The government could enforce bulk transfers of default KiwiSaver scheme members under proposals tabled last week.
According to the Ministry of Business, Innovation and Employment (MOBIE) default KiwiSaver discussion paper, the government could radically reshuffle auto-allocated members following a formal review slated for next year.
The MOBIE paper says the statutory seven-year KiwiSaver review could see the number of default providers shrink from the current nine, stay the same, or even grow.
If the number of default providers change, the government has laid out three options to reallocate members, including a shake-up of the entire system.
“All existing default members could be pooled together and reallocated amongst the appointed default providers,” MOBIE says. “An alternative would be to transfer members from providers with more members to providers with fewer members such that all appointed providers have a similar number of members.”
Under a second option, only members of incumbent schemes that lose default status would be transferred to other providers. Or those schemes stripped of credentials could keep existing default members (while informing them of the change).
“A key dependency for the merits of these options is the number of providers that are appointed,” the MOBIE paper says.
AMP has the highest number of default members (112,620) as a result of its 2012 merger with Axa, equating to 22 per cent of the default population, followed by:
- ASB – 90,456
- Mercer – 81,861
- ANZ – 72,443
- Fisher Funds – 68,508
- Westpac – 22,492
- Kiwi Wealth – 22,295
- BNZ – 22,172
- Booster – 18,308
While the transfer proposals are among the most challenging to incumbent providers, the MOBIE paper also suggests the government favours a change to the current conservative default investment settings.
“A reasonable amount of time has passed since KiwiSaver began. We now have more information to suggest that a change to the investment mandate of default funds may be justified in the circumstances,” the paper says.
“This would imply a move away from a ‘parking space’ purpose and towards a purpose that focusses more on asset maximisation – which would be in line with the objective of the review.”
Default investment allocation could shift to balanced fund, ‘life cycle’ or simply increasing growth settings in the current conservative targets, MOBIE says.
The review also promises to squeeze more fee reductions out of KiwiSaver default schemes, which dropped significantly following the previous 2012 process.
“While we accept that fees are only one component of a value-for-money services, we want to see reductions in fees for default funds as a result of this review and subsequent procurement process,” the paper says. “Default providers get a steady stream of new customers and reputational benefits as a result of being a default provider. Given these benefits, the government expects that providers will offer more competitive fees in order to enhance outcomes for members.”
Among the options, the government could set minimum fees, remove fixed dollar ‘administration’ fees or introduce a multi-layered tendering process.
Providers might be required to “submit their proposals (excluding fees) in one envelope, and their fee proposals in another envelope”, MOBIE says.
The review also covers provider responsible investment policies and potentially directing a portion of default money to NZ start-up companies.
In a statement, Sharon Corbett, MOBIE manager financial markets, said: “We want to know whether there’s a role for KiwiSaver providers to help grow the economy by developing New Zealand’s capital markets. We also want to know whether people believe default providers should be required to invest ethically – or be more transparent about where they’re investing.”
Submissions close on September 18 with the formal default review expected to conclude later next year. The current default agreements expire in 2021.