Last week I had the pleasure of chairing a two-day Superannuation Summit in Wellington. The following is a summary of the key points which came up during the meeting. These are based on my closing comments.
By Philip Macalister
A useful starting point to end this conference on is to discuss the environment the superannuation and savings industry is operating in at the moment.
As I said in my Opening Comments there is a real sense of excitement and enthusiasm in the industry.
Previous conferences I have been to resembled a meeting of surviving World War One vets at the local RSA. There aren’t many left and they don’t have a lot to look forward too.
Undoubtedly the revitalisation in this industry is due to KiwiSaver and tax changes.
Previous conferences have spent lots of time discussing public policy issues and ways New Zealand could set up its savings environment.
However, much to the current government’s credit, the policy debate around superannuation has now been finalised.
This was acknowledged by National’s Finance spokesman Bill English. He made it clear to delegates that the country had voted for a tier one state pension that was universal, partially prefunded, and not subject to either means or asset testing.
His view was that neither of the main parties would dare veer from this. To do so would be political suicide. His metaphor, “a mutual self-destruction pact� echoed the Cold War nuclear stand-off between the superpowers.
English also said National broadly supported KiwiSaver and the tax changes. Indeed he said Finance Minister Michael Cullen had done a good job putting the NZ Superannuation Fund together.
English also made it abundantly clear compulsory super was off the agenda.
One of the regular, and intriguing debates of the conference is whether or not New Zealand has a savings problem. NZIER economist Brent Laybourn made headlines in Wellington on Friday after he told the conference there was a “man-made� crisis, and the man who made it was Michael Cullen.
However, the balance of evidence seems to suggest otherwise. Using the “look around test� English concluded, that there isn’t a widespread problem.
Likewise Treasury’s Grant Scobie and Trinh Le made an excellent presentation which concluded, amongst other things, that the statistics suggest around 20% of the population have inadequate savings. However, it isn’t yet possible to quantify who that 20% is.
At this stage they can’t identify who this group is but it appears to be mainly middle New Zealanders, rather than the ones at the high and low ends of the income scale.
Several Super Conferences ago when KiwiSaver was in a very early stage of development there was a session where managers debated whether they wanted to be in on the scheme or not.
Now, with start date just months away, the tune is very different. Everyone wants a piece of the action.
Inland Revenue, in its update on the implementation of the scheme, said around 19 providers had registered an interest in having KiwiSaver compliant schemes and five existing workplace schemes had indicated they were interested in having a KiwiSaver option.
One presenter later in the conference thought there would be in excess of 30 providers offering schemes.
The first out of the blocks to seek a Scheme Provider Agreement registration with IRD is AXA.
A big issue for providers is how to get people to use their products. There are essentially three levels, Default provider, then an employer can select its own “preferred supplier� however employees can pick whatever scheme they want.
ING’s David Boyle commented it was an area where a lot of resource and money was going into, and providers are likely to offer advice and education to employers who have “preferred suppliers.�
Financial Literacy
A huge area for growth is financial literacy. The Retirement Commission’s David Kneebone said that the ANZ-Retirement Commission financial literacy survey released last year showed that New Zealanders have a “low� level of literacy.
He outlined some of the new developments the commission has coming up. These include an 0800 number with budget advisers answering people’s questions and a new website.
Financial literacy is an issue many people have to address with the introduction of KiwiSaver.
The introduction of KiwSaver is going to place some obligations on employers. A number of speakers claimed KiwiSaver wouldn’t work because the compliance issues are too high (handing out a pack and making deductions from wages).
Another one, expressed strongly by Business New Zealand, is that KiwiSaver won’t work as a staff retention tool as it is a portable scheme.
Another discussion, on day two, was around employer contributions.
A little known fact is that these contributions can be vested to employees and that maybe a way to use them as a staff retention tool. One of the obligations on employers will be if they stray into “giving advice� when an employee asks them what to do. Ideas were kicked around on this and how it could be done without causing problems.
Employer buy-in is critical to the success of KiwiSaver and it seems this is now starting to happen.
While there were negative comments, on balance it seemed that delegates had the feeling KiwiSaver would work.
On a personal note, as an employer with an SME, it seems to me that KiwiSaver is a no brainer and that employer contributions have merit. Phil’s Blog will have occasional postings on our experience during the KiwiSaver implementation process.
The one major negative in this area is that it seems existing workplace super schemes are looking like a threatened species.
Several very good presentations on investment issues and tax were made to the conference. A key takeout was from a presentation by Simon Botherway of Brook Asset Management. He says there are some real pluses in the new tax regime, but also a lot of complexity. His view was be careful out there.
Likewise Minter Ellison Rudd Watts made it clear that the new tax rules are pretty complicated.
Final thoughts
There is a real buzz starting to develop around KiwiSaver.
However it is difficult times for product providers as all the rules haven’t been finalised yet and they are having to cope with other major issues, such as tax, as well as superannuation.
The policy framework around savings is stable and the time for public policy discussion has passed and it is now time for action.
Savings in New Zealand is not in a crisis situation – but we can do better.
The final session of the conference – a look at the AXA Global Retirement Scope survey, which compared New Zealand with other countries, summed up that things in New Zealand are on the right track.