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'Game-changing' KiwiSaver rule changes to see default KiwiSaver funds switched from conservative to balanced, and default providers banned from investing in fossil fuel production

'Game-changing' KiwiSaver rule changes to see default KiwiSaver funds switched from conservative to balanced, and default providers banned from investing in fossil fuel production
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KiwiSaver providers will soon be required to put default members’ funds in balanced, rather than conservative investment funds.

They’ll also be banned from investing default members’ money in fossil fuel "production" and illegal weapons. Investment in companies that only sell, but don't produce fossil fuels like petrol, will still be allowed.

The rule change will be made in July 2021, when the seven-year long contracts the government has with nine default fund providers expire.

Better bang for more investors’ bucks

The change to balanced funds means people who don’t actively choose to invest in another fund when they’re enrolled in KiwiSaver, will be signed up to a slightly higher risk, higher return fund than is currently the case.

Finance Minister Grant Robertson believed this would see people get more bang for their buck.

Most default KiwiSaver members are younger, so have time to recoup potentially greater losses suffered from being in a balanced rather than conservative fund.

Only 8% of the nearly 400,000 KiwiSaver members who were in default funds (without this being an active choice) as at March 2019, were over the age of 60.

So, the portion of members with shorter investment horizons, who arguably should be in conservative funds, is fairly small.

Conservative funds are best suited to investors who would like to access their money in two to six years’ time, as growth assets like shares and commercial property only make up 10% to 35% of these funds.

Balanced funds are recommended for investors with five to 12-year horizons, as they’re 35% to 63% comprised of growth assets.

‘Moving away from fossil fuels doesn’t have to mean lower returns’

Commerce and Consumer Affairs Minister Kris Faafoi said banning default providers from investing in fossil fuel production supported a transition to a lower carbon economy.

“It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions," he said.

“In 2017, the $47 billion NZ Superannuation Fund adopted a climate change investment strategy that resulted in it removing more than $3 billion worth of stocks that exceed thresholds for either emissions intensity or fossil fuel reserves, without negatively affecting performance.

“So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”

Green Party co-leader, James Shaw, claimed the ban as a "win" for his party. 

Asked how the change would affect providers' abilities to invest in index-tracking funds that track markets that include fossil fuel companies, a spokesperson for Faafoi's office said more detail on the threshold and definition of the exclusion was yet to come. 

Research by charity, Mindful Money, found $1.6 billion of all KiwiSaver funds (worth about $60 billion) are invested in companies that are engaged in fossil fuel production. 

As at March 2019, default members’ investments were worth $9 billion.

Altogether there are about 690,000 KiwiSaver members in default funds - 290,000 of whom have actively chosen to be there.

The Ministry of Business Innovation and Employment will start a procurement process to (re)appoint default providers later this year.

It will consider providers' fees and their commitments to educating and engaging their customers. 

The current default providers are AMP, ANZ, ASB, BNZ, BT Funds (Westpac), Fisher Funds, Booster, Kiwi Wealth (KiwiBank) and Mercer.

Postive feedback on shift to balanced funds 

BNZ’s general manager of wealth, Peter Forster, coined the shift to balanced funds a “game-changer” that will see people’s money work harder for them from day one.

“This is especially true for younger people. Most new default members are younger as they are entering the workforce for the first time, and a balanced fund will likely deliver them higher returns over KiwiSaver’s long timeframes,” he said.

Summer Investment Committee chair and authorised financial adviser, Martin Hawes, made a similar point.

He also preferred making a balanced fund the default, as opposed to taking “life stages” approach (which has been floated in the past), whereby KiwiSaver members would be automatically enrolled in funds with different risk profiles based on their age. Hawes believed this approach was too blunt.  

Simplicity’s head of communications and education, Amanda Morrall, made the same point around most default members being young enough to benefit from being in a balanced fund.

In fact, KiwiSaver members, whose employers have chosen Simplicity as their “preferred provider”, are put in balanced funds if they don’t choose another fund.

Details required on fossil fuel ban

Forster said he looked forward to seeing detail around how the requirements would work and wanted to work with the Government “to help make sure their goals are implemented in the best way”.

“BNZ has a responsive and flexible approach to responsible investing, constantly evaluating what our customers expect from us in balancing good returns and socially responsible investing."

Asked whether he thought the Government’s approach was too heavy-handed, Hawes said no - not for default funds, which are expected to be more regulated.

