KiwiSaver

A Government-run KiwiSaver scheme would have an unfair disadvantage that could push other providers out of business.

The KiwiFund Bill has been drawn from Parliament’s members’ bill ballot. If it’s passed it would put in motion an independent working group to establish a government-run and owned KiwiSaver scheme, KiwiFund.

It’s an idea that NZ First leader Winston Peters first proposed in 2014 and campaigned on again this year.

The working group would advise on how the fund could be set up with a lower, transparent fee structure, keeping profits in New Zealand, giving preferential treatment to New Zealand-based investments and focusing on socially and ethically responsible investment.

KiwiFund would receive a government guarantee.

Banking expert Claire Matthews said that would be a concern to existing providers.

“Why would you be a member of a non-government-guaranteed fund?

“What is the problem that the fund is designed to solve?  If it’s fees, we already have Simplicity operating in the market, and greater disclosure is being introduced to ensure KiwiSaver members are better informed.  In addition, it is a relatively competitive market, although we need to do more to ensure that competition is realised by ensuring members have greater interest in their KiwiSaver account, and therefore give greater consideration to their fund and their provider.”

Sam Stubbs, founder of Simplicity, said the scheme would have to be run passively. “There is simply too much moral hazard in having an active manager looking after individuals’ savings in the name of the Government. The NZ Super Fund is able to do this because it’s not in individual accounts.”

But he said there was a role for projects that married the long-term infrastructure requirements of the Government with long-term investments of KiwiSaver money.

“I’m quite keen on that as both sides win. I think it’s an opportunity we are missing right now as both sides run into their ideological corners on public private partnerships. KiwiSaver money is special in that regard, and the infrastructure requirements going forward will be massive.”

Other providers referred questions to the Financial Services Council, which has been approached for comment.

New Zealanders have missed out on KiwiSaver returns because of their lack of exposure to the local share market, one manager says.

Milford Asset Management executive director Brian Gaynor has rejected calls for KiwiSaver to be made compulsory, saying it would take the competitive onus away from fund managers.

But he said changes were needed. 

Gaynor said, although the NZX had risen strongly every year since 2012, only about 10% of KiwiSaver money was in the local share market, so KiwiSaver members had missed out.

Milford’s active growth KiwiSaver scheme usually has about 75% of its funds invested in Australasian equities. Its conservative and balanced funds can have up to 20% and 40%, respectively.

But Gaynor said the New Zealand market was too small and did not offer the investment opportunities people wanted.

“It doesn’t have financial services companies, except for Heartland Bank, whereas in Australia, the big four banks are all worth more than the total value of the New Zealand share market, so the NZX doesn’t have the opportunities for KiwiSaver investors.”

Instead, KiwiSaver money was going offshore, into cash and bonds, he said. The foundation of KiwiSaver was based on a defensive asset allocation.

“I’d also like to see more KiwiSaver funds invested into equities rather than into defensive assets like cash and bonds. Default schemes are some of it but even non-default schemes are even a bit conservative, too.”

Gaynor said he did not agree with a recent focus on fees. In a New Zealand market, fees were not such an important consideration, he said. “We’re quite different to the United States.”

The top-performing funds were those with average or slightly above average fees, he said. “New Zealand KiwiSaver funds are multiassets, they’re much more complex than the type of funds where lower fees mean a difference over a period of time.”

Michael Cullen chairing the new government’s tax working group could be a boon to the KiwiSaver industry, it has been predicted.

Cullen, the architect of the retirement savings scheme, will head up the group which will have  “wide mandate” to look at New Zealand’s whole tax system. It has specifically been tasked with looking at GST and potential measures to slow growth in house prices.

But KiwiSaver providers said the scheme could get some attention, too. Changes to the tax regime could make the scheme significantly more appealing, for example, if deductions were exempt from tax or other concessions were put in place.

In Australia, deductions made before tax are taxed at a rate of 15 per cent. Deductions made from after-tax income are not taxed.

There has previously been criticism that long-term New Zealand savers in managed funds are at a tax disadvantage.

The FSC put out a report in 2013 that said: “No other country has out combination of comprehensive taxation on the return on debt instruments as they accrue, no superannuation tax concessions, no tax on capital gains on rental properties, and the unconstrained deductibility of the nominal value of interest against other income on debt used to purchase rental property.”

A decision around the KiwiSaver scheme was withheld from one of the briefings to incoming ministers made public last week.

A description of the decision, in a document for Commerce and Consumer Affairs Minister Kris Faafoi, was withheld under the Official Information Act. It was reported that, according to the State Services Commission the rule is applied where there is concern that the release of the draft advice would interfere with the ability of a decision-maker to consider the advice tendered.

Sources speculated that could be related to KiwiSaver coming under the remit of the working group – although most providers spoken to said they were in the dark, as well.

Finance Minister Grant Robertson has already indicated that Labour wants to increase the minimum regular KiwiSaver contribution rate from 3% to 4.5%, and make the scheme universal – although there would still be significant exclusions, including for students, beneficiaries and self-employed people.

Nikko Asset Management is to launch a KiwiSaver fund offered via roboadvice.

The fund manager is set to offer the scheme to the market next year.

The fund manager has a strong institutional backing in New Zealand but has been working on growing its reach in the financial adviser community.

It is also planning to apply for an exemption to enable it to offer roboadvice and the new KiwiSaver scheme will tie into that.

Clients may also be able to access the manager’s other funds through the same robo platform.

It has 11 retail products and 16 wholesale funds at present.

Investment documents for the new KiwiSaver scheme are expected to be lodged in the early part of 2018. Clients have been given advance notice of the move.

Nikko made a submission earlier this year on the Financial Markets Authority’s proposed exemption to allow roboadvice ahead of the implementation of the Financial Services Legislation Amendment Bill.

In it, it said there were too few advisers to provide advice to all consumers.

The cost of tailored advice was too high for those with low asset balances. Some people did not know how to seek advice or wanted to remain anonymous while they looked for solutions.

“Roboadvice is not something which replaces the human adviser but provides a complementary service that meets needs that may otherwise be left unmet,” the submission said.