Incumbent default KiwiSaver providers are closely-divided on the appropriate investment settings for the auto-enrolled but, on balance, lean to the balanced fund approach, just-released submissions reveal.
Of the eight default providers that have published submissions on the KiwiSaver review proposals, four – ASB, Fisher Funds, Kiwi Wealth and Westpac – favour the balanced fund option to replace the current conservative investment asset allocation for default funds.
AMP, BNZ and Mercer, however, suggest default members would benefit more from a lifecycle fund approach that adjusts asset allocation in accordance with age.
ANZ, which owns about a quarter of the KiwiSaver market, could swing either way, its default discussion document says, while the remaining default provider, Booster, is absent from the Ministry of Business, Innovation and Employment (MBIE) list of published submissions.
MBIE tabled a change to the conservative asset allocation in August among a range of proposals under the seven-yearly statutory review of the KiwiSaver default fund rules.
The August MBIE paper asked for comment on whether a balanced, growth or lifecycle approach would be the preferred replacement to the existing conservative investment restraints for default funds.
All the default provider submissions agreed the current ‘parking space’ conservative asset allocation model should change with the sides roughly arranged according to whether they offered a lifecycle option or not – with the exception of Fisher Funds.
Fisher, which does offer a lifecycle KiwiSaver choice, says in its submission that a “balanced fund is most likely to be the least wrong” choice for default scheme members.
MBIE’s other proposals, however, failed to garner much support from the eight default providers that were all dubious about imposing hardline responsible investment rules and mandating an exposure to NZ capital markets and start-ups.
And not surprisingly, all eight providers raised alarm about the prospect of a forced migration of members to other schemes either to spread the load equally across an increased number of defaults or to reallocate those from existing schemes that may miss out on government approval following the review.
For example, in its submission, the for-sale AMP says: “We note that the transfer of members between providers without consent would probably erode trust in KiwiSaver and promote the view that the government has control of members’ individual KiwiSaver accounts.
Nonetheless, the AMP submission says that members should be transferred if providers fail to achieve “the quality and fee requirements… as we support”.
“We note that, provided these requirements are reasonable, we would not anticipate existing providers losing their default status unless they choose not to bid,” AMP says.
Most default providers suggest the current default fee models are working relatively well with perhaps some tweaking, such as capping the annual fixed member charge, possible.
Again, by way of example, AMP argues that default fees should not be set so low that all providers are forced to adopt passive investment styles.
“Low cost passive providers should not be considered a fair benchmark for the default market as a whole,” the AMP submission says.
According to AMP, a wholesale shift to index investing would limit the ability for default funds to allocate more to local and alternative assets while also introducing potential tax inefficiencies if schemes use offshore-based passive vehicles.
“AMP’s analysis indicates [using a NZ-domiciled portfolio investment entity fund] adds about 30bps to the returns of the global equity component of our fund [compared to Australian unit trust versions],” the submission says.
MBIE is expected to release its final set of KiwiSaver default proposals before the end of the year.
Commerce Minister Kris Faafoi said previously that the default KiwiSaver provider spots would be out to tender by the second quarter of next year with all appointees to start, or renew, operations on July 1, 2021.
To date, MBIE has lodged 51 formal submissions, mostly from industry players, and 230 plus ‘short form’ replies via its website.