He believed imposing such rules on other KiwiSaver funds would be problematic, as investors have varying views on what’s “ethical”.

Morrall was supportive of the rule change, noting that Simplicity doesn’t invest in “fossil fuel extraction”.

The Commission for Financial Capability also backed the changes.

Retirement Commissioner Jane Wrightson said a survey of 2000 New Zealanders, undertaken for the Commission’s three-yearly retirement income policies review, showed 41% of KiwiSaver members wanted fossil fuels excluded from their funds.  

However, there were only 10,361 KiwiSaver members invested in funds specifically deemed “socially responsible” by the Financial Markets Authority, as at March 2019.

National opposed to "nanny state" fossil fuel ban

National's finance spokesperson Paul Goldsmith said: “It shouldn’t be up to Jacinda Ardern to tell Kiwis they can’t invest in a product they use legally every day.

“Is Ardern also going to ban New Zealanders from investing in products which contain sugar, or fast food, alcohol and dairy? 

“With this government it wouldn’t surprise me if while they ban investing in these things, they make investing in marijuana compulsory."  

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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77 Comments

If there is anything left to invest.

Chinese Corona virus is having a devastating effect on equities... and not on houses

Hi Houseworks
Impact on share markets can be immediate - phone calls to brokers, share indexes change immediately, so impact known immediately (that day).
Impact on house sales somewhat delayed - market the property three or four weeks, data comes out month later so impact not known for a couple of months.

Not that I think that property will be necessary either hit or unaffected as there are a lot of variables. The first is to really determine the extent and impact and other factors of the virus at play. However, two factors that could put upward pressure are possible (most likely) action of BBNZ on OCRs for wider economic stability, possibly significant increase in immigration (fewer departing kiwis, more returning Kiwis and foreign sanctuary seeks). However, the virus issue is still currently an emerging and at this stage is still a little uncertain as to its extent and economic impacts.

However impact of mooted KiwiSaver change with a shift to balance funds is possibly a little worrying. Couple of things
- as balanced funds are more heavily weighted to NZ shares such a move may create an issue; I recently read an article recently (on this site?) as to how the NZ share market is relatively small and can only absorb so much funding, and
- shift away from cash heavy conservative funds along with decreasing term deposits could create funding pressures on banks.

It's true that New Zealands sharemarket is rather small given the size of the population however, for tax and legislative reasons, other asset classes tend to attract better returns.

My view is that index linked investing tends to over-value the companies listed on those indexes but it's not a huge issue yet because only a small proportion of funds are passively managed. It will also mean a lax overview of corporate governance unfortunately.

Balanced funds are being hammered hard right now. So maybe by the time that this change comes in, the reset will have fully occurred and all the (one eyed) rhetoric about this being a better investment than conservative may actually end up being true.

17
up

So index funds and ETFs will also be excluded from default funds then, since all the major world indexes contain energy companies. Which forces these funds to be active managers, which over time (and not just 2 years as per the article example!) results in higher fees and lower returns. This Labour/Greens Govt should stop meddling in things they dont understand.

Socialism for the rich, serfdom for the rest of us?
Currently, the Fed is paying 1.60% on US bank reserves held on it's balance sheet.

Took me 5 seconds to google this: https://www.ishares.com/us/products/239738/ishares-global-clean-energy-etf and this: https://www.reuters.com/article/us-blackrock-etf-junkbonds/new-high-yiel...

Maybe you should stop commenting on things you don't understand.

Not true at all. Kiwisaver funds are big enough that the various larger fund managers will create funds that are the same as their other passive funds but without the companies that are not permitted.. like the Vanguard International Shares Select Exclusions Index Fund - NZD Hedged that was created for Simplicity I believe. Still a passive fund, just no fossil fuels, weapons or tobacco etc.

Good anti-leftie rant, but factually inaccurate: 2/10.

Global sovereign 10 year bond yields, including our own at 1.063%, are forecasting anything but risk associated growth opportunities.

The problem is that if interest rates are low because growth is also low, then no valuation premium is “justified” at all. Link

'Game-changing' KiwiSaver rule changes to see default KiwiSaver funds switched from conservative to balanced, and default providers banned from investing in fossil fuel production

What's the prognosis for those of us with gas fired utilities such as heating and cooking - are they for the chop as well? - in so much as no retailer will be permitted to sell or service such appliances.

Mindless virtual signaling from a do nothing government.

