KiwiSaver

Default KiwiSaver provider Mercer is says there needs to be an improvement in disclosure requirements with KiwiSaver.

Head of Mercer New Zealand Martin Lewington says the requirement thresholds default schemes have should be across the industry.

He believes what happened with Huljich Wealth Management and its KiwiSaver funds was inevitable and that it has bought the urgency and timeliness of KiwiSaver issues forward.

“The Capital Markets Development Taskforce drew attention to the problem of disclosure and Huljich brought that forward.

“No-one anticipated for KiwiSaver to be so popular and as a result more rigorous and comprehensive requirements are needed across all providers.”

Mercer yesterday released its latest KiwiSaver sentiment survey.

It says that of those New Zealanders who have not joined KiwiSaver, one in four anticipates they will do so in the next 12 months compared to one in seven in 2007. For those still unlikely to join a scheme, lack of affordability was the most common reason.

 Other key findings of the study include:

• Kiwis are reasonably satisfied with KiwiSaver providers; nearly half (49%) said they were either satisfied or very satisfied with their current provider.
• Respondents indicated a strong loyalty to current schemes; very few (5%) anticipated a change in their KiwiSaver provider in 12 months time.
• The main concern Kiwis have about KiwiSaver is the lack of guarantee and specific concern about the future viability of the scheme. Other concerns centered on a lack of understanding of the scheme, poor returns and a preference for greater control over personal finances.
• Kiwis predict they will need between $2,000-$3,000 per month (including NZ Super and after tax) in retirement.
• The introduction of a 2% contribution level has proven popular; 29% indicated they either plan to make or already make contributions at the 2% level (the proportion of these as a result of default selection is not known), while 46% plan to do so at the 4% level.
• Just over half (55%) actively chose their own provider, while two in five (42%) either let the Inland Revenue Department or their employer make the decision on their behalf.
• Kiwis demonstrated a reasonable level of knowledge of the KiwiSaver scheme, however respondents showed uncertainty around government fee subsidies and some believed that respondents could belong to more than one KiwiSaver fund.

 

Trustees respond to teh government’s comments over their role in supervising KiwiSaver schemes.

“It’s important that trustees are fit for purpose, professional and independent”, Trustee Corporations Association chairman Clynton Hardy says.

“The bottom line is that close to $5 billion, and rising, is invested in KiwiSaver schemes.

“A KiwiSaver trustee’s job is no different from any other corporate trustee role. They are there to supervise fund managers and make sure investors are protected, bearing in mind the long term nature of KiwiSaver schemes.

“KiwiSaver funds are just like public money invested in debentures, bonds, retirement village homes, managed funds or other kinds of non-bank deposits. So they should be subject to the same protection and rules”, he said.

The Securities Trustees and Statutory Supervisors Bill is due for its first reading in Parliament shortly. It creates much stronger regulatory oversight of corporate trustees.

“There will be much tougher hurdles to become a trustee, and once you have been given a licence to operate, higher standards of accountability.

“Making all the KiwiSaver trustees subject to this same regime would give everyone in a scheme more confidence”, Hardy said.

This is an edited version of a TCA press release

Concerns over KiwiSaver fund management have led to the government fast tracking work to ensure the integrity of KiwiSaver is maintained for the 1.3 million people and $4.88 billion of their money invested in the scheme.

Minister of Commerce Simon Power says in recent weeks there has been growing concern regarding the regulation of KiwiSaver schemes.

Huljich Wealth Management brought the spotlight on KiwiSaver account management after it failed to disclose that its then-managing director Peter Huljich had injected cash into the funds because it had not performed well.

Huljich said he felt morally responsible for the investment decisions, but others said it was to give a false impression about the funds’ performance. The Securities Commission is investigating.

Australian investment research company Morningstar Australasia has also warned KiwiSaver investors to look closely at their providers, as there was a very poor disclosure regime in New Zealand.

Power says mum and dad investors must have confidence that their money is being well managed.

“The Government indicated last month it supports recommendations from the Capital Market Development Taskforce for additional regulation of managed funds, including KiwiSaver.

“We were intending to make changes in this area as part of the current review of the Securities Act. However, in light of recent developments, I have asked my officials to fast-track this work to ensure investor confidence is maintained.”

Power has asked officials to report to him within three to four weeks on whether:

• The monitoring and reporting regime for default funds should be extended to all KiwiSaver funds. This would require detailed quarterly reporting to an expert monitoring panel and require that one of the trustees of KiwiSaver schemes be a trustee corporation, rather than just an independent trustee, as at present.
• KiwiSaver funds should be required to regularly report to investors and the regulator on the returns, fees and assets of each fund in a consistent and comparable manner. At present, the only requirement for non-default schemes is for annual returns, and I am advised these are not prepared in a manner which allows for easy comparison between schemes.
• To increase the ability of the regulator to supervise the trustees of KiwiSaver schemes and hold them accountable for fulfilling their obligations.
• Further powers for enforcement by regulators are necessary.

The government has proposed it will review the tax treatment of annuities in response to the Capital Markets Development (CMD) Taskforce recommendation and the financial adviser industry says the review is a must because of KiwiSaver.

 

The CMD Taskforce recommended that the government should support the development of the annuities market and Taskforce chairman Rob Cameron says there needs to be annuities products available for mature investors.

Investment Savings and Insurance Association chief executive Vance Arkinstall says he feels very strongly about this recommendation.

“The taxation of annuities is totally out of date and it overtaxes most people who would be purchasing an annuity.”

He says as New Zealand develops a saving ethic with KiwiSaver leading the way, New Zealand will need to provide the ability for individuals to draw down their savings in income streams which annuities provide.

“We’re very supportive of developing an annuities market because it is totally consistent and goes hand in hand with KiwiSaver.”

Institute of Financial Advisers president Lyn McMorran agrees saying KiwiSaver makes the annuities market a complete necessity as people will start coming out of the scheme with lump sums of money.

“Annuities aren’t offered in New Zealand because the tax structure is not condusive to offer them, therefore there is no demand and no supply.”

She says it is a chicken and the egg scenario, “We need to sort out the tax issue first, and that will create demand which will in turn create supply.”

The government says after the tax treatment has been considered as part of the Government’s tax policy work programme, a timetable will be considered for changes, if any are required.