KiwiSaver

The government’s decision to delay KiwiSaver auto-enrolment until the Budget is back in surplus has been criticised by default provider Mercer.

The Government announced at last year’s Budget that it planned to introduce auto-enrolment in 2014; however, at yesterday’s announcement of this year’s Budget it confirmed the plan had been put on hold.

“The Government said it would proceed when it had sufficient surpluses to meet the forecast cost of up to NZ$514 million over four years,” Finance Minister Bill English and Commerce Minister Craig Foss said in a press release.

“Proceeding with auto enrolment in 2014/15 is not now possible without putting the surplus at risk,” English said.

“Public consultation will now be deferred until after 2012 and the policy won’t be implemented until after 2014/15.”

Mercer New Zealand boss Martin Lewington welcomed the Government’s roadmap back to surplus but said he was concerned about its failure to address looming shortfalls in retirement savings.

“Mercer is disappointed the Government has deferred KiwiSaver auto-enrolment and will consult once the budget returns to surplus,” Lewington said.

The Government highlighted in the Budget that approximately 15,000 people are joining KiwiSaver every month, he said. 

“Clearly there is public support for the Scheme and the more people who are in KiwiSaver, the less reliance on the Government. Any deferment of auto-enrolment inevitably means there’s a group out there who will be missing the benefits of KiwiSaver,” Mr Lewington said.

“There is urgency to help New Zealanders recognise the benefits of building private savings today, to ensure a comfortable retirement tomorrow.”

Financial advisers are losing popularity as a source of information for KiwiSaver members, who prefer to go to product providers or their employers, according to new research.

The Mercer KiwiSaver Sentiment Index Study found only 19% of respondents preferred to go a financial adviser for information about the scheme, down from 23% in the last study in 2009 and 33% when the first study was conducted in 2007 just before KiwiSaver was launched.

Nearly half (49%) chose their KiwiSaver provider as a preferred source of information, while one in four respondents preferred to go to their employer or HR manager.

However, the latter figure is down from 48% in 2007 and 37% in 2009 (the numbers add up to more than 100% as respondents can choose more than one answer).

Financial advisers were just behind government sources such as the IRD (20%, down from 40% in 2009), slightly ahead of family (17%) and well ahead of the media, which only 5% of people chose as a preferred source.

Mercer’s Elyssia Silberstein, who oversaw the research, said respondents weren’t asked why they preferred a particular source.

“I would expect that there’s a lot more information and communication available now.  Financial advisers have been used in the past but with the government playing an active role [in providing information] perhaps the perceived need for financial advisers has diminished over time.”

Martin Lewington, head of Mercer New Zealand, noted that the drop-off had taken place at the same time the new regulatory regime for advisers was introduced.

“Hopefully in the 2014 survey KiwiSavers will have seen the benefits in the new regulatory environment and we will have seen an uptick in that.”

He noted that although 73% of respondents said in 2007 before the scheme’s launch that they planned to pick their own provider, in the latest survey only 58% had actually done so, with the rest allowing their decision to be made by the IRD or their employer.

The study also found opposition to KiwiSaver had increased, with 30% actively against it compared to 22% in 2009; those actively against it tended to be over 55, owned their own home and had children who weren’t enrolled in KiwiSaver.

Lewington said the increase in opposition had implications for the debate on whether to make the scheme compulsory.

Imposing more regulations on KiwiSaver funds could stifle the best performers, says Fidelity Life chief executive Milton Jennings.

Financial Markets Authority chief executive Sean Hughes said there were gaps in the rules relating to KiwiSaver schemes.

He says there should be more co-operation between regulators, and suggests “there is no prudential supervision for KiwiSaver.”

Prudential supervision assesses whether undue risks are being taken with investors’ money.

Jennings conceded the HuljichKiwiSaver saga – where investors were misled about the performance of the Huljich Wealth Management KiwiSaver fund – “certainly exposed a gap”.

But he said prudential supervision of KiwiSaver funds would be complicated.”Do you go down to [assessing] single stocks? It’s very hard.”

He said higher-risk funds could be a casualty of increased regulation, such as Fidelity’s Options fund, one of KiwiSaver’s top performers.

“We had noises from the regulators saying it’s too high risk for KiwiSaver…  there’s been volatility over the five year period, but it’s probably the top performing fund, so do you want to stop that type of investment?”

Milford Asset Management’s investment committee chairman Brian Gaynor said funds already outlined their investment stance in prospectuses.

“And you can see by the way directors are being prosecuted regarding prospectuses at the moment it’s a very powerful document in terms of the law.”

But he said there were two glaring gaps in KiwiSaver regulation that Hughes had not mentioned.

“The disclosure of fees is probably the weakest area, the second is probably consistency in how to measure and report returns and performances.”

He called for the establishment of a KiwiSaver comparison website, managed by a body such as the FMA.

After years of repeated tinkering in successive Budgets, KiwiSaver looks set to finally be left alone this year.

Prime Minister John Key has announced in a pre-Budget speech that there will be no changes to KiwiSaver tax credits.

Last year’s budget saw the government halve the maximum yearly tax credit from $1040 to $520, a change that kicked in earlier this year.

It also flagged an increase in the minimum employee contribution from 2% to 3%, which is due to come into effect next year.

Not-for-profit group Workplace Savings NZ, a membership organisation representing the superannuation industry, has welcomed Key’s comments.

Workplace Savings NZ chairman David Ireland said the certainty that message provides would come as a welcome relief to all those involved in workplace savings.

“Since it was first established, KiwiSaver has been subject to ‘design tinkering’ in just about every Budget, so this will be a refreshing change.

“It means the only change KiwiSavers are likely to see on the horizon, at a practical level, is the proposed increase in contribution rates from 1 April next year.

“There are currently over 1.9 million New Zealanders using KiwiSaver for their savings, and they should be reassured by the Government’s announcement.”

KiwiSaver is about to enter a new stage in its life cycle, with those aged 65 or over who joined on day one becoming eligible to withdraw their savings on 1 July.

“The stability signalled in KiwiSaver incentives and design is great news.  It will help free up providers’ capacity to develop options for helping those KiwiSavers maximize the long term benefit of those savings,” said Mr Ireland.

While KiwiSaver has been spared in this year’s Budget, future changes are inevitable: National plans to introduce auto-enrolment at some point, while Labour has said it will make the scheme compulsory.