They've done nothing whatsoever to decarbonise the real economy, their approach seems to be implementing the odd sideshow decree to shift the problem onto someone else. A transport policy copied straight from the Nats playbook, and they can't even accelerate our transition to electric vehicles.

That's because of their "minders", the do nothing NZ First's Winston Peters and company.

11
up

This is why I'm philosophically opposed to a compulsory Kiwisaver. Lock everyone in then all of a sudden government is forcing private investment decisions.

Many fund managers adopt this stupid policy anyway, including one I use, fine, that's individual choice to use that fund or not (the one I use is a good fixed income fund manager). But government must not be in the business of determining investment decisions like this. Ever.

Burn Kiwisaver to the ground.

11
up

From Twitter this morning:

'Vicky Xiuzhong Xu
The Chinese government has transferred more than 80,000 Uyghurs from Xinjiang to factories across China that supply companies including @Nike, @Apple, @Dell and @Volkswagen. In total we name more than 80 well-known global brands with Uyghur labor in their supply chains.'

Okay, government has already entered into the private investment decisions of individuals, so I expect to also see an edict from on high banning all Kiwisaver investment in Apple, Dell, Nike, Volkswagen and the other 80 companies mentioned here. To be consistent after all, but then where do we stop this further intrusion of big government into our lives?

Self righteous ardern will have a new platform to stand on and wave her finger. Give her an inch ... and she takes a mile

Except this is only the default funds, switch funds into whatever fund you want to be in, and they are free to invest in hookers and booze if they want.

Edit: and KS is not compulsory..

12
up

Not the point at all.

Government should not be involved on any level here.

Never excuse big government. Do everything you can to stop bigger and bigger government intruding in our lives.

Nah, thats just your BS libertarian crap. You can shove that somewhere uncomfortable.

And that comment is exactly why the power and size of government has to be kept small: because I'm sure you'd have government force that opinion somewhere uncomfortable if you could. Pure evil.

Lol. Go bush, live free without the obligations or the benefits of civilised society.

Pity. I'd not realised there were trolls on Interest.

Anyway, fallacy of the common good: http://lifebehindtheirondrape.blogspot.com/2014/07/the-fallacy-of-common...

And what the Western free state was supposed to be: http://lifebehindtheirondrape.blogspot.com/2013/04/the-westminster-princ...

See my post two previously.

Once you've entered KS, and I see financial planners publicly advocating parents put their children in, then it is compulsory.

Mark, you are currently compulsorily paying for the superannuations of current retirees and compulsorily paying into the NZ Super fund. And lunatics like Pragmatist want to means-test superannuation so that we’ll get nothing out despite this. Compulsory KiwiSaver is the lesser of these evils in my view.

What, you still haven't convinced your parents they are stealing from you and to give you all "your" superannuation tax back?.. surprise surprise..

As it currently stands I’ll be getting it back what I put in when I retire, so....

Age 70 or 67 if lucky

Yes, sadly the chances are that it’ll be means-tested by that point. So, even when I do reach the new (higher) retirement age, the fact that I paid for the retirement of others all my working life as well as paying into the NZ Super Fund will be ignored and I’ll get nothing.

Incredibly the pension used to be paid at age 60. Any political leader that proposes to up the age to 67, it could hurt his/her election chances. If Australia increases to 67 aussies could potentially retire here at 65 and get the pension, so the eligibility age will increase eventually. For the record the age level will probably be increased by the time I get there. And based on means testing I definitely wont get it. Those who make the effort to earn their own income and not be a burden do not get any credit for it sadly

Philosopically it is repugnant to have government involved in investment decisions of individuals. Re my second post above, no one, including Pragmatist, has answered to now be consistent, government should be banning KS funds from Apple, Nike et al.

Because there is no difference between that and banning fossil fuel shares.

Yes, I agree.

Investing in profit oriented companies and ethics are mutually exclusive. You can never have both at the same time. I have no idea why pharma companies, information technology firms and share service platforms etc can ever be included in an ethical investment portfolio. When you think about it how can a power company who produces electricity from hydro from a dam can be considered ethical when it can so severely impact wildlife. Or solar farms that can kill birds etc.

Dangerous precedent. Would be very concerning if this becomes a slippery slope of government meddling. After all, a huge proportion of KiwiSaver investment is hard earned private money.

There is offshore evidence in respect of government meddling.: Abuse of the Social Security Trust Fund Began in the 1980s

All default fund investments should be fee free.

you mean you want them subsidised by someone else? Because somebody has to manage them, and that means somebody needs to get paid.

