KiwiSaver

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.

A savings expert has called for a radical overhaul of the KiwiSaver default system, which would see the current default providers lose their “privileged” position in the market.

In the Retirement Policy Research Centre’s latest PensionCommentary, co-director Michael Littlewood has questioned the need to renew the agreements with the six default KiwiSaver providers in 2014, when their current deals are up for renewal.

By then, most New Zealand employees will be KiwiSaver members and auto-enrolment will be unnecessary, he said.

However, “…if auto-enrolment continues to be a feature of KiwiSaver, there needs to be some kind of default provider regime. A default investment option is also needed because employees who are auto-enrolled will, by definition, have made no decision about how their savings are to be invested.”

Littlewood said the Government “should not give a commercial and marketing advantage to a small group of financial service providers, especially if they do not pay for the privilege.”

He has suggested two alternatives: the first and preferred option is to extend the Inland Revenus involvement with auto-enrolled members from the current eight weeks to a year.

If the member has not chosen a KiwiSaver provider by the end of 52 weeks, the member will automatically begin a contributions holiday. The membership will stay in the Inland Revenue’s ‘holding’ scheme until the member chooses a provider.

Alternatively, he said the government should prescribe a set of minimum standards for default providers (there are none at present). Any KiwiSaver scheme that continuously complied with those standards would automatically be on the Inland Revenue’s default provider list.

Littlewood said the initial default provider appointment process in 2006 was “flawed” and there has been no follow-up, or research, to see whether the performance of default providers as a group has justified the “commercial favour” conferred on them.

He also opposed the Savings Working Group’s proposal that would have seen the government become a commercial competitor to private providers.

“Aside from size, and the absence of a profit motive, the government has no competitive advantage in delivering superannuation services. On those grounds, the government could justify involvement in any business activity.”

Aon has developed a unique way of promoting its KiwiSaver scheme, giving Registered Financial Advisers a disclaimer that allows them to inform clients about the scheme without advising on it.

Good Returns has obtained a copy of the disclaimer, which asks clients to acknowledge that the RFA they spoke to only provided them with “a copy of the AonSaver KiwiSaver Investment Statement and/or factual information about the scheme”.

Clients are also asked to confirm their adviser “did not take your particular situation or goals into account when providing you with any recommendations or opinions in relation to joining the Aon KiwiSaver scheme.”

This is because under the Financial Advisers Act, RFAs can provide “information” on category one investment products such as KiwiSaver but they can’t provide personalised “advice”.  

Aon’s disclaimer also recommends clients seek professional advice from an Authorised Financial Adviser (AFA) which takes into account their personal circumstances before making an investment decision.

In conjunction with the disclaimer, Aon has provided guidelines for RFAs including step two: “Establish from client if they are in KiwiSaver and if they know that Aon has a KiwiSaver Scheme”.

Step three says: “Offer to provide information on the AonSaver KiwiSaver Scheme and give the client a copy of:
a. The AonSaver Investment Statement;
b. The KiwiSaver in a Nutshell brochure;
c. Morningstar performances – Independent from Aon; and
d. Any other authorised marketing material available at the time.”

Advisers are also told to “Only provide recommendations or opinions in relation to the AonSaver KiwiSaver Scheme based on your own preference for the Scheme, i.e. why it is your preferred KiwiSaver Scheme.”

Amanda Beeslaar, sales manager for AonSaver, said the disclaimer had received a positive response from RFAs. 

“RFAs appreciate the ability to provide information on KiwiSaver to their clients without giving advice.  The Disclaimer ensures the clients are aware of the restrictions on RFAs and that they are unable to provide “personalised advice”.”

She said the wordings for the disclaimer and guidelines were developed after “extensive discussions” with Aon’s legal advisers (law firm Chapman Tripp).

“Advice is not personalised merely because a client comes within a class of persons having pre-defined characteristics and the RFA takes the fact that the client comes within that class into account.

“So long as the advice is not personalised in respect of the particular client, and that is made clear to the client, our legal advice was that an independent RFA can provide non-personalised “class” financial advice under the FAA.”

Fisher Funds chief executive Carmel Fisher says her firm did not pay $50 for every Credit Union member who joined her scheme.

The New Zealand Association of Credit Unions (NZACU) agreed to sell its KiwiSaver scheme to Fisher Funds largely because of new KiwiSaver regulations set to take effect this year.

 

Mercer was acting as the scheme’s trustee and manager, but under new regulations KiwiSaver funds are required to have an independent trustee.

“Mercer is the administrator and fund manager. When this new law comes in you’ve got to tidy up all the different entities when it comes to KiwiSaver,” said NZACU chief executive Henry Lynch.

Fisher Funds managing director, Carmel Fisher, said the upcoming regulations – and the adviser regulations already in place – may prompt more KiwiSaver fund consolidation.

“I think any regulatory change in this whole area [KiwiSaver] throws up opportunities,” she said.

“Even the changes around advice and what constitutes advice and who’s allowed to say what when they’re talking about KiwiSaver, that must make some providers question whether they want to take on the liability, the training requirements and so on.”

The deal will see Fisher Funds welcome an extra 4,000 KiwiSavers onto its books and Fisher said this expansion will benefit existing members.

“We’ve been quite open about the fact we’re committed to the KiwiSaver space and we know that scale allows us to charge lower fees for all our membership, so there is an advantage to scale.”

She also said Fisher Funds remained “open to any opportunities” within the KiwiSaver space.

“I’m sure we’re not the only ones looking at any KiwiSaver scheme that might be in play,” she said.

Fisher also dismissed reports in the New Zealand Herald that it paid the NZACU $50 for each active KiwiSaver scheme member.

“We haven’t paid anything, so it’s not entirely accurate to talk about the cost of the scheme,” Fisher said.

“This is not like Huljich where we bought that scheme, and obviously there was a price or value put on each member, we haven’t done that with the Credit Union.”