KiwiSaver

Speech notes for launch of KiwiSaver publicity campaign, Holiday Inn, Featherston St, WellingtonKiwiSaver is a landmark in New Zealand’s economic and social legislation and I welcome this campaign to introduce it to working New Zealand.

One standout feature of KiwiSaver’s design is its simplicity. It makes it easy to join, easy to administer, easy to take with you when you change jobs…and, because of the government’s contribution, KiwiSaver makes it easy to building the savings you need when you retire.

So because KiwiSaver is a simple scheme for savers, it’s an easy message to communicate, and I believe this campaign will be more successful as a result.

One of the biggest problems we have with getting people to save is getting people interested. Most of us know by now that we need to have some financial assets put aside when we retire if we want to enjoy a standard of living comparable to our working life. But we put off the job of saving because we tell ourselves we have higher priorities. Retirement seems a long, long way in the future – until one day suddenly it isn’t. (Although, in my case, there are quite a few years to go yet…).

As a result, not enough of us are saving – especially in the groups who need help the most. A survey of household savings in 2001 showed only a low proportion of kiwis in low and middle earning range (of $15,000-$50,000 then) had any financial assets at all – just 15% of individuals and 17% of couples in that earning bracket.

The way to get people engaged is to get them started in a regular programme of saving.

And the campaign around KiwiSaver will build the interest and help to engage the interest of kiwis at work in getting started.

When not enough of us are saving there are real effects on individuals directly, through a lower standard of living in retirement. And it has real effects on the wider economy, which in turn affects the wellbeing of all New Zealanders.

When we are spending more than we save – as much as $1.15 for every dollar we earned last year, according to one measure – inflationary pressures are higher, interest rates are higher, which puts pressure on our exchange rate and our exporters.

So anything that helps to increase saving helps us all.

Not everyone will sign up to KiwiSaver on day one, when the scheme starts on the first of July. I would be surprised if people didn’t look at their current commitments and wonder where they are going to find 4% or 8% of their gross salary.

But we know that around 700,000 kiwis change jobs every year, and they will be automatically enrolled then (with the option to opt out within 8 weeks). Most often, people expect their salaries to increase as they change jobs, so there will be more room to put something aside.

Others might decide to join as they pay off hire purchase liabilities and so on, instead of taking on more debt.

Others will join the scheme as they receive their normal wage increases.

I’ve been encouraged since the budget that many employers and most unions are making positive noises about supporting working people into KiwiSaver.

The Stock Exchange welcomed the scheme immediately, and major employers are indicating KiwiSaver works for them – employers like innovative international kiwi company Gallagher Animal Management Systems, and our biggest tourism company, Tourism Holdings.

And last week Air New Zealand announced it would contribute the full 4% of the matching employer contribution from next April, three years earlier than required. That’s very heartening and I am confident more employers will see KiwiSaver as a smart way to encourage greater loyalty and to recruit and retain skilled staff.

And it’s not just a simple, effective scheme for big employers; it’s a low cost, off the shelf super scheme for smaller employers as well. I was reminded of this last week when I visited an innovative irrigation technology company on the Kapiti Coast. One of the owners told me, ‘”I want the very best for my employees. If it encourages them to be better off, then I am all for it.” That’s a great attitude.

I was interested to read comments from members of the public who were shown previews of the publicity campaign. They made comments such as, “They make it easy – one less thing to worry about-…and – No matter what the day throws at you – your KiwiSaver will be safely ticking over”.

If we foster those attitudes, we will overcome one of the big hurdles in the way of lifting our saving – the motivation to get going, and the feeling that it’s too hard.

It remains for me to congratulate everyone involved in the campaign, from IRD and Saatchis Wellington especially.

When they were given the brief to go out and design this campaign, they thought they were working with the original design of KiwiSaver. I can only imagine how stressed they must have been on budget night, when they realised KiwiSaver was being very significantly boosted – but still starting on the same date. With a bit of work in the edit suites, they have come through with the campaign on schedule, and I would like to thank everyone who got that work done quickly.

The advertising campaign begins tonight during the six o’clock news on TV One. There’ll be newspaper ads from mid June, with tie-ins to radio and online advertising.

This is a big campaign. It’s big because this is a very big and very important initiative. It affects every single New Zealander, because it affects our economic and social future. And it affects every working New Zealand because we all have decisions to make about how we will save for our retirement.

In decades to come as retirees use their KiwiSavings, I am sure television nostalgia programmes will look back to this day, to the day it all began, and they will play the first KiwiSaver tv commercial.

So we are making history here, and I welcome the beginning of history tonight, with the launch of this campaign.

Today’s launch of the first KiwiSaver television commercial marks another important milestone in helping New Zealanders save for their future, government ministers said today.”With just five weeks to go before KiwiSaver launches on 1 July, the campaign will help focus people’s minds on the opportunities the scheme offers to secure their retirement dreams,” said the ministers.

“We need to lift our savings for our own long term financial security, but also to build a stronger economy and fairer society,” said Cullen.

“KiwiSaver is the most important initiative in a generation to change our savings habits and the measures announced in Budget 2007 make it even easier for New Zealanders to take steps today to safeguard tomorrow.

The government is supporting saving by contributing $40 a week in tax credits for workers and employers. Employers will also have to provide a matching 4% contribution phased in over four years from 1 April 2008.

“The campaign line is ‘KiwiSaver. Making easy work of saving.’ This goes to the core of the design of KiwiSaver – work-based, simple and accessible to the widest range of the working population,” said Peter Dunne.

“The multi-media advertising campaign for KiwiSaver kicks off tonight with the first advertisement airing on TVNZ during the One News. This aims to tell every New Zealander more about KiwiSaver.

“A second advertisement, which will run from 24 June, targets people who are starting work or changing jobs. Some 700,000 people change jobs every year and new employees are automatically enrolled. This is a key design feature because it makes the decision to save that much easier. You have to make a conscious decision not to save and opt out.

“A third television advertisement will air in October 2007 and targets those who will need to opt in to KiwiSaver (existing employees and self-employed people).

“Print advertising begins mid June with metropolitan, regional and community newspapers tying in with online advertising on key internet sites, general print advertising, radio and ethnic media placements.

“We are helping people make an informed choice about what is an important financial decision,” said Lianne Dalziel. “Employees will also receive information packs and a comprehensive ‘how to’ guide is being distributed to employers.

“We are confident KiwiSaver will make a real difference to savings habits so New Zealanders can look with confidence to a retirement that meets their aspirations.”

In the wake of the Government’s budget announcement yesterday, TOWER Investments CEO Tony Hildyard said today that he was pleased that the new Government initiatives have both raised the profile of KiwiSaver and made it more attractive to investors. But although it was positive that people were now talking about KiwiSaver, he felt concerned about some comments that had been made that weren’t factually correct. “It’s great that we’re debating the merits of KiwiSaver because people are really starting to see the positives and think about the opportunities it provides. What we do need to look at is some of the misinformation that’s out there and make sure people are given the information they need to make a good decision about whether or not to sign up.”

Specifically, Hildyard said he felt that some financial commentators didn’t seem to understand fiduciary responsibilities of KiwiSaver fund managers, trustees and sponsors, and that some of the information being presented was factually incorrect. He said that this was particularly evident in a radio interview with Gareth Morgan this morning.

“There has been some confusion about the roles of the fund manager and the sponsor. The sponsor of the product, the party who brings the product to market, doesn’t have any fiduciary obligations to investors. It is the fund manager and the Trustee who have these obligations.”

Hildyard said that while it was true that there was no Crown guarantee for any KiwiSaver product, fund managers such as TOWER have obligations at law and under their trust deeds, and TOWER has obligations for any losses that arise from “willful or negligent default”, breaches of trust or dishonesty.

“You can’t provide any superannuation or managed fund product and not take responsibility. That goes for KiwiSaver as well. Our trust deed sets out these obligations very clearly, and we stand by them.”

Hildyard said that he took issue with Morgan’s comments on fees and returns and his claim that investors would be lucky to get 40% of the return on their money. Hildyard said this isn’t always true, and cited TOWER’s Balanced Fund (one of TOWER’s KiwiPlan funds) as an example. The fees on this fund averaged at less than 10% of the after-tax returns.

Another important point was that under KiwiSaver, all providers’ fees (including Morgan’s scheme) have been negotiated with the Government Actuary. “And going back to the budget announcement, now that these fees are subsidised, they are becoming less and less relevant.”

One group that had a jubilant reaction to Thursday’s Budget was the life insurers whose products dominate the long term savings sector. And they has every right to be ecstatic- Michael Cullen has just naively delivered to them 4 million heads on a plate, Gareth Morgan addresses the issue.The saving public may well be seduced by the tax breaks and employer levies that this latest incarnation of KiwiSaver entails, but once the hype of politicians bearing gifts is swept aside, there remain far more important issues for the individual New Zealander to consider with this arrangement.

Firstly let there be no misunderstanding. The government is providing no guarantee whatsoever as to the safety of your money, no undertakings whatsoever as to the returns you can expect, and is delivering you holus bolus into the arms of the long term savings sector. If your provider happens to under-perform, lose your money or even just take it, well that’s tough – buyer beware.

Let’s look at the long term investment performance of this sector. The average fund manager makes only 70% of the market average return in any one year, and over the long term investors are lucky to receive 40% of the returns on their own money – the rest goes to ‘helpers’. These are international results about how well people do in these funds.

The local apologists for the life insurance sanctimoniously assure us they know what’s best for our savings but this is an industry that is big on marketing and seduction expenditure, and very short on delivery. I welcome anyone to show me how over the long term (20 years plus) they have personally made a half decent return from the total contributions to any superannuation or endowment policy that these players have offered. For each one of you that have I will show you 10 people that have had their life’s savings demolished.

Now what is the problem? It is simply that this sector is subject to totally ineffective accountability by those charged with protecting the public interest – the politicians and their regulatory foot soldiers. I can demonstrate this with just two examples.

• The assurance from the industry that they are eminently suited as long term guardians of our property. This is an acknowledgement of a fiduciary duty. A fiduciary (from the Latin word, fÄ«dÅ«ciÄ?rius – something held in trust) is someone who is placed in a position of trust by another person and as such cannot in law put their own interests in front of those of the trusting party. A fiduciary situation arises when one party gives their property over to another for care, protection or performance and is reliant on the behaviour of the other party. It is especially relevant where the other party is dominant as in the case of an investment manager who writes the contract, designs the product, controls the funds over time and has the power over the retirement benefits and interests of the reliant (or vulnerable) party. The life insurance companies that peddle these long term savings products declare themselves to be exactly in this business of long term care of your property, taking on a position of trust that each member is entitled to believe they are acting in that member’s interest, Their fiduciary responsibility is not a contractual matter, it arises because of the circumstance where they are the dominant party and are making undertakings to us that pertain for long periods of time. In law, you cannot contract in or out of a fiduciary circumstance.

Now have a look at Clause 24.1 of the Tower KiwiSaver trust deed – you will have to pay $28 to get this document, as unlike the investment statement it isn’t compulsory to send it to savers so they don’t. Tower doesn’t even chose to make it freely available on its web site. Yet the Trust Deed is the real oil – the bit that lays out exactly the relationship between the promoter, the manager, the trustee, the scheme concocted to take in your savings, and finally you, the ‘member’ of the scheme. The Trust Deed reveals all the tricks of the trade, the Investment Statement under New Zealand’s loose regulatory umbrella, isn’t worth the paper it’s written on.

Anyway Clause 24.1 of Tower’s Trust Deed states,
“When exercising its powers and functions under this Deed, the sponsor will not have, or be deemed to have, a fiduciary relationship in respect of any Employer, Member or Trustee”

So here we have Tower attempting to contract out of its position of trust. This is a very common element of the ‘trust deeds’ that life insurers write and tells us heaps about how seriously they take the duty of trust that the public has no choice but to place in them. I demand that the industry’s spokesmen justify to the New Zealand public this disgusting practice. Why exactly is it that their marketing is all about us trusting them until our retirement days but in the fine print they state they are not to be trusted?

• Next, let’s go to their practice of reserving, that insidious behaviour whereby the operators of these schemes separate you from your own property. I’d like here to see the life insurance spokesmen declare to the public that their long term savings schemes have not, do not and will not in future, create reserves from a savers’ money that that saver will never see again should the saver leave the scheme or change providers – that in no circumstances whatsoever within the savings schemes they peddle are reserves ‘freed’ by dictate of actuaries working for the company to then become the property of the company and no longer of the saver.

I notice again in the Tower KiwiSaver trust deed (the only one available so far) provides for creation of reserves and that there are no guarantees whatsoever that members who leave Tower’s scheme will be entitled to their share of reserves when those reserves are no longer required.

The reality is that life insurance companies are expert in creating reserves that are never returned to the specific savers from whom they took the money. This is the primary reason that the savers in these schemes have done so incredibly badly. While high fees and expenses hurt, they are piffle compared to the damage done from this disgusting manipulation of reserves. Why would the leopard change its spots?

I can go on but two assignments should be enough homework for the life insurers to justify that their jubilation isn’t at our expense.

Now if the politicians and the regulators aren’t going to fix these problems then the only way to force change is for someone to offer the public an alternative – a KiwiSaver scheme which has no reserving permitted and as well specifically declares the role of provider as a fiduciary one. This is the rationale for my own company’s entry into this market with Gareth Morgan KiwiSaver. We provide an ethical benchmark for the life insurers to match. But I would far rather see the whole industry be compelled to improve its game by efficient regulatory protection for the New Zealand saver. That way cheats are locked out of the business.

New Zealanders are faced with making very serious decisions about the safety of the savings they entrust to these big institutions, and others. From the regulatory perspective, it is clear this largely self-regulated sector is a shambles and Michael Cullen may be proud of his KiwiSaver initiative (that’s another debate) but I do wish he had cleaned up this industry before letting it loose on the innocent public, ignorant of the intricacies of how they get separated from their money.

Dr Cullen would do the New Zealand public a major service if he;

• prohibited KiwiSaver providers from trying to dodge their fiduciary duty.
• prohibited the deployment of ‘schemes’ that remove savers’ legal title to their own property and reduce them to the status of unsecured creditors on their savings. Rather than create this monster in the middle – the ‘scheme’, there is no reason why there cannot be a direct contract between the carer and the saver, where the savers’ property cannot pass out of their beneficial ownership, and the carer is no more than somebody who tends the garden and has absolutely no ability to walk off with the pot plants. KiwiSaver schemes must not have discretion to create reserves. If that means getting rid of vesting of employer contributions, too bad, it is well worth that sacrifice to protect the property of New Zealanders from plunder by these foreign firms.

The looming KiwiSaver July 1st deadline has given urgency to the need to clean up the industry that offers long term savings products before is gobbles up even more of the hard-earned property of ordinary New Zealanders.