Because that will force the providers to contact the KS owners and get the funds allocated properly as per the wishes of the owners. It will force them to act, instead of being given a prize on a platter.

In another sense, the funds management industry, especially the default Banks, itself has been subsidised since introduction of KS by being given such huge funds to manage and derive income from. A big part of the annual profit of $4/5 billions the banks are making.

Okay, yep, that makes sense, no fees until the KS customer has actively chosen a fund.

The banks in particular would just send letters to their customers and inform them that they're going to move them from a default fund to fund X in 90 days of they don't hear back from them.

The fee free stipulation till the individual customers decide the allocation should incentivise the banks not to do such silly stuff. And wide publicity about this from the Government should compel KS holders to wake up and do something. It is all a question of educating the customers.

Does anyone the detail to this, who originated this regulation, the background papers, the modelling & cost benefit analysis, and who signed off on the change.

There is probably some big costs to this as they have changed the portfolios to more risk. Sounds like they found some big economic costs, so to keep expected returns they have amped up the risk.

It looks strange because investment in Tobacco and drink is still A ok. Strange and spiteful as if one really wanted change, become a greater shareholder and drive corporate policy, no body listens to an angry non shareholder of anything.

There has got to something that would please the PM and pull her office out of the current funk, they look rattled by the virus. Going off at SoMo and now the nz herald is just not cool.

P.S. a lot of folk in the Naki would like their exploration jobs & business back.

Was not aware anyone in Naki had lost there jobs?

Yep, that's the magical thinking of our activist government. Unbalanced, unbalanced background & awareness. The bit they don't tell you, because it's their blind spot.
Planning & prep gone already.

Because the ban wasn't on current exploration permits.

Not directly. But it is having an impact. A lot of work not being rolled over, a lot of people leaving and not being replaced, a few projects being scaled down.

Walk around the CBD and lease signs are the main feature of shop windows.

Corona virus:
Name, shame, and jail ( in solitary confinement, of course) the other passengers on the Emirates flight who don't respond to the call to contact the authorities. They've been identified and contacted by NZ health authorities but haven't responded. If they're immigrants kick them out of the country for good, whether NZ citizens or not. About time we stood up to these immigrants who think NZ is a 'soft touch' (rightly so, unfortunately) and they can get away with what they like.

https://www.stuff.co.nz/national/health/119921968/coronavirus-prime-mini...

By the way, I'm with Trump, I would ban all incoming passengers from Iran.

Can anyone share any insights on what will happen with the current funds sitting in conservative default funds?

If these are transitioned to balanced funds over a short, or even medium timeframe, this is a lot of money moving into the stock market and out of other classes, creating likely distortion.

Any insights/thoughts? :)

I would imagine that it would only apply to new members joining kiwisaver. Once you are in a fund you are there till you decide to move, (or if the fund collpases)

Nobody knows

From Faafoi's office: "Every seven years, the Government reviews the settings for default providers ahead of appointing a new selection of default providers through a competitive tender process. The new settings will apply to the default funds that are in place from mid-2021. The procurement process to appoint the new default KiwiSaver providers commences later this year."

Thanks Jenee,

Sounds like probably 20% of 400,000 peoples kiwisavers going to change class in the next 15 months!

Hope I'm wrong, tell me if think I am :)

Looooong overdue on both announcements. National really deserve a boot up the rear for the way KS has been allowed to stagnate during their tenure. Pruning the annual contribution was a ridiculous act, almost as ridiculous as steven joyce loaning his old mates taxpayer funds to renew their broadcasting licenses...thats nanny state right there...actually its corruption....

Oh for goodness sake , just as the Stock Markets are showing signs of a major correction ( or worse ) the idea of moving Kiwisaver funds from low risk to high risk is mooted

Where's the sens in that ?

Actually it's not going to happen till next year, and it's from low risk to moderate risk. Also the fund managers are still in charge of where they invest the money so can take the financial situation into account.

And here we go again. UNBELIEVABLE !!

https://a.msn.com/r/2/BB10zb9O?m=en-nz&referrerID=InAppShare

By the way our journalists seem incapable of exhaustively digging into a story; the so-called 'mysterious' spread of Coronavirus to Italy just didn't just arrive there out of thin air. Italy is renowned as a global hub for drug running and sex trafficking. Apparently, from what I've read, the sex trafficking involves females sourced from Eastern Europe and East Asia, and, once in Italy, they are whisked off to remote villages to avoid suspicion from the authorities, and are from there distributed to their final destinations in the likes of Germany and the UK.

Weaponisation of disease perhaps?

All women use sex as a weapon, its just now some of them are even more deadly and come with the Coronavirus !

Stop using sex as a weapon!

@Carlos67 Vile comment. I have reported to the moderators. Always have respected and enjoyed your postings, but that is too low. And no, I am not a snowflake, I'm a hard as Gen Xer.

It's his held belief and not directed at any person.

It is surprising, where are the questions about.

Emotion responses from GPs, getting them protective kit.
Testing how many test kits we have. And where they are (what the test is).
No observed Community testing.
Contact tracing.
Asymptomatic transfer of the virus.

This morning tv, the interviewer grilled GR over, wait for it .
... Grant do you think China will be upset with us...

Current affairs, more the comedy channel!.

Supplementary question, why doesn't NZ do what Singapore is doing, copy those guys.
Or has our PM & PM dept had an arguement with Lee Hsien Loong too?

Here is part of the playbook to copy/follow.

https://www.pmo.gov.sg/Newsroom/PM-Lee-Hsien-Loong-on-the-Novel-Coronavi...

And

https://www.moh.gov.sg/covid-19

Just today morning cancelled my planned trip to Italy.

Give the significant possibility of a down turn at the moment, it seems an odd time to push people into less conservative funds. Are they trying to prop up the equities market with our savings?

Why would anyone put their retirement money into an investment they do not even know what it supporting, it makes no sense whatsoever. A proper public distributive retirement fund is required unless we prefer gambling with the country's future.

public distributive retirement fund 

That sounds like govt controlled and run. If so that's a big NO from me. Piggy Muldoon ripped off the last piggybank fund of public money and that's exactly what will happen with KS if the politicians have anything to do with it. Look at this overbearing govt making changes to our KS investments without so much as an advance notice or recommendation. The cretins.

Does the press realise that its orientation week for most of our tertiary institutions? If I was in the media I'd be reporting on the far more aggressive and rampant outbreaks that will be occurring on campuses all over the country!

And in Sunday evening news..

https://i.stuff.co.nz/national/health/119921968/coronavirus-prime-minist...

Health officials have contacted 18 passengers seated near a person infected with coronavirus, but not all have responded.

Prime Minister Jacinda Ardern told media on Sunday health officials would be knocking on doors to find the final people seated near the infected passenger.
....
Many of the 18 people were
in Auckland,
however some were
in Nelson,
and at least one was
in Christchurch,
Bloomfield said. Not all 18 were New Zealanders. The ministry had asked those 18 people to enter supervised self-isolation for 14 days.

And

Healthline was contacting all others on board the flight as a courtesy.

https://www.health.govt.nz/news-media/news-items/covid-19-novel-coronavi...
- not quite water tight alignment.

Chucking a nice juicy bone to the banks. Higher fees in general on the balanced funds.

A bit more risk, but hey it's not the govt's/banks money so hey who cares.

That is why all default investments in KS should be fee free, till the individual customers decide their selection of funds.

Someone at Infratil must hold some sway to get that petrol retailer concession...

Infratil sold off their stake in Z energy a few years ago and no longer have petrol company investments. Looking at Z's and Infratil's share prices since then, looks like a good decision.

if you were an active fund manager would you be a seller tomorrow morning,just in case it is a black monday?

Why not create a new category for default investments and invest those funds only in Bank term deposits and given them tax exemption, so the funds of these customers will grow somewhat ?

There is a price for everything and by banning fossil-fuel related investments, they are cutting out investment opportunities which may well be attractive, at the right price. Give investors the choice to invest ethically if they wish to (there are plenty of options), and not ram it down people's throats (which is effectively the case with default funds because the default fund is there for the disinterested/uneducated investor).

Nonsense. At some point, you have to acknowledge that this is a finite world, that we are anthropologically-forcing, and that 'investing' is a parasitic activity anyway.

So it needs rules - for the likes of people making comments like that.

But the unasked question is whether BAU financial churn can be had ex fossil-energy (ex low-entropy or high EROEI energy, ion other words)?

And the answer is no. This is the problem not just for Shaw, nor for lightweight comment-makers from the oppo-benches, but for everyone.

. It's not as simple as building more cheap accommodation to fill the void. Yes! happy wheels full game.

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Days to the General Election: 35
See Party Policies here. Party Lists here.