A briefing to the new Minister of Commerce and Consumer Affairs which was released to the public this month, shows KiwiSaver will be a key focus in the year ahead.
But some KiwiSaver providers are skeptical that the potential changes to the frameworks of the New Zealand saving scheme will actually benefit KiwiSaver members and their funds.
The briefing from the Ministry of Business, Innovation & Employment (MBIE) says it understood that the new Minister Andrew Bayly wanted to give KiwiSaver members “the flexibility to invest with more than one provider, to bring about improved choice and competition.”
“We will provide you with advice on options to achieve this shortly.”
At his first address to the financial services sector hosted by the Financial Services Council (FSC) last week, Bayly told attendees that KiwiSaver was something he wanted to give more attention to later this year.
He says he’s interested in changing KiwiSaver to help New Zealanders save more for their retirement.
“The KiwiSaver debate, obviously, is about Kiwis not saving enough for retirement. I think it's the biggest issue of our society but the financial risk for New Zealand is actually around savings and retirement – and we need to be quite courageous about what we're going to do about that,” he says.
“KiwiSaver plays an important part of it.”
The Minister of Commerce and Consumer Affairs is jointly responsible with the Minister of Finance for the appointment of default KiwiSaver providers and the Minister of Revenue is responsible for administration of KiwiSaver.
Last year, Bayly said that the National Party would provide “more freedom and choice” for Kiwisavers to invest in as well as trim the “financial red tape” for borrowers and lenders that the Party said wasn’t “fit for purpose.”
What value?
Kernel Wealth Chief Executive Dean Anderson says he struggles to see what value would be created via multi-provider access, plus how it would deliver better outcomes for customers.
“One of the benefits of the structure that New Zealand has with the centralized IRD processing is the efficiency. And if we think about the size of our market here, having your KiwiSaver split across multiple providers, the two big use cases in New Zealand for KiwiSaver are obviously first home and retirement,” he says.
“The complexities around trying to go, 'okay, I want to do my first home withdrawal.' But if you've got two or three pots of money split across several providers, all of a sudden now the administration of trying to manage that when it comes to that first home deposit, or even providers knowing where the overall assets are sitting, is significantly higher than the current setup.”
Anderson also thinks a view longer than a three-year political term is needed when it comes to KiwiSaver tweaks as well as much more cross-party collaboration to take a “multi-decade lens” on KiwiSaver in general.
“I think that's the missed opportunity and I think it's a broader reflection of how we approach things with our political cycle here,” he says.
“What is the role of KiwiSaver, which is ultimately going to be a $2 trillion pot of capital, going to be in the context of how New Zealand grows and how we fund ourselves over the next 10, 20, 50 years?”
A narrow gauge track
“I think it will mean more complexity – and complexity always costs,” says Simplicity co-founder and managing director Sam Stubbs on the government’s multi provider pitch.
“More choice is always a nice idea. It's just that the devil is in the detail and the detail is actually very complex and quite expensive. No, I'm not in favor of it.”
He says introducing the option to have multiple KiwiSaver accounts would create issues around the consolidation of those accounts and how members would be able to track their funds information in one place if their funds were across multiple providers.
“There's a whole lot of issues around timing differences, how the money gets apportioned, how the information gets consolidated. It's way more complex than it initially appears,” he says.
“While Simplicity would probably be a net beneficiary actually – like a lot more people would give a bit of their KiwiSaver to us – I don't actually think that for KiwiSavers it would do anything other than confuse and increase or retain high fees.”
Stubbs also thinks the government should slowly start to increase contributions.
He describes to Interest.co.nz that Australians were “riding a high speed train of prosperity” while New Zealanders were “still on a narrow gauge track” when it came to the difference between the two country's retirement fund contribution rates.
“If they did it by half a percent a year, over six years, over 12 years, that would get us to 9% at least. The Aussies are already at 12, but if [the NZ government] did half a percent a year, at least we'd get some momentum in there.”
Last year’s annual KiwiSaver report for the 12 months to March 31 2023 shows the number of KiwiSaver members was up 2.5% to 3.25 million members.
Total funds under management were up 4.3% to $93.7 billion, while $4.2 billion was withdrawn by members, 11.7% higher than a year earlier.
That withdrawal figure includes “first home purchase deposits, mortgage diversion, end payment date, significant financial hardship, serious illness, life-shortening congenital conditions, death, permanent emigration or transfers to Australian schemes, and amounts required to be paid under other enactments” according to the Financial Markets Authority.
The Reserve Bank says $105 billion KiwiSaver funds were under management as of September 2023.
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