Super duper rollercoaster valuations

UP AND DOWN: The teachers super scheme was generating frequently inaccurate estimated valuations.
UP AND DOWN: The teachers super scheme was generating frequently inaccurate estimated valuations.

Savers in some older super schemes are being given bogus online valuations of their nest eggs.

The issue emerged after a rollercoaster ride of plunges and rises in the apparent value of a former teacher's nest egg in the giant Teachers Retirement Savings Scheme (TRSS). And it appears her experience is not a one-off.

The retired woman, who does not want to be named, has been logging in daily to her account through the TRSS website to track the value of her investment in the scheme.

On July 18, things were looking OK. Her retirement fund, invested in TRSS' growth option, was worth $113,579, the scheme's online portal told her.

But when she checked on August 8, it was down to $109,818. Then followed a series of daily gut-wrenching falls. On 9 August, the valuation she asked for online on the scheme's website came back at $100,945. The following day (10 August) it was down to $99,853, and the day after that (11 August) $98,760.

By August 12 it had plummeted to $97,668, some $15,911 below the figure she had been given just weeks before.

Her husband, a retired accountant, sought answers from the scheme but received none, protesting on Tuesday that the value of his wife's growth fund had "gone down by more than one-eighth since Friday."

Sharemarkets, in which the fund was likely to invest in heavily, weren't crashing, so the falls were inexplicable.

As it turns out, the scheme is generating frequently inaccurate estimated valuations when people check their accounts online.

The teachers super scheme was set up in 2002 and closed to new members six years later following the launch of KiwiSaver. Nearly 12,000 teachers have their money in the scheme, which had around $400 million invested in it at the end of June last year. They choose one of four fund options: cash, stable, balanced and growth. These are then invested in underlying funds in the Mercer Superannuation Investment Trust.

As well as being the fund manager, Mercer is also the scheme's administration manager.

But while the underlying funds are priced daily to meet customer demand, the TRSS, like many older workplace super schemes, according to Mercer, calculates the value of individual accounts less frequently.

The TRSS values monthly, and that is the valuation account-holders should rely on. As the annual report for the TRSS says: "The actual net investment earnings credited to your account are based on monthly declared returns, your allocations across the four funds, and the balances in your account each month."

On the days between each month's end, estimates are generated for those checking online. And it seems those estimates can be wildly wrong.

Martin Lewington, head of Mercer in New Zealand, which is also the country's sixth largest KiwiSaver manager,said when people looked online for a daily valuation, an estimate was automatically generated.

The calculation takes recent unit price movements of the underlying funds and extrapolates them out to the date the saver is checking on.

"99 per cent of the time it works," Lewington said. But not always.

The Growth fund of the underlying Mercer Trust has not fluctuated anything like as much as the valuations the retired teacher received online. On 8 August, the exit price for the Mercer Growth fund (taxed at 17.5 per cent) was $1.7124. On 12 August, it was $1.7239, a rise of 0.67 per cent.

Lewington said when there had been a high level of volatility, as there was at the end of July, the estimate could vary widely from the actual valuation they would be given if they were seeking to withdraw their money and asked for a formal valuation to be done.

The issue arose, he said, when older schemes attempted to cater to a populace used to monitoring their accounts online, adding that the TRSS was not alone in this.

He said the case highlighted the question of whether older schemes should pay to move to daily pricing like modern KiwiSaver funds though there are significant costs involved in that.

"There's always a silver lining. There is the opportunity for Mercer to talk to the trustees of the scheme," Lewington said.

He said the majority of members don't bother looking at the daily projections, relying instead on the correct declared monthly returns and valuations.

Checking in for a value online on Friday brought some comfort to the retired teacher. The valuation was back up to $106,769.

Sunday Star Times