The hobby-horse KiwiSaver bill of soon-to-be acting Prime Minister, Winston Peters, garnered nominal majority support among the 23 recently-published submissions on the proposed legislation.
Most of the 13 submissions backing the KiwiFund bill – which aims to establish a discussion group to mull over the creation of a government-run and guaranteed KiwiSaver scheme – were simply one-liners of support offered by individuals.
However, a handful of those 13 submissions apparently in favour also went off-piste with suggestions to widen the ambit of the Kiwi Fund legislation.
For example, Whakatane-based investment adviser, Brent Sheather, notes: “… the reality of the market place is that introducing a low cost government KiwiSaver fund in isolation will achieve very little because bank advisors and independent financial advisors who receive commission from KiwiSaver will never ever recommend their clients shift to the new government fund…
“What needs to be done to maximize the utility of this Bill to KiwiSavers is to introduce a fee cap and perhaps make the government fund a default provider for all new KiwiSavers.”
Likewise, the Responsible Investment Association of Australasia (RIAA) took the opportunity in its submission to argue: “… that the terms of reference of the working group should consider existing use of leading practice responsible investment Certification programs to guide activity in NZ.”
Both the National Council of Women of NZ and the Council of Trade Unions also backed the Kiwi Fund legislation.
Unsurprisingly, a trio of banks (ANZ, ASB and Westpac) along with two industry bodies – the NZ Banking Association (NZBA) and the Financial Services Council (FSC) – opposed the Kiwi Fund bill on multiple grounds. Mercer and the Boutique Advisers Association (an alliance of five advisory firms headed by the Hastings-based Stewart Group) also filed arguments against the legislation.
The case for the negative includes:
- the potential for a government-guaranteed KiwiSaver scheme to land NZ taxpayers with a sizable contingent liability;
- a possible hollowing-out of existing schemes as members debunk to a government-guaranteed option;
- sub-optimal asset allocation if the proposal for KiwiFund to invest preferentially in NZ assets is accepted;
- the difficulty of imposing a one-size-fits-all requirement to invest in ‘socially and ethically responsible ways’; and,
- competing and potentially confusing mandate of the working group, which would be tasked with investigating complaints against current providers as well as designing a Kiwi Fund structure.
Banks and other lobbyists also suggest the proposed five-member KiwiFund working group should include at least one investment expert in addition to specialists in ‘banking, savings and retirement issues’ as called for in the draft legislation.
Despite opposing the legislation, the bank submissions generally supported a review of the KiwiSaver regime to focus on issues such as member ‘apathy’, financial literacy, fees and the default fund setting.
The ASB submission, for instance, says: “We believe that the interests of default members would be better addressed by changing the risk profile of the default fund from conservative to a life stage model, (one with a higher exposure to growth assets early on, then reducing over time) rather than by setting up KiwiFund.”
All submitting banks also argue that KiwiSaver fees are low by global standards and have fallen over time due to government pressure, the launch of low-cost options and the impact of scale benefits.
However, ANZ – the country’s largest KiwiSaver provider with about a quarter of the market – says in its submission: “Fees [in total] will increase over time and whilst economies of scale will allow some savings to be passed to member this does not necessarily translate to fee reductions across all fee components, as not all are elastic.
“For example, AustralianSuper (Australia’s largest MySuper fund) has over AU$103 billion in FUM9 and, despite its considerable scale, charges an annual administration fee of $78 and investment fees of 75 basis points.”
If passed, the legislation would establish a working group to consider how to design KiwiFund based on principles including:
- a lower and transparent fee structure;
- a government owned and operated KiwiSaver scheme;
- a requirement that profits stay in New Zealand;
- preferential treatment given to New Zealand based investments;
- a requirement that funds are invested in socially and ethically responsible ways; and
- the new provider be supported by a government guarantee.
The KiwiFund bill – touted as a 2017 election promise by NZ First leader, Winston Peters – was drawn out of the member’s bill ballot last December.
NZ First MP, Fletcher Tabuteau, is now steering the KiwiFund legislation through Parliament. The Economic Development, Science and Innovation Committee is due to report back on the KiwiFund proposals by August 21 this year.