Q) Is it likely for KiwiSaver to be adjusted in the future to allow for KiwiSavers to have their funds spread across multiple managers ("open architecture") rather than having their entire KiwiSaver fund parked in a single fund?
A) Thank you for raising this issue. It's an interesting one.
At present, KiwiSaver members are married to one provider so there is no scope for an "open architecture" system where they would be able to split their retirement saving funds among various providers as is the case with the U.K., America and Australia.
The argument in favour of open architecture is that it spreads risk and allows for greater diversification. When the alternative is having all your eggs in one basket with one provider, it seems not unreasonable. It stands to reason that using multiple managers lowers the risk of one of them losing the plot and/or all your money.
That said, there are several KiwiSaver providers who invest through multi-managers so one might argue there is already a form of open architecture in place under KiwiSaver if you are deliberate about who you choose and what fund. Most providers also offer members the option of splitting their KiwiSaver savings among different types of funds on offer each with unique asset allocation and varying levels of risk.
Also, it's not like you can't get a divorce in KiwiSaver. If you're truly unhappy with your current provider, you can change and the process is relatively easy. I've switched myself so can testify to that.
And finally, Section 53 of the KiwiSaver Act (2006) allows for members to have a KiwiSaver scheme running concurrently with another super scheme.
All those options may not offer the same flexibility of a true open architecture system but it is better than nothing I suppose. And yet as KiwiSaver funds grow over time, members should be afforded the luxury of choosing more than one provider to manage their money.
Here's a few links on open architecture you may find interesting.
http://retirementincomejournal.com/issue/april-13-2011/article/riia-get…
http://www.scotsman.com/business/personal-finance/open_architecture_you…
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2 Comments
It's not exactly the same, but in Australia the government seem to be working toward consolidation rather than diversification.
http://www.smh.com.au/money/super-and-funds/shape-up-for-changes-to-lif…
You can only have your KiwiSaver savings with one provider, and there is a reason for that - to reduce the administrative complexity for IRD and hence the cost of administering the scheme, which is a cost on taxpayers.
But that's not to say you can only have your savings with one provider. If you want to invest with more than one provider, you can open up separate accounts with other, non-KiwiSaver funds and pay into them as well as, or instead of, making contributions to KiwiSaver.
If you don't want to reduce your KiwiSaver contributions because you can't afford to save any more than the minimum required to get the Government contributions, then you probably shouldn't be thinking in terms of multiple accounts anyway.
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