A briefing to the new Minister of Commerce and Consumer Affairs which was released to the public this month, shows KiwiSaver will be a key focus in the year ahead.
But some KiwiSaver providers are skeptical that the potential changes to the frameworks of the New Zealand saving scheme will actually benefit KiwiSaver members and their funds.
The briefing from the Ministry of Business, Innovation & Employment (MBIE) says it understood that the new Minister Andrew Bayly wanted to give KiwiSaver members “the flexibility to invest with more than one provider, to bring about improved choice and competition.”
“We will provide you with advice on options to achieve this shortly.”
At his first address to the financial services sector hosted by the Financial Services Council (FSC) last week, Bayly told attendees that KiwiSaver was something he wanted to give more attention to later this year.
He says he’s interested in changing KiwiSaver to help New Zealanders save more for their retirement.
“The KiwiSaver debate, obviously, is about Kiwis not saving enough for retirement. I think it's the biggest issue of our society but the financial risk for New Zealand is actually around savings and retirement – and we need to be quite courageous about what we're going to do about that,” he says.
“KiwiSaver plays an important part of it.”
The Minister of Commerce and Consumer Affairs is jointly responsible with the Minister of Finance for the appointment of default KiwiSaver providers and the Minister of Revenue is responsible for administration of KiwiSaver.
Last year, Bayly said that the National Party would provide “more freedom and choice” for Kiwisavers to invest in as well as trim the “financial red tape” for borrowers and lenders that the Party said wasn’t “fit for purpose.”
What value?
Kernel Wealth Chief Executive Dean Anderson says he struggles to see what value would be created via multi-provider access, plus how it would deliver better outcomes for customers.
“One of the benefits of the structure that New Zealand has with the centralized IRD processing is the efficiency. And if we think about the size of our market here, having your KiwiSaver split across multiple providers, the two big use cases in New Zealand for KiwiSaver are obviously first home and retirement,” he says.
“The complexities around trying to go, 'okay, I want to do my first home withdrawal.' But if you've got two or three pots of money split across several providers, all of a sudden now the administration of trying to manage that when it comes to that first home deposit, or even providers knowing where the overall assets are sitting, is significantly higher than the current setup.”
Anderson also thinks a view longer than a three-year political term is needed when it comes to KiwiSaver tweaks as well as much more cross-party collaboration to take a “multi-decade lens” on KiwiSaver in general.
“I think that's the missed opportunity and I think it's a broader reflection of how we approach things with our political cycle here,” he says.
“What is the role of KiwiSaver, which is ultimately going to be a $2 trillion pot of capital, going to be in the context of how New Zealand grows and how we fund ourselves over the next 10, 20, 50 years?”
A narrow gauge track
“I think it will mean more complexity – and complexity always costs,” says Simplicity co-founder and managing director Sam Stubbs on the government’s multi provider pitch.
“More choice is always a nice idea. It's just that the devil is in the detail and the detail is actually very complex and quite expensive. No, I'm not in favor of it.”
He says introducing the option to have multiple KiwiSaver accounts would create issues around the consolidation of those accounts and how members would be able to track their funds information in one place if their funds were across multiple providers.
“There's a whole lot of issues around timing differences, how the money gets apportioned, how the information gets consolidated. It's way more complex than it initially appears,” he says.
“While Simplicity would probably be a net beneficiary actually – like a lot more people would give a bit of their KiwiSaver to us – I don't actually think that for KiwiSavers it would do anything other than confuse and increase or retain high fees.”
Stubbs also thinks the government should slowly start to increase contributions.
He describes to Interest.co.nz that Australians were “riding a high speed train of prosperity” while New Zealanders were “still on a narrow gauge track” when it came to the difference between the two country's retirement fund contribution rates.
“If they did it by half a percent a year, over six years, over 12 years, that would get us to 9% at least. The Aussies are already at 12, but if [the NZ government] did half a percent a year, at least we'd get some momentum in there.”
Last year’s annual KiwiSaver report for the 12 months to March 31 2023 shows the number of KiwiSaver members was up 2.5% to 3.25 million members.
Total funds under management were up 4.3% to $93.7 billion, while $4.2 billion was withdrawn by members, 11.7% higher than a year earlier.
That withdrawal figure includes “first home purchase deposits, mortgage diversion, end payment date, significant financial hardship, serious illness, life-shortening congenital conditions, death, permanent emigration or transfers to Australian schemes, and amounts required to be paid under other enactments” according to the Financial Markets Authority.
The Reserve Bank says $105 billion KiwiSaver funds were under management as of September 2023.
12 Comments
The Govt should also allow self managed Kiwisaver accounts, like Australia does. Then we'd see some real competition and adjustment of fees from the industry.
There are 610,287 self managed funds in Aussie, so that would equate to 122,057 people in NZ who would be capable of managing their own money. Currently the inability to do so is simply a licence for fund managers to price gouge on fees.
1. https://www.sharesies.nz/learn/whats-a-self-select-kiwisaver-scheme (They set some basic but sensible rules though.)
2. re ... "Then we'd see some real competition and adjustment of fees from the industry."
Dream on. The level of competition from self managed funds is trivial. "A lice on a gnat, on blow-fly, on a blue whale" is how a fund manager friend describes the size Australian's self-managed fund total once the few big ones that are in fact professionally managed are stripped out.
3. re ... "There are 610,287 self managed funds in Aussie". lol. Have you checked how many actually beat fund managers?
4. If you want to beat indexed funds. It can be done. Remember Telecom? Remember when it's share price was in a long term downwards price spiral that went on for years? Well, it was part of every indexed fund that used the NZSE 40. Drop that one share from your 40 and pick any other that didn't quite make the 40 and you'd have beaten the indexed fund return for many years. (I semi-automated this process for an overseas fund manager many years ago.)
Re 4, in hindsight this is easy but at the time how do you know its in a downward spiral, or about to bottom out.
https://www.canstar.com.au/investor-hub/managed-vs-indexed-funds/
The report notes that The S&P/ASX 200 gained 27.8% in the 1-year period ending June 30, 2021, while Australian Equity General funds recorded higher returns of 29.2% and 30.1% on equal- and asset-weighted bases, respectively. During this period, 55.7% of funds in this category outperformed the benchmark. However, over the 5 and 10-year time-frames, 75.7% and 80.8% of funds failed to beat the benchmark, respectively.
If in the long run index funds generally outperform managed funds do you really think you can do better?
In countries where fund splitting is allowed, there has been no benefit to the public. (And in some instances the public are actually much worse off!) Why? Mainly because the public simply doesn't have the skills or time to do it. Those that do have the skills and time - and do it better than professional fund managers - an exceptionally small group - don't do funds. They run their own "funds". (Please note: when I refer to professional fund managers I am referring to the individuals and not the "brand" they work for.)
Why do you have a very large KiwiSaver? Nothing requires you to have all your savings in that form. If you're worried about the managerial risk of keeping a large sum with a single provider, it would make more sense to put into KiwiSaver only as much as you need to get the Government's annual contribution and save the rest elsewhere, or elsewheres, perhaps even somewhere where you can get your hands on it more quickly and easily if you want.
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