Government has shrugged off financial concerns raised by PwC about one of the six KiwiSaver default providers appointed this May.
As reported last week, official Ministry of Business, Innovation and Employment (MBIE) documents found PwC “did not identify any material concerns” for five of the six providers following a post-appointment financial due diligence investigation – implying it found potential problems in one scheme.
However, MBIE declined to reveal the nature of the financial issue raised by PwC, why it approved the anonymous provider regardless and whether the appointment was subject to the firm meeting any conditions.
“… MBIE engaged PwC to conduct financial due diligence on the recommended, top-six ranked providers,” a MBIE spokesperson said.
“Due to commercial confidentiality, MBIE cannot go into details regarding the financial position of any one particular default provider. MBIE is satisfied that all six appointed new default providers were suitable for appointment.”
In addition to four incumbent providers – BNZ, Booster, Kiwi Wealth and Westpac – MBIE recommended two new firms, SuperLife and Simplicity, as incoming default providers in a transition due to begin at the end of November.
While MBIE advises government on suitable default providers (see below), the final appointment decision remains the responsibility of ministers – in this case Finance Minister Grant Robertson and Commerce Minister David Clark.
“MBIE is confident that the appointment process was robust and followed best practice. This appointment has been made by Ministers,” the MBIE spokesperson said.
“To inform this decision-making process, MBIE ran a competitive tender process and considered advice from the Financial Markets Authority, as required under the KiwiSaver Act.
“A commercial barrister [Peter Castle of Clifton Chambers] served as an independent probity advisor for the project, and was engaged throughout the procurement process.”
As of December 1, five incumbent providers – AMP, ANZ, ASB, Fisher Funds and Mercer – will lose default status, requiring the transfer of their ‘non-activated’ default members to newly appointed schemes.
In advice to government, MBIE says the transfer involved several risks, including:
- non-reappointed providers may not react well, resulting in some negative commentary;
- there may be some member confusion caused by the transfer of members and the low levels of engagement and financial capability of default KiwiSaver members;
- some recommended providers are relatively new and small, which may raise concerns about their ability to provide the default service;
- legal risk, particularly given several of the non-reappointed default providers are large financial institutions who may be willing to pursue judicial review; and,
- operational risks arising from the significant transfer of members from non-reappointed providers, and the potential impact this may have on financial markets.
“These risks are mitigated by the strong, robust and transparent procurement process, significant planning of a communications strategy, financial due diligence on all recommended providers, and the creation of regulations to allow for the transfer of members,” the MBIE advice says.