The recently-updated NZ managed fund and KiwiSaver disclosure rules remain woefully inadequate and need a member-centric makeover, according to a refurbished report published last week by retirement policy provocateurs, Michael Chamberlain and Michael Littlewood.
Chamberlain said the wide-ranging 119-page paper was about 90 per cent identical to the duo’s 2017 effort ‘The Missing 2016 Review – building trust for life beyond work’ that was similarly aimed at prompting debate around the Retirement Commissioner’s (RC) triennial review (coming up again soon).
He said since the 2017 report the government had introduced new disclosure rules for managed funds and KiwiSaver schemes that “haven’t worked” in improving the awareness or decision-making quality of investors.
“The new PDS [product disclosure statement] system is not a lot better than the old prospectus regime,” Chamberlain said. “It might be shorter but people still don’t read them.”
PDS disclosure uses overly-prescriptive language while allowing many pertinent investment product risks to slip through the maximum 6,000 wordcount, the RC critique says.
The report highlights the problem by way of two KiwiSaver scheme PDS’ – from Simplicity and SuperLife (the latter previously co-owned by Chamberlain).
For example, the report says the Simplicity PDS doesn’t point out that investors can only invest into one of the three underlying risk-weighted funds at a time. As investors’ needs change – such as nearing retirement – that would see them take large, potentially risky, jumps in asset allocation, Chamberlain said.
“While we think that this is a design flaw in the Simplicity KiwiSaver Scheme, what is more important is that potential investors are not told about it in the PDS,” the paper says.
Likewise, the SuperLife PDS fails to explain that investors can either reinvest bond and share income back into bonds and shares, or direct those earnings to a NZ cash fund.
“There is provision on the application form but no explanation and only if you have not chosen one of the standard options,” the report says.
Fund supervisors (formerly known as trustees) should pick up such PDS discrepancies, the study says, but they “generally have not yet worked out what an investor’s interests look like and what is important to an investor”.
Chamberlain said the new fee disclosure requirements – including dollar amount reporting on KiwiSaver annual member statements – have also had little impact on investor behaviour.
The report further says the imminent change requiring KiwiSaver providers to disclose projected retirement income figures is doomed to fail.
“It will simply give them four more numbers to be confused about (projected balance, both at retirement and in today’s money; projected income, both at the point of retirement and in today’s money),” the paper says.
The updated version also revisits some of the 2017 report concerns in light of the Sir Michael Cullen Tax Working Group (TWG) proposals on fund and KiwiSaver settings.
Among the TWG recommendations still in play include the proposal to introduce tax incentives for lower-income KiwiSaver members.
“The TWG sees no “case to radically reform the taxation for retirement savings” but then inconsistently suggested the potential addition of significant subsidies for KiwiSaver that would overturn the way just KiwiSaver savings are treated,” the Chamberlain et al report says.
Overall, the paper says the government should apply a consistent tax regime to all fund structures rather than the current hodge-podge of rules covering portfolio investment entities (PIEs), foreign-domiciled vehicles, the fair dividend rate (FDR) regime, and so on.
Elsewhere the report relitigates old Chamberlain-Littlewood themes including: abolishing the NZ Superannuation Fund; removing all tax and employer incentives, and withdrawal constraints, in KiwiSaver; and, sourcing more robust data across a wide range of areas (housing, income, investments etc) to better-inform ‘evidence-based’ policy-making in NZ.
The government should soon appoint a new Retirement Commissioner role after incumbent, Diane Maxwell, ended her reign in June.
Neither Chamberlain nor Littlewood, however, are contenders.