managed fund, aimed at beating market returns year after year.

However, an actively managed growth fund is not without its risks. As with any fund that invests the majority of its money in the sharemarket, the day-to-day returns can be up and down.

Signing or switching to the NZ Defence Force KiwiSaver scheme isn't complicated

Signing up to the KiwiSaver scheme is easy, and making a fund selection will depend on your risk profile, with seven funds to choose from. If you're not sure of what to invest in and want to have a range of options to pick from, look at Sorted's FundFinder tool which includes the NZ Defence Force funds, and all other KiwiSaver's funds for comparison.

NZ Defence Force KiwiSaver does not specifically invest in New Zealand companies

While the more growth-orientated funds aim to invest in shares, there is no specific target to invest in New Zealand companies, and what we have seen is that the overseas equities, predominantly in America, are preferred. This, however, is subject to change based on the investment decisions of the fund managers.

Our Conclusion

We like that the NZ Defence Force offers its employees a 4% employer contribution, $1,000 bonus payments and monthly prize draws, all of which makes signing up for KiwiSaver even more compelling for NZDF employees.
The seven NZDF KiwiSaver funds offer flexibility and 100% map into Mercer's own seven KiwiSaver funds.
Mercer's management of the funds means members are investing with a trusted provider who has been around since 2007.
The major difference between NZDF and Mercer comes down to fees - you'll pay 0.21% more, per year, in fees to be with NZDF.

Do you have an experience with NZ Defence Force KiwiSaver you would like to share with our readers? Email our research team who would be delighted to hear